Firms Markets are places where end-users and intermediaries meet. Securities regulation affects financial firms – traders and asset managers – as both intermediaries and as users. It is important this gives proper weight to financial stability. Three broad thoughts on that. Regulated banks: provisions and disclosure Everybody in this room and outside knows, or should know, that for much of the past quarter of a century there was a stand off between bank supervisors and securities regulators over provisioning policy. On the one hand, until they gave up in exhaustion, many bank supervisors wanted banks to set aside (general) provisions against losses that were implicit in portfolios but not yet manifest in arrears or other concrete measures of impairment. Today we would call this forward-looking or expected-loss or dynamic provisioning. On the other hand, securities regulators typically opposed this because they feared, no doubt with some reason, that it could be used to smooth profits in a misleading way. There were some famous stand offs. I do not doubt the sincerity of the securities regulators’ concerns. And no-one could ignore the constraints that, as the years passed, were codified into accounting policy. But the stand off across the supervisor/market regulator divide was a problem. Progress is now being made by the IASB and FASB on developing more forward-looking impairment standards.
But while nearly all markets are subject to regulation, relatively little thought has been given over the past decade to how different markets matter to stability and, hence, about the role of the authorities in this area. 1  On that, see the Bank of England/FSA paper released last week on how banking supervision is being reformed in the UK in preparation for the establishment of the new Prudential Regulatory Authority. 2  See Tucker P M W “Macroprudential Policy: Building Financial Stability Institutions”, 2011 for a discussion of macroprudential regimes. 3  Bank of England Annual Report and Accounts 2010 pp 26–27. BIS central bankers’ speeches  1  Markets matter to stability in different ways As a provisional attempt at this, I think it might be helpful to distinguish between three types of market: infrastructural markets, intra-financial-system markets, and end-user markets. The first type is those markets that provide essential, quasi-infrastructural support to banking. The obvious example is the overnight wholesale money markets. They are effectively part of the payments system infrastructure. Banking, which is integral to the provision of all three core financial services, simply could not operate without these markets. They have long been, and will remain, of concern to central banks. I will not return to them today. The second category is intra-financial system markets (a slightly broader concept than inter-dealer markets). These markets determine the interlinkages amongst financial firms.