Andrew Bailey: Challenges of prudential regulation Speech by Mr Andrew Bailey, Deputy Governor of Prudential Regulation and Chief Executive Officer of the Prudential Regulation Authority at the Bank of England, at the Society of Business Economists Annual Dinner, London, 3 June 2013. *  *  *  Thank you for inviting me this evening – it is a great pleasure to have this opportunity and particularly at a time when we are embarking on major reforms to policymaking in the area of financial regulation. The financial crisis has provided hard lessons on what happens when the stability of the financial system is found wanting. It has reminded us how much we depend upon the supply of critical services from banks, insurers, investment firms, asset managers and other parts of the financial sector. If you take the banks as Exhibit One, there is good reason to curse them, but at the same time recent experiences have only served to emphasise how much we depend upon them, like it or not. The new legislation on financial regulation in the UK emphasises the importance of the continuity of supply of critical financial services. This is a permanent public policy objective, and rightly so. I use the term “permanent” deliberately to distinguish this objective from the support provided by Too Big / Important to Fail, which should not be permanent.
The evidence in credit creation is so far mixed, which is not in my view a mark of the failure of policy since this operates with a lag. But it does indicate that all of us should go on looking for changes that will help. The distribution and information issues around SME lending identified by Kate and her colleagues are one such area, and in my view more focus needs to be put on the consequences of debt overhangs linked to commercial property in those parts of the market where there are problems. Thank you  4  BIS central bankers’ speeches