Andrew Bailey: The state of the building society sector and the Prudential Regulation Authority’s approach to governance 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 Building Societies Association Annual Conference, Harrogate, 21 May 2015. *  *  *  It’s a great pleasure to be at the BSA annual conference again, and in Harrogate again. I note that Harrogate is confirmed as “the happiest place in England!”, so I feel a certain sense of expectation by inviting the prudential regulator to speak at the happiest place. My plan this morning is to cover two areas in my remarks: first, an overview of our impressions of the state of the building societies as a whole; and, second, some comments on the PRA’s approach to the governance of firms, to coincide with the publication today of consultation of our supervisory statement on board responsibilities. So, since we are in the happiest place in England, let me start in what I hope you will regard as an appropriate spirit, namely that even though the environment remains one of continuing low interest rates – and, as I always do at this point, let me stress that I am making no judgement on monetary policy whatsoever – the aggregate net interest margin for the building societies has picked up, arrears rates on loans remain low and net new lending has been strong over the last two years.
We are watching again very carefully, and I can assure you that as prudential regulator we want to see sensible outcomes that balance the objectives of all parties and ensure that we maintain a stable financial system that can support the activity of today’s customers. Nobody wants to see a world where ex-post enforcement weakens the capacity to support economic activity, and that means we must return as soon as possible to a world where the emphasis is on strong risk management, governance and forward-looking supervision. This review of risks covers much of our work programme for the year. Two other points I would note. First, we are reviewing the Sourcebook which since the beginning of April has been called a Supervisory Statement. The Sourcebook was first introduced in 2010 as a response to the crisis. We will consult on changes later this year and have already had two very useful pre-consultation meetings with the BSA and a number of societies. Let me assure you that this review is not the beginning of a major agenda to change how we supervise societies. Rather, a lot has happened since 2010, and we think a stocktake is in order. Second, recovery and resolution is an important focus of activity following the enactment of the EU Directive (the BRRD). Our objective is to ensure that orderly resolution is possible should it be needed, and thus to support our general approach that we are not a regulator that adopts a policy of no failures.