To bring back the discipline of the market and end reliance on public funds, FSB members agreed standards to ensure that globally systemic banks (G-SIBs) can fail safely in the future.39 These banks have had to make themselves easier to resolve. They must now hold sufficient debt such that, in the event one fails, its successor can be recapitalised to support the continued operation of its most important activities. The powers and tools authorities need to deal with failing banks have been fully implemented in the UK. Our major banks have ring-fenced their domestic activities. They already hold total loss-absorbing resources (or TLAC) of 25% of their risk-weighted assets, well within sight of their 2022 requirement of 28%.40 As a consequence, market discipline is back, with the public subsidy enjoyed by the UK’s largest banks having fallen by 90% (Chart 6). 38  Both as a proportion of the exposures of the 30 banks identified by the FSB as being G-SIBs. FSB Key Attributes of Effective Resolution Regimes for Financial Institutions. Across the G20 as a whole more than 80% of all G-SIBs already hold TLAC which meets the 2019 requirement of 16% and 60% already meet the 2022 requirement of 18% of risk-weighted assets (excluding capital buffers).
That means building institutional frameworks that make it easier to resist as the lies regain their seductive power. If we can, we will build True Finance, an enduring platform for strong, sustainable and balanced growth. Over the past decade, great strides have been made. Let me begin with the global reforms that have addressed the third lie that “markets are moral”. In the cycle of scandal, response, integrity, drift, and new scandal, potential solutions have oscillated between the extremes of Light Touch Regulation and Total Regulation. There are problems with each. By undervaluing the importance of hard and soft infrastructure to the functioning of real markets, light touch regulation led directly to the financial crisis.19  18  The scale of misconduct impaired banks’ ability to function fairly and effectively. Global banks’ misconduct costs have exceeded $ billion, capital that could otherwise have supported around $ trillion of lending to households and businesses. More worrying still, in a system where trust is fundamental, it ought to be of grave concern that only 20% of UK citizens now think that banks are well run, compared to 90% in the 1980s. 19 “Hard infrastructure” refers to the way in which markets are organised. “Soft infrastructure” refers to the standards and norms, including regulation, market standards and codes, by which markets operate. 6  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  6  Market standards were poorly understood, often ignored and always lacked teeth.