From Construction to Maintenance: Patrolling the ring-fence Speech given by James Proudman, Executive Director, UK Deposit Takers Supervision  Cass Business School, London 26 November 2018  I am grateful to Simon Debbage for preparing these remarks and to Michael Ainley, Sadia Arif, Charlotte Bull, David Eacott, Jeremy Leake, Duncan Mackinnon, Ben Martin, Alex Michie, Simon Morley, Rhys Phillips, Josh Sadler and Philip Sellar for their helpful contributions. 1  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  Introduction It is a great pleasure to be here again at the Cass Business School, and I am very grateful to the Associate Dean for inviting me. In fact, Andrew and I have quite a lot in common. We share a birthday, for a start, and a home county (Hampshire). For a while, we also used to share an office, back in the far off days before the financial crisis, when – as young(ish) economists – we used to debate the relevance of the ‘corporate veil’ for determining macroeconomic outcomes. Nowadays, we don’t discuss the corporate veil so much as the banking ring-fence, and that is the focus of my speech tonight. A decade on from the financial crisis, one of the largest ever reforms to the structure of the UK banking industry is coming into force. By 1 January 2019, the largest UK banking groups must have implemented the ‘ring-fencing’ – or separation – of their UK retail business from their international and investment banking operations.
As usual, this scenario reflects the events that are believed to be the most likely to occur with the information at hand at the Report’s statistical cutoff date. There are risks that, if materialized, will shape a different macroeconomic scenario than the one described here. On this occasion, after thorough evaluation of the alternative scenarios, the Board estimates that the risk balance is downward biased for output, and unbiased for inflation. As I mentioned first, the main risks have to do with the complex global economic situation. It cannot be ruled out that the recent episodes could happen again or intensify, affecting the financial system and confidence of economic agents. The little room for maneuvering of monetary and fiscal policies in the developed world complicates the response to such a scenario. Another part of external risks is associated to developed countries’ growth beyond the projection horizon. The forecast in the baseline scenario is less than market consensus, but an even stronger than foreseen impact cannot be ruled out. Doubts persist about the strength of the recovery of developed economies, and there is still the possibility of these economies’ potential growth having dropped as an aftereffect of the crisis. Such an occurrence could have consequences on the level of interest rates, the speed at which leverage problems will be resolved, and growth in emerging economies. In this scenario, the world economy will grow less than in the past.