2  BIS central bankers’ speeches  When leaning against the wind of the credit cycle, macro-prudential authorities do, like their monetary policy colleagues, still need to find the optimal path. To use the words of the UK Chancellor, their objective is not to ensure “the stability of the graveyard”. How they balance cost and risk, where they set the trade-offs, will depend in large part on how confident they are about the underlying resilience of the system – in other words how well they have done on the first impulse. International governance The second big change I want, therefore, to highlight is the development since the crisis of much stronger international governance. This stems from the creation, at the April 2009 G20 London summit, of the Financial Stability Board (FSB). And, equally important, from the decision at the Summit that the FSB should report directly to the G20 Leaders and Finance Ministers to give it the necessary “clout”. Working with the standard setting organisations like the Basel Committee, the FSB has provided the drive and coordination to reform and develop global standards for bank capital, liquidity, and resolution. If one remembers the best part of a decade that it took to develop and reach agreement on the Basel 2 capital standard, the progress made and international agreement reached over the past 5 years has been extraordinary.
It is a hard truth, but I fear a truth nonetheless, that it will be some time yet before trust between banking and society is established. That societal anger has motivated much of the reform effort that has been the story of the past 5 years. The message to politicians, policy makers, regulators and supervisors has been loud and clear: a repeat of the events of the crisis and recession will not be tolerated. Against that background, I want to look at the key new approaches that define the new landscape from the regulatory perspective. I do not want to list in detail the reforms that have been implemented and that are in prospect. It is an impressive list, especially when one looks at the amount of international agreement that has been reached on new international standards. •  Globally there is already more than $ loss absorbing equity capital in the system and,  •  for the first time, an international standard for the liquidity banks should hold. •  UK banks have £ more capital than before the crisis and their holdings of liquid assets have trebled. •  International standards are in prospect on leverage and on the amount of debt banks must hold that can be “bailed in” if a bank fails. Rather, I want to look at three fundamental changes in approach that have driven and will continue to drive these reforms. – macro-prudential policy, international governance and intensive supervision.