But I disagree with those who want to go much further, for reasons which are at the heart of what we are doing. First, because to argue for much higher capital on top of what has been done since the crisis is to argue that what is being done on resolution and loss absorbency is of little use. This misses the point that resolution is about being able to stabilise and then where necessary close or restructure failing banks. In other words, resolution is a much more extensive approach, and in my view very necessary. The design of international policy measures to end too big to fail is now largely complete for banks, but substantial work remains to put these into effect in terms of resolution plans. Second, understanding how banks take and manage risk, the controls they have and the quality of risk management, is at the heart of the job of a prudential supervisor. That’s what we do every day, and the standards of this work have been raised extensively since the crisis, which was very necessary. Now, it is possible I suppose to argue that a focus on oversight of risk management should be pursued alongside a sole focus on a non-risk based capital measure like the leverage ratio. But in my view that is a flawed argument because the prevailing capital regime has a strong influence on how firms take and manage risk, in other words it creates the incentives.
And I know that this is how the vast majority of people do behave, because I observe it. The senior managers and certified persons regime is also not purely, or in my view even primarily, a tool of enforcement. Our job is always to apply forward-looking judgement to prevent problems occurring; and the new regime will ensure that the incentives on senior managers in the roles that they perform align with that approach. But, just as Parliament has recognised that it is not the PRA’s role to ensure that no firm fails, likewise we should not expect the Regulators to prevent all failures, or misconduct, by individuals. The PRA’s enforcement powers are a necessary part of its toolkit, and we will use those tools when the circumstances warrant it. But they are not our primary mode of operating. Also, the Government announced last week that – subject to agreement by Parliament – it plans to extend the Senior Managers regime to other firms across the industry. This is a further step in the right direction. There is no doubt that one regime will be better than many. Lastly on the senior managers regime, there is one other very important broad reason for putting it into place. On and off I have been involved in regulation for over twenty five years. During that time a few regimes have come and gone, and there have been debates about selfregulation versus a regime more purely in the hands of public authorities. This debate strikes me as a gross over-simplification.