Building strong and simple: the first step Speech given by Victoria Saporta, Executive Director of Prudential Policy Bank of England Virtual Webinar 29 April 2021  I would like to thank Austen Saunders and James Thatcher for helping me write this speech and David Bailey, Sarah Breeden and Sam Woods for helpful comments. 1  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  Last year, I set out my views on the ideal framework of post-Brexit prudential regulation in the UK. I outlined the key features that this prudential framework should exhibit. That it should be legitimate and democratically accountable, that it should have time-consistency embedded within it, and that it should adapt to changing circumstances whilst upholding prudential standards.1 I concluded that the framework which best embodies these features is one where policy is made by an independent regulatory body, with a clear mandate, and robust accountability mechanisms, in particular to Parliament. I am therefore pleased that this was the model consulted on in HMT’s Regulatory Framework Review last October. Of course the legislative process still needs to be completed. But we at the PRA must prepare in anticipation of the enhanced role we are set to play in this post-Brexit world. I would like to use this speech to sketch a vision for our updated approach to policymaking, before devoting the majority of my time to giving detail on a key upcoming policy initiative – the so-called ‘Strong and Simple’ framework for small banks and building societies.
Research, including the PRA’s own analysis of survey responses from UK firms, suggests that the fixed costs of implementing new requirements can be proportionally higher for small firms than for large ones when measured as a fraction of a firm’s assets.7 What this tells us is that there are economies of scale when it comes to compliance costs and that some costs fall relatively heavier on small firms than on large firms. At the same time, separate research by Bank staff shows that prudential requirements that are well-matched with the risks that cause large banks to fail are not so well-matched with those that cause small banks to fail.8 Putting this evidence together, we can ask whether there are requirements which are relatively more costly for small firms to implement but which deliver fewer benefits than when they are applied to large firms. And that is what we do in this Discussion Paper. Having identified requirements which do not make a material  6  Amadxarif et al.