Our second priority is to accept the challenge of the new responsibilities that you, Chancellor, have asked the Bank to take on in respect of micro prudential regulation and macro prudential control of the balance sheets of the financial system as a whole. I welcome those new responsibilities. Monetary stability and financial stability are two sides of the same coin. During the crisis the former was threatened by the failure to secure the latter. The experience of the financial crisis taught us two important lessons. The first is that, whatever its theoretical attractions – and there certainly are some – putting prudential regulation into the same organisation as the oversight of consumer protection and market conduct didn’t work in practice. The two types of regulation require different skills and a different approach. Separating them – the so-called “twin peaks” model of financial regulation – is the right direction of reform. That conclusion is not a reflection on the people who work at FSA. They are an able group and have worked hard to improve prudential regulation over the past three years. I look forward to working with them in the future. Nor does it follow from this first lesson that prudential regulation should necessarily go to the central bank. 2  BIS Review 84/2010  But a second lesson is that when banks hit trouble the central bank needs to be fully involved in resolving those problems.
Mervyn King: Monetary policy developments Speech by Mr Mervyn King, Governor of the Bank of England, at the Lord Mayor’s Banquet for Bankers and Merchants of the City of London, London, 16 June 2010. *  *  *  My Lord Mayor, Mr Chancellor, My Lords, Ladies and Gentlemen, May I join the Lord Mayor in welcoming you, Chancellor, to your first Mansion House Dinner? You have set a rapid pace in your first month in office, not least in your announcements this evening. In previous years I have sometimes set this gathering a quiz question. Tonight I want to reverse the process by providing the answer and asking you for the question. The answer is 23, and later I shall ask you – to what question is 23 the answer? Over the past year, there has been no slackening in the pace of economic and political upheaval. The financial crisis that began in 2007 is not yet over. Much of the recent market volatility reflects concerns about the ability of governments to service their own debt and provide assistance where necessary to weakened banking systems, especially in the euro area. Such risks have the potential to derail recovery and we cannot ignore them. At home we face the challenge of ensuring recovery while rebalancing the economy, reducing the fiscal deficit, and reshaping the structure and regulation of our banking system. In playing its part to meet this challenge, the Bank of England has two priorities.