This is an important issue, and one that matters if we are to have growing challenger banks. We want to put such a regime into effect, and thus demonstrate that at the PRA we are very serious about our competition objective. I hope the European authorities will likewise pursue this important change. We will also be arguing in Basel and in the EU to narrow the gap between standardised and internally modelled capital requirements for prime mortgages including by having more risk sensitivity in the standardised approach. And, we have also tightened the standard for models. I also want to be clear that we welcome internal model applications by smaller banks and we will do what we can to help them meet the required prudential standards, which are largely set out in the EU legislation. Lord Mayor, a year in your office is never dull, and likewise our world is certainly full of interest. I have ranged quite widely this evening to give a report on a number of our key areas of activity. There are however some very important core principles at the heart of our work, getting the incentives right for firms and individuals, and establishing the importance of personal  BIS central bankers’ speeches  5  responsibility within an appropriate setting. I have been blunt on one or two points and this may provoke debate.
The PRA has authorised ten banks in the last two years, and currently we have a substantial pipeline of interested parties. We are thinking about competition in our domestic work, but also about how we approach international policy issues. For instance, this week our response to the European Commission’s consultation on the impact of the new capital regime has been published. It is quite often said that aspects of the capital regime discriminate against smaller banks and building societies that use the so-called standardised capital approach versus larger banks that use their own models. The consequence of this is that smaller banks and building societies cannot compete effectively in lower risk asset markets such as prime mortgages because the capital requirements are too far apart and in favour of large banks. This forces them into riskier assets and undermines their position. This is an area where the leverage ratio acts to counterbalance the difference, a point that is not well enough understood. But in our response to the European Commission we said that while the financial stability benefits from regulation of large, internationally-active banks mean these firms should meet global standards, a differentiated approach for smaller firms would recognise the high costs and smaller benefits of applying global standards to them, and should enable us to find ways to create a regime which is more simple and which reduces their reporting burden. This would help to foster competition and would be good for the European Single Market.