Conversely, the Financial Policy Committee will – and already has – drawn on briefings from the supervisors as well as the Bank’s existing staff. In other words, this is going to be about making connections, pulling together a varied range of inputs. A measure of the Bank’s success when prudential supervision transfers will be how well we knit them together. The Court of the Bank will play an important role in ensuring that the executive of the Bank delivers on this. What all this amounts to is framing microprudential regulation and supervision to deliver macroprudential objectives. Experience around the world demonstrates that it is hard to keep supervisors focused on the stability of the system as a whole. The UK’s Financial Policy Committee is designed to achieve that. By creating a new institution within the Bank of England, the government is ensuring that stability does not fall by the wayside, into the gap between monetary policy at one end of the spectrum and the regulation of firms at the other. As the Governor of the Bank said recently at the Mansion House, an important part of the FPC’s role will be to steer, to orient the work of the microsupervisors in the light of the assessment of short-term and longer-term risks to stability. That was in evidence at the FPC’s very first meeting, a fortnight ago. The Financial Policy Committee’s first decisions The decision and Record of that meeting were published last week.
It has to equip firms with capability to move toward higher  BIS central bankers’ speeches  3  product sophistication and flexibility to cater to changing global consumer demand. It has to nurture innovation, given that meaningful growth spurt tends to come from either new products or new ways of producing and delivering them. The strategic focus is thus to create the right environment and give the right incentive for firms to invest and innovate. Physical infrastructure is where we lack behind and suits to be the starting point. Hightech, capital-intensive industries tend to benefit greatly from knowledge spillovers and concentration of economic activities. Therefore, more specialized hubs and clusters – in the spirit of, for instance, Singapore’s Biopolis and Japan’s Tsukaba Science City – are needed. For industries with lower capital intensity, establishing industrial hubs and zonings of related industries would be beneficial, so that these industries can reap localized benefits such as the availability of specific inputs and better labor market pooling. Supporting these less capital- intensive industries will also serve toward the agenda of inclusive growth, for these industries contribute significantly to employment in rural areas. Last but not least, wellintegrated and cost-efficient logistics systems are called for, in order to ensure connectivity and efficiency of domestic production chains. Along with physical infrastructure upgrading, “soft” infrastructure has to be upgraded. In addition to educational reforms that I talked about earlier, improvements on the legal front are also needed.