14 The evidence for this is discussed in more detail in Section 2 of the Discussion Paper. 13  6  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  6  Chart 6: Shadow carbon price in scenarios shown in Chart 2  Source: IIASA [NGFS Climate Scenarios Database, using marker models]  The question is not whether the shadow carbon price has to rise – the question is when. To the extent that markets are assuming an unrealistically low or distant pickup – and it seems increasingly clear that they are – financial assets today may be mispriced. An ‘adjusted market neutrality’ principle that took this mispricing into account could suggest a very different asset allocation in investment portfolios, including the CBPS. Until recently, the Bank of England lacked the mandate to make such adjustments. In March, however, the Chancellor updated the MPC’s ‘remit letter’ to confirm that the economic strategy of the Government – which the MPC is required to support as a ‘secondary objective’ – includes supporting the transition to a net zero emissions economy.15  Portfolio decarbonisation is not enough: look forward, work together to drive change  Now comes the tricky bit: translating these conceptual insights into practice. At first sight it might seem the answer is simple: just sell all our high-emission bonds, and use the proceeds to buy low-emission ones. The carbon footprint of the CBPS would fall sharply.
Andrew Bailey: Meeting the challenges of a changing world – the view from the Prudential Regulation Authority Speech by Mr Andrew Bailey, Deputy Governor of Prudential Regulation and Chief Executive Officer of the Prudential Regulation Authority at the Bank of England, at the Association of British Insurers Biennial Conference, London, 9 July 2013. *  *  *  Thank you for inviting me to speak today. It is just over three months since the new system of financial regulation in the UK came into being. There are over 700 insurers in this country now subject to prudential supervision by the PRA and conduct supervision by the FCA (in addition, insurance brokers are entirely supervised by the FCA). Today, I want to talk about how the PRA is going about the prudential supervision of insurers. There are good reasons to argue that the insurance industry has been relatively little affected by the financial crisis in terms of instability in the industry, but of course that does not extend to arguing that the industry is unaffected by the consequences of the financial crisis, that could never be the case. So, there are very real challenges for insurers. Why do we single out banks and insurers for prudential supervision by the PRA?