We all know that regulation in markets is nothing new and what it requires is a better analysis by firms on the cost of doing business in different markets compared to profitability. For some firms, we see aggressive actions to adjust their geographic footprints to avoid, at least for a time, the impact of the new standards. For other firms, we see productive and realistic discussions about how to address the new standards, including how booking models and other business operations need to change. In addition, we are seeing home country supervisors engaging in discussions with firms, asking important questions about how host country rules and regulations will affect group operations and seeking to understand the knock-on effects of the new rules across the global operations. As firms are adapting both business strategies and operations to meet home country and host country rules and regulations, we are hearing about the challenges that have been identified. However, there is still a lack of specificity around these challenges, including quantifying the impact – on business, strategy, customers and staff; identifying potential near-term mitigants; and developing proposals on potential longer-term solutions that could be the basis of a productive dialogue. Rhetoric is fine, but it’s not enough. We need to understand on a more concrete level how these changes are going to impact the firm, from your clients to your operations, from your business models to your culture.
To achieve this end, we need a much better definition of the public interest, which I believe we now have in the new legislation. The second important point in terms of the meaning of the PRA’s objectives is that it will not be the PRA’s role to ensure that no firm fails. Rather, the PRA will seek to ensure that any firm it regulates that does fail should do so in a way that avoids significant disruption to the supply of critical financial services. Nevertheless, failure is not costless and there is inherent uncertainty about whether a firm can fail without damaging the financial system and the supply of critical services. Consequently, the PRA will expect a given level of resilience to failure from all firms. There is another major public interest in the banking system, namely that by becoming too big to fail, the largest banks have developed an implicit, and in some cases explicit, dependence on public money. This is unwelcome, for the public, and for the banks, the former because of the unwanted cost, and the latter because of the intense scrutiny and oversight of the banks, which must be more intense as long as this state of affairs lasts. Now, I recognise that we have a lot to do still on resolution planning to be comfortable about our objective of avoiding a no failure regime and thus solving the Too Big To Fail problem.