This means that there is still a distinct public interest in the activities of institutions that are engaged in banking - as defined - whether as free-standing entities or within a broader group structure. That interest includes a micro-prudential concern to provide some measure at least of protection to public depositors, reflected in the supervision of individual banking institutions and in deposit protection schemes. But it includes also a macro-prudential concern with the stability of the banking system as a whole, because of its peculiar vulnerability to contagious - systemic - disturbance, reflected in central banks’ preparedness to provide liquidity to the system where that is judged to be necessary. Other forms of financial activity also perform distinctive functions, and have distinctive characteristics which make them special in their own different ways. And these special features equally may - and often do - give rise to special public interests. The public interest in these other financial activities may be driven by a social concern to protect consumers (for example the prospective beneficiaries of pension funds or life insurance policy holders, or investors, whether in collective funds or individually, through different kinds of intermediary, in capital markets), which is similar to the social concern relating to depositor protection. And it may extend to other aspects of the particular activity, including aspects of business conduct as well as the financial integrity of the institutions involved.
Illiquid assets continue to be a small proportion of the total, generally of the order of 2%, and the houses mitigate the maturity transformation risk in holding these, and marketable assets of more doubtful liquidity (such as some emerging market instruments), by matching with long-term borrowings. What is certainly true is that the securities houses have expanded their activities enormously - with balance sheets extending to $ billion, which puts them in this respect on a par with large international banks. And, given their focus on trading activity - in money, capital and foreign exchange markets - they are, of course, huge counterparties of the banks, with very large exposures both among themselves and between them and the banks, but with the important distinction that exposures between, or to, securities houses are more typically secured. Size in any event does not in itself mean that the securities houses now have the special, distinguishing, characteristics of banks - any more than the long-term savings institutions or the money funds or indeed large non-financial corporates, which may also have huge balance sheets and which may also have large Treasury operations in-house to manage the funds for own account. Systemic risk So it seems to me that banks are indeed still special insofar as they continue to perform distinctive economic functions and insofar as their liabilities and assets still have distinctive characteristics.