However, each board collectively should understand the key strengths, limitations, and judgements within their model. Over-reliance on a single measure can be misleading. Therefore, we want non-executives to have the right tools and sufficient knowledge to be able to challenge model outputs, rather than follow them slavishly. Benefits to be gained through the implementation of a harmonised regime I have discussed the increased flexibility to be afforded firms in business and investment decisions and the expectations placed upon insurers in their knowledge and understanding of the risk exposures and their models. But I would also like to consider the benefits to be gained through the implementation of a harmonised regime. The benefits of Solvency II do not come from the improved prudential regime alone. Insurance markets across the EU have been fragmented. The move towards a more cooperative framework will widen existing opportunities and help create new ones. The new framework seeks to introduce a level playing field across the EU, with risk-based capital standards and robust valuation practices that, together with enhanced disclosure rules, encourage the effective exercise of market discipline through the increased provision of information. From a systemic point of view, a more coherent and understandable regime should enhance confidence in the European insurance industry. This is particularly important at a time where weak real growth is leading to low levels of inflation and interest rates. BIS central bankers’ speeches  3  Financial markets have become increasingly interconnected and that trend has only been slowed temporarily by the global financial crisis.
Until 1826, the number of partners in a note-issuing bank in England was limited to six. The six-partner rule for English banks was relaxed in 1826. But it was not until 1858 that English banks were allowed to limit their liability, three years after non-financial institutions. This was recognition that the risks posed by banks were on an altogether greater scale. Even after legislation was passed, the initial response by banks was lukewarm. Their directors fretted about the signal that limited liability sent to depositors. That concern was reinforced when Overend and Gurney failed in 1866; it had adopted limited liability just months before its failure. For the eleven British banks with unlimited liability that failed between 1836 and 1878, every depositor had been paid out in full (Turner (2014)). 6  6  Turner (2014) Table 5.6. BIS central bankers’ speeches  3  Shareholders’ willingness to do so was helped by them vetting share transfers to exclude owners without sufficient funds. Indeed, banks’ shareholders remained liable even after they had sold their shares: in Scotland, former shareholders were liable for debts incurred when they had been a shareholder, while in England and Ireland a shareholder remained liable for three years after they had sold their shares (Button et al (2015)). But critics of unlimited liability for banks were becoming increasingly vocal.