But neither of these are the right answer which is that 23 years is the age difference between the Chancellor of the Exchequer and the Governor of the Bank of England. In case there is any doubt, George is the younger. This age difference is highly desirable because the appropriate incentives are to allocate the responsibility of determining monetary policy to the older generation, which has a real interest in preserving the value of money, and the responsibility for fiscal policy to the younger generation, on whom falls the burden of excessive debt. If we are tempted to leave a large burden of debt for the next generation to pay back, what better incentive mechanism than to have as Chancellor someone who has a longer life expectancy than any previous Chancellor on record? Given those incentives, Chancellor, I look forward to a harmonious coordination of monetary and fiscal policy. Lord Mayor, as we prepare to toast the Bankers and Merchants of the City of London, all of us here tonight would like to pay tribute to your charitable work since you became Lord Mayor. This year the Lord Mayor’s charity “Pitch Perfect” is focussed on two educational charities in which I have a special personal interest – the educational work of the London Symphony Orchestra and Chance to shine, the campaign to regenerate cricket in state schools which, in five years, has already brought the opportunity to play competitive matches to more than one million children, over 40% of whom are girls.
The Bank of England cannot effectively perform its role as lender of last resort without first-hand knowledge of the health of the banks to which it might provide support. In peacetime, regulation can be conducted outside the central bank. But in a crisis, decisions must be made quickly and decisively and the central bank, working with government which is always responsible for any use of public money, needs to be in charge. That was one of our painful lessons. In approaching our new responsibilities we shall build on the real improvements to its regime of prudential regulation made over the past three years by FSA. But the Bank will bring its own central banking culture. The focus of regulation needs to be on maintaining stability of the banking system as a whole. We shall be looking not just at those aspects of a bank that make it look unsafe in comparison with other institutions, but even more so at whether there are common features that threaten the stability of the system, such as the dangerously high leverage prior to 2007. We shall aim to avoid an overly legalistic culture with its associated compliance-driven style of regulation. That is an important reason for the separation of consumer protection and market conduct from prudential regulation. We will need to exercise discretion when setting capital and liquidity ratios for individual banks. And to do that properly will require changes to the current legislation and rule book. We must reverse the seemingly inexorable trend towards more regulation and more regulators.