One tool available to all central bankers to address such concerns is to raise awareness, so that traders appropriately price risk. And that is why it is only fit and proper for me to finish on a cautionary note: market participants take heed. 4  BIS central bankers’ speeches  Appendix Chart 1 Option-implied volatilities across selected asset classes Pre-crisis: 01 Jan 2003 - 08 Aug 2007 Crisis: 09 Aug 2007 - 31 Dec 2009 Jun 2014 FSR: 26 Jun 2014 11 Mar 2015  USDGBP Gold 1.5 Oil EM FX  Japan long rates  0.0 -1.5 -3.0  Japan short rates US long rates US short rates  JPYUSD USDEUR FTSE 100 S&P 500 Nikkei 225  UK short rates UK long rates  Sources: Bank of England, Barclays Live, Bloomberg and Bank calculations. (a) Number of standard deviations from historical mean of three-month implied volatilities. Historical means calculated over the period since 2003.
Fines for bad behavior drain resources that could be better used to expand access and improve services, but billions of dollars in avoidable penalties are just the start. The time spent handling a legal crisis is time not spent on more productive pursuits. Moreover, I worry that, in the long term, an industry that develops a reputation for dubious ethics will not attract the best talent.3 In contrast, a trustworthy financial services sector will be more productive and better able to support the economy. Reliable financial intermediaries can help increase the flow of credit, promote economic growth and make the financial system more stable. This is why restoring trustworthiness must be the ultimate goal of reforming culture. The industry’s shared norms—its culture—will not change by mere exhortation to the good, whether from me or from the industry’s CEOs. In my experience, people respond far more to incentives and clear accountability than to statements of virtues and values. The latter are worthy and necessary, but remain aspirational or even illusory unless they are tied to real consequences.4 What does it mean for a firm to profess to putting the customer first, if employees are compensated and promoted regardless of what’s good for customers? Or, worse, if they are not held to account for activities that can harm customers? If we focus on nothing else in today’s conference, let’s explore how best to structure incentives and reinforce accountability to align with core purposes and first principles.