I’ll then outline some of the changes that are already under way, before finally asking what more needs to be done and outlining some of the questions our Review will be asking. Why Fixed Income, Currency and Commodity markets matter I want to start on a personal note. I was born in Egypt but left at a very young age when my family lost everything as a result of nationalisations under the Nasser government. It was a time when many well-intentioned people thought that the state could do a better job of allocating resources and managing economic activity than the market. That view was proven wrong. Perhaps as a result of that experience, I have spent large parts of my professional life thinking about the relationship between the state and the market. The perspective I have  BIS central bankers’ speeches  1  reached is that well-functioning markets are the key to prosperity, but that they must operate in ways that are fair and effective to sustain public support and confidence. By “fair and effective” I mean markets should allow their ultimate end users to invest, fund themselves, and transfer risk in a resilient and predictable way, on the basis of competitive prices. They should offer appropriately open access and transparency. And they should operate according to clear standards of market practice and integrity. Why should you care about Fixed Income, Currency and Commodity (or FICC) markets? Firstly they are huge.
5  Transfers in the main sterling payment systems are settled gross in real time across the Bank’s balance sheet. For members of the real-time system, no credit exposures amongst them arise. Transfers between smaller banks are settled across the balance sheets of big commercial banks. The banking sector would probably be more resilient if all banks joined the RTGS system. 2  BIS Review 67/2009  commercial banking system. Up to a point, the same goes for the abundant liquidity in asset markets that preceded the crisis. Of course, persistently strong demand for financial assets – crudely, rising prices – created liquidity. But, beyond that, the willingness and terms on which “market-makers” and traders underpinned liquidity depended on generous access to credit for financing inventory and positions. And the ultimate private sector providers of such credit are always the commercial banks. 6 So commercial banks are special. They are special because their deposit liabilities are money. But they are also inherently fragile. First, as monetary institutions, the liquidity insurance they provide, via demand deposits and committed on-demand lines of credit, entails large mismatches between the maturities of their liabilities and assets (actual and contingent). The accompanying conversion of liquid savings into illiquid loans to households and firms benefits society. But it also exposes the banks to big liquidity risks. Given a first come-first served system of redemption for retail and wholesale deposits, that creates the risk of runs.