What I have started to describe is the first objective that the new legislation gives to the PRA, namely the safety and soundness of the firms we will supervise. But there is another important leg to the definition of the objective, namely that the underlying objective of our pursuit of safety and soundness is the stability of the financial system. For banks, this had led us to emphasise that we will be a proportionate supervisor, putting more emphasis on the large firms that have more scope to damage the stability of the system. We think we can do this for banks because the depositor is protected by the deposit insurance arrangements on the first £ of deposits provided by the FSCS for all banks except branches from other EU countries (where the insurance comes from the home country), and because as a consequence of the crisis the resolution regime is now set down in statute, though we clearly have work to do to make the larger banks resolvable using those resolution powers, supplemented we expect by future EU legislation. For insurers, the legislation gives the PRA a second objective, namely the protection of policyholders. We do not have a comparable objective for depositors. Policyholder protection means in effect that our approach of proportionality in supervision cannot be the same for insurers. Why? This is a good question because the FSCS is set up to cover insurance.
Let me turn to the third and final issue, namely how do we think about the issue of systemic risk, and systemically important status, for insurers? This is obviously topical in the context of the IAIS proposed policy measures for globally systemically important insurers. First of all, in my view the case for systemic importance for insurers has to be proved. It does not follow that because major banks are systemically important, the same must be true for insurers. And, second, if a case can be made, it does not automatically determine what the response should be; in other words, it does not follow that the same capital treatment of systemic firms and/or a statutory resolution regime are needed as for banks. The calibration of these responses will have to be proven, and the response will need to be consistent with mitigating the cause of the systemic risk. So, let’s put banks to one side, but only after making one important point, that whereas systemic risk in banking is dangerous in good part because that it is in the nature of banking that the confidence issue combined with a very high level of  BIS central bankers’ speeches  5  inter-connectivity of risk within the system creates systemic risk, this is not true to the same extent in insurance.