1. Thank you, Angela, for that introduction, and for the invitation to speak to you this afternoon - it's a pleasure to be here.
2. Can I just start by saying that you've chosen a great venue for today's Conference here at Gibson Hall.
3. The building was completed in 1865, and from the following year, it was the National Provincial Bank of England's first banking office in London.
4. As many of you will know, after a number of other mergers and acquisitions the National Provincial went on to merge with the Westminster Bank, forming Natwest - and then of course became part of the RBS Group in 2000.
5. So this building is a reminder of the long history of banking here in Britain, and here in London; a history of which we are rightly proud.
Importance of UK banking sector
6. Let me tell you why.
7. Because without banks holding and moving money, through bank accounts and payment systems, our economy simply couldn't function. So the importance of your sector to our economy goes way beyond the 1.1 million people employed in financial services, or the huge 10% of GDP they generate; it is uniquely crucial to the functioning of UK plc as a whole.
8. An important part of this is the role that banks play in the investment chain.
9. They're often the first link in connecting savers and borrowers, and every pound that savers invest helps to create opportunities for others - whether it's a first-time buyer looking to get on the housing ladder, or a business looking to borrow so that it can grow.
10. But banks also have a much wider role in our society.
11. Many of the BBA's members are already working with us to ensure that banking services are available to everyone - especially the most vulnerable in society. And we have to keep working together on that.
12. And I hope that many of the banks you represent will also offer Saving Gateway accounts when they're introduced in 2010 - which will be another important way of bringing people into the financial system.
13. Banks have also been playing a major role in increasing the number of free ATMs, particularly in low-income areas; and we're also working together on our proposals to allow unclaimed assets to be used for the benefit of the wider community.
14. So, for all of these reasons, economic and social, banks have a huge role to play in our economy, and in our society - and we need your sector to flourish.
15. And as financial services make an increasingly important contribution to our economy; as people increasingly rely on electronic payment systems; and as we increasingly focus on the challenge of tackling financial exclusion, your role is only becoming more important.
Disruption to financial markets
16. But of course, at the same time banks have been facing a number of challenges - and I know that this has been a difficult year for many of you.
17. I don't want to spend a great deal of time going over what has happened since last summer - we've all been living through those events.
18. But I will just say that throughout the last nine or ten months, we have worked hard to protect financial stability, and to support the financial services sector - because we know how important it is to our economy, not just here in London but across Britain.
19. And I would like to take this opportunity to talk about how we're responding to the disruption that we're continuing to see in financial markets; and how we intend to work with you to implement some of the lessons that we've collectively learned.
Freeing up credit markets
20. Firstly, we are doing what we can to free up the credit markets - particularly by supporting the Special Liquidity Scheme that the Bank of England introduced in April.
21. That scheme allows banks and building societies to exchange high quality asset-backed securities for Treasury Bills, which they can then use in the market as a source of additional liquidity.
22. It's designed to relieve liquidity worries in the market, at the same time as ensuring that the credit risks remain with the banks and building societies - and it has helped stabilise the financial markets.
23. Alongside that Scheme, we're also taking action to strengthen the mortgage finance markets.
24. In 2006, around a third of mortgages were funded through secondary funding markets. The fact that this avenue has frozen up, with investors unwilling to take on new mortgage backed securities, is a major challenge for lenders.
25. And so we've asked Sir James Crosby to look at what can be done to improve the way that the mortgage finance markets work, and to advise on a range of market-led initiatives that could help to lower long-term mortgage costs, and increase the availability of affordable mortgages.
26. He's now begun work with lenders, investors and the Tripartite Authorities, and he'll be reporting initially this summer.
Banking reform: consultation
27. At the same time as dealing with the ongoing disruption in financial markets though, we also have to think about what improvements we can and should make to the broader supervisory and legal framework for dealing with banks in difficulties, following the events of last summer.
28. We set out some proposals in a consultation document that we published in January - and I want to say how grateful we are for all of the responses that we received from people here in this room, and from the organisations you represent.
29. We know that there are some major issues to consider here, and we know how much importance you place on getting this right.
30. And we agree - the last thing we want to do is to rush into these changes.
31. So we are taking the time to consider the responses that we had to our consultation. And we'll be holding another round of consultation over the summer, including publishing some draft clauses, as we continue to finalise our proposals.
32. I hope that you'll be involved in that further consultation as actively as you have been until now.
Banking reform: objectives
33. There seems little disagreement on the aims and objectives of reform, and I will run through those in a moment.
34. The challenge comes in designing the system that best meets those aims. This is the task of the next few weeks and months.
35. And I am absolutely clear in my own mind that if we work together, with an open mind, we can not only improve our own banking system, but also lead the world in developing an innovative and robust mechanism for resolving in an orderly way the situation when a financial institution gets into difficulties.
36. Let me come on now to our objectives for reform.
37. The first of those is to improve the stability and resilience of the financial system - which includes better risk management by banks; better stress testing; and better management of liquidity.
38. We also need to look at the credit rating agencies - including concerns that have been raised about conflicts of interest, about the information content of ratings, and about investors' over-reliance on them.
39. The second objective is to reduce the likelihood of individual banks facing difficulties. We're looking at strengthening the regulatory framework, and at the way that liquidity assistance is provided and disclosed.
40. Our proposals here don't mean taking responsibility for managing risk away from individual firms, and from the people in charge of them; and I want to be clear that we're not going to create an environment in which no bank can fail.
41. And so given that, our third objective is to reduce the impact if a bank does get into severe difficulty - and to make sure that we can deal with that in a way that minimises the impact on financial stability.
42. Our proposal is to introduce a Special Resolution Regime, which would give the Tripartite Authorities a number of tools to resolve a failing bank in an orderly way: for example an accelerated method of transferring business to a healthy bank; and a way of allowing the Authorities to control all or part of a bank through a 'bridge bank'.
43. There does seem to be recognition in the consultation responses and discussions that we've had that in those rare cases where a bank does get into major difficulties, we do need a regime which the Authorities can initiate to facilitate timely and effective resolution.
44. But we also agree with the views we've heard that it is important to have appropriate safeguards in place, and to consider the powers and tools within the regime carefully - which is of course what we're doing, and what we'll continue to do over the summer.
45. Moving on, our fourth objective is to provide compensation arrangements that are effective, and that give customers confidence.
46. As many of you will know, it is for the FSA to consult on the limits of the Financial Services Compensation Scheme - which they intend to do later this year.
47. But we also need to think about ways in which payments can be made much more quickly to depositors, and about how to ensure customers are aware of the protection that they've got.
48. This is a good example of where we are keen to continue to work with you, because a lot of the challenges of making quick payments are very practical - and the failed bank's infrastructure could play a major part in allowing it to happen successfully.
49. Finally, our fifth objective concerns the need to improve co-ordination between authorities - both here and internationally.
50. We do think that the Tripartite arrangement is right for the UK - but that it needs some changes.
51. So, we're suggesting a statutory basis for the Bank's role in financial stability, and developing the Memorandum of Understanding to learn some of the lessons of the last nine months, and perhaps make some of the responsibilities clearer.
52. And we also need to make sure that co-operation across borders is effective. We want to work closely with our international partners, particularly to introduce an early warning system on global financial risks, and a better system of cross-border crisis management.
53. These are, together, pretty major proposals - and of course we want to get them right. As I've said, we are taking our time to make sure we can do that, and to consult again before we introduce our legislation in the autumn.
Defending the UK's regulation
54. And I hope that you'll agree that we have been careful to avoid any kind of knee-jerk reaction in this area, and to make sure that we don't put London's proportionate, principles-based system financial services regulation at risk - because we know what an advantage it is for the City.
55. Since last summer, there have been calls to be more prescriptive - but we will continue to defend our system, because we believe it is right.
56. So we will resist calls for more prescriptive regulation - and while I'm on the subject of regulation, we will also resist the calls that have been made for direct regulation of executive pay.
57. Of course, remuneration packages should be strongly linked to effective performance, and incentives should be aligned with the long-term interests of the business and of shareholders - and we don't support 'rewards for failure'.
58. And over the last ten years, we have taken steps to improve transparency, and to encourage shareholders to improve accountability.
59. But I'm clear that executive pay is a matter for Boards and shareholders - not for Governments.
Conclusion
60. So, we're resisting calls for new regulation where we don't think it's necessary, or don't think it's appropriate.
61. And on the reforms that we do plan to make to banking regulation, we're taking the time to work as closely with you as possible, to make sure that we get this right.
62. By doing that, I believe that we can ensure the continued strength of both the UK's banking sector; and of the City of London as the world's leading financial centre.
63. At the start, I spoke about the National Provincial Bank of England, and it's decision to set up here at Gibson Hall, moving to London for the first time.
64. That is just one example of the many businesses that have been drawn here over the years, and that London continues to attract - not just from the rest of England, like the National Provincial, but from around the world.
65. London's success brings huge benefits for the whole of the UK; and Britain's banks are at the heart of it - as well as of our economy and our society.
66. We are, as I hope I've made clear, determined to maintain the strength of the sector, and of the wider financial services industry here in London and in the rest of the UK.
67. And I'd like to congratulate the BBA, and you Angela, for the heartfelt and vigorous way you represent your members.
68. This is an essential dialogue for good policy-making, and I'm grateful for the opportunity to work with you, both as we reform banking regulation, and in a whole range of different areas.
69. So, thank you on behalf of the Government for all you're doing - and thank you for listening.
