While implementation has progressed smoothly, the PRA will pursue instances of non-compliance which could affect our ability to meet our objectives using the PRA’s existing supervisory and enforcement tools, including those available under the Senior Managers Regime. In cases of severe non-compliance, the legislation empowers the PRA to use a group restructuring tool – known as ‘electrifying’ the ring-fence – which enables the PRA to require a banking group to sell its ring-fenced bank or other parts of its group, subject to Government consent. As Sam Woods, the Bank’s Deputy Governor for Prudential Regulation and CEO of the PRA, said at Mansion House last month, these powers, and our ongoing supervisory activity, will help ensure the ring-fence does it job.8  Conclusions In less than six weeks, ten years on from the financial crisis, one of the largest ever reforms to the structure of the UK banking industry comes into force. While most will notice little difference on day one, ring-fencing the largest UK banks has involved significant changes behind the scenes. This reform will make the provision of core banking services more resilient, and protect taxpayers from further bail outs. These are real benefits but are conditional on the ring-fence being maintained over time, meaning this will be a continuous process for both the PRA and the banks. 7  Prudential Regulation Authority (2018), The PRA’s approach to banking supervision, (October), Chapter 5. Woods, S., (2018), ‘Good cop / bad cop’, speech available at https://www.bankofengland.co.uk/speech/2018/sam-woods-mansionhouse-city-banquet.

In an open economy, such policy may be ineffective in controlling asset price growth and may even worsen the prospects for financial stability. I will tackle this further in my coming discussion of capital flows. The same criticism applies to the use of regulation to achieve macro stability. It could be possible to use bank capital requirements to control inflation through the supply of credit and real activity, but it would raise the cost of capital and would hit especially hard bankdependent firms and consumers while other borrowers would turn to other sources of financing. Furthermore, the relatively high-frequency changes that managing macro  2  BIS central bankers’ speeches  conditions may require may create unnecessary policy-driven volatility in financial markets. All this indicates that it is more appropriate to tackle each goal with its own type of tool. The separation of the instruments does not necessarily mean that the achievement of the goals can be separated operationally. Because of the dual causality of price and financial stability, monetary and financial policies should be explicitly coordinated. How this coordination is achieved varies across countries. At the very least, instances to monitor global risks to financial stability should exist. Central Banks should be involved in these monitoring instances (or should centralize the monitoring and supervision functions) because of their relative advantages in providing a macro view of the economy and their market contacts, due to the implementation of monetary operations. In addition regulation that could have systemic implications should be discussed in these instances.