At that point, I look forward to hearing and learning from you in what I hope will be a rich discussion session. Purpose of regulatory capital First, let’s look back for a moment to understand the path we’ve taken. The Basel Committee has long sought ways to ensure that banks hold sufficient capital relative to the risks they face. Capital, of course, helps individual banks to weather unexpected losses. On a macro scale, requiring all banks to maintain adequate levels of capital helps to safeguard the stability of the financial system. When a financial system is more stable, banks are better able to provide businesses and consumers with funding and credit through good times and bad, which promotes the long-term growth of the economy. The risks involved in lending and borrowing have long been recognized, “For [a] loan oft loses both itself and friend,” warned Shakespeare some centuries ago. For their part, banks – like all companies  BIS Review 27/2002  1  – seek a healthy balance between risk and opportunity. Because banks serve as key intermediaries of credit within the economy, poor credit decisions harm not just banks, but borrowers as well. Overly restrictive terms for credit make loans less accessible to all businesses, impeding their ability – and that of the economy – to grow. If the terms for credit are too lax, loans may be extended in volumes that borrowers ultimately may be unable to repay in full.

This diversification is bringing about an “unbundling” of financial activity – that is to say, breaking the financial services activity and value chain into its component pieces. The shift towards digital payments can enable competition and ultimately benefit consumers, and the Bank, given its role at the heart of the financial system, is in a unique position to support that. As the Governor said yesterday, this includes updating our own hard and soft infrastructure to provide a platform for private innovation to serve the digital economy. I’ll give three examples of what this means in practice. First, the Bank is renewing its Real Time Gross Settlement service (RTGS), the UK’s core payments infrastructure – Victoria Cleland, our Executive Director for Banking, Payments and Innovation, spoke about this at a roundtable discussion here yesterday. Our goal is to deliver a materially stronger, more resilient, flexible and innovative sterling settlement system, with the ability to support a diverse range of payment technologies such as those built on distributed ledger technology. 9  6  This project, led by Huw van Steenis, is looking at how financial services might evolve over the next decade, and what this means for individuals, businesses and financial service providers. For more information see the project webpage at https://www.bankofengland.co.uk/research/future-finance. 7 For more detail on the work of the Fintech Hub, see the article “Embracing the promise of fintech” in the Bank’s Q1 Quarterly Bulletin, available at https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2019/embracing-the-promise-of-fintech. 8 See WorldPay’s Global Guide to Alternative Payments, available at http://offers.worldpayglobal.com/rs/worldpay/images/worldpayalternative-payments-2nd-edition-report.pdf. 9 See https://www.bankofengland.co.uk/news/2018/march/rtgs-renewal-proof-of-concept and https://www.bankofengland.co.uk//media/boe/files/payments/a-blueprint-for-a-new-rtgs-service-for-the-uk.