Mr. Davies reviews current debates on regulatory structures governing the financial system Speech by the Deputy Governor of the Bank of England, Mr. Howard Davies, held on 22/2/97 at the Federal Reserve Bank of Atlanta’s Financial Markets Conference entitled ‘Market and Regulatory Structures in a Global Environment’. It is conventional, and polite to say, at the beginning of a speech of this kind, that one is thrilled to have been asked to speak on the subject of the structure of financial regulation and that the topic is, of all the many preoccupations of human kind through the centuries, the one which generates the most enthusiasm and excitement in one’s breast. But I cannot bring myself to do it. You may think me ill-brought up to say this if so blame my parents - but I find the question of the structure of regulation to be quite resistible. I know that there are those who like nothing better than to draw new organigrams and to explore the manifold interfaces between regulatory agencies. (There are also people who find self-fulfilment collecting airline sick bags, or watching synchronised swimming. That is a matter for them.) But my lack of enthusiasm for the topic of regulatory structure is, I hope, not an emotional response. It is rationally based on two prior beliefs. First, that the relationship between structure and effectiveness is loose. I know of little evidence that structural reforms are quickly followed by an enhancement of the effectiveness of the activity in which those agencies are engaged.

Each supervisor must therefore take a view about the soundness of the entity in its jurisdiction, even where this hinges on controls located elsewhere. How have regulators responded to these trends? In summary, they have increasingly sought ways of increasing co-operation amongst themselves, including agreeing their respective responsibilities and setting up arrangements for information sharing. In the banking sector, at least, they have also supplemented solo supervision of individual entities with consolidated supervision of groups as a whole. When the Basle Committee on Banking Supervision was established by the central bank governors of the G10 countries at the end of 1974, its initial focus was to define the role and responsibilities of home and host supervisors of internationally active banks. These were set out in the 1975 Concordat which established how supervisory responsibility for banks’ foreign branches and subsidiaries should be shared between host and parent supervisors, and which has been updated on a number of occasions since. Securities supervisors too have a long tradition of international co-operation, including arrangements for information sharing and mutual assistance in enforcement, with IOSCO playing a key role in facilitating such co-operation internationally. There is also a long history of discussion between Basle and IOSCO. Individual supervisors in both the banking and securities industries have chosen to reinforce co-operation arrangements with formal bilateral agreements with their overseas counterparts. Partly as a consequence, there have been an increasing number of informal meetings between line supervisors with operational responsibility for different parts of financial groups.