The importance of international regulatory co-operation is now widely acknowledged and is on the agenda of inter-governmental meetings. At last June’s G7 summit in Lyon, the heads of state called for maximum progress preceding the Denver summit in June 1997 on “enhancing co-operation among the authorities responsible for supervision of internationally active institutions, importantly by clarifying their roles and responsibilities.” Ahead of the Lyon Summit, Basle and IOSCO had announced a joint initiative to strengthen cooperation in this area, referring to the work of the Joint Forum of banking, securities and insurance supervisors, which was set up to promote information exchange on international financial conglomerates, and consider establishing for each a lead regulator. The need for the international regulatory community to address successfully the challenge of supervising multi-functional global financial conglomerates is an issue of particular significance to the UK. This is because of the international nature of the London markets uniquely so amongst the world’s major financial centres. The failure of one or more major overseas firms may cause systemic problems in London where at the end of last year, overseas banks accounted for 57% of the total assets of the UK monetary sector, with US banks contributing 8%. Furthermore, almost three quarters of the 478 banks which take deposits in the BIS Review 21/1997  - 13 -  UK are branches or subsidiaries of overseas financial institutions, including 37 from the US. US firms have, of course, particular importance in certain markets.

BIS Review 21/1997  -7-  HM Treasury  Insurance Supervisor  Insurance Companies  Consolidated Securities and Investments Supervisor(s)  Investment Firms, Markets and Exchanges  Bank of England  Banks  This last is not a trivial point, since the cost and disruption caused by reorganisation would be considerable, and higher in proportion to the degree of change. The process would inevitably generate uncertainty among firms and the public, and make the regulatory system more difficult to manage in the meantime. This argues for building on the present arrangements, if at all possible, rather than beginning again with an entirely new structure that could take years to settle down. Furthermore, what matters to the financial system, and to the public, is that regulators are effective. Effectiveness necessitates good communication, consolidated supervision and close co-operation to maintain protection across the piece. Whether structural change (including bringing functions together under one umbrella) would improve communication and co-operation and so increase effectiveness, is a key question, and the answer is far from clear. We have been making considerable efforts recently to enhance communication between different supervisors in the UK. That has involved, as you would expect, the usual paraphernalia of Memoranda of Understanding. But, in addition, we have sought to achieve cross-membership of some of our most important institutions. For example, Sir Andrew Large, the Chairman of the Securities and Investments Board, has become a member of the Bank of England’s Board of Banking Supervision and, reciprocally, I have joined the SIB.