the last international conference the bank sponsored on a financial stability topic, back in september 1998, followed closely on considerable turbulence in global bond markets and in fact managed to coincide with the incipient collapse of ltcm. as we found out shortly afterwards, we were lucky to have any american colleagues at all at that event! rather, i mean that the financial system, and in particular the banking system, is undergoing substantial change, both in its external environment and in the way it manages its risks and is regulated. globalisation, consolidation, conglomeration within and across sectors, technological change : these are not new developments, but they are continuing and intensifying. these developments present new opportunities to banks, as financial markets open up and mature. but they also present challenges. new markets, new customers, new products, new technology : the risks of something going wrong are high if the industry's risk assessment procedures and control mechanisms do not keep pace. the impetus behind all these changes is intensified competition. this is good news for financial efficiency, and given that this is also one of the bank of england's core interests, we welcome it. but there are undoubtedly some implications for financial stability, at least in transition. an increase in competitiveness may for a period increase the financial system's vulnerability to shocks ; academic research suggests that the process of financial liberalisation can increase significantly the probability of a banking crisis. so how do we make this trade - off acceptable, given that we certainly do not want to exchange the overt costs of financial crisis for the hidden costs of financial protectionism? policy response to the changing environment well, a large part of the answer must be to strive for improvements in the financial and regulatory infrastructure – to'risk proof'the system as it were. there are a number of very significant initiatives that are worth mentioning in this context. the proposed new accord from the basel committee is deservedly the focus of a number of the papers to be presented at this conference. a large slice of our time here is also going to be devoted to evidence on the effectiveness of market discipline on banks. market discipline through enhanced disclosure does of course form one of the pillars of the new basel accord but there are also broader international initiatives underway on this front. what i would like to do is spend a little time here discussing how increased public disclosure, and certain other aspects of the new basel accord, could affect financial efficiency and financial stability. is it possible to achieve advances in both? enhanced

##scopic and telescopic. and the gaping hole in the pre - crisis policy architecture – the macro - prudential layer – has now been filled. the institutional architecture for macro - financial policy has also been adapted since the crisis to better enable interactions between these policy layers to be addressed. in the uk, the micro - prudential, macro - prudential and monetary policy arms of policy are now attached to a single body, the bank of england. each arm has a separate policy committee tasked with bis central bankers ’ speeches setting policy. but these policy committees have shared inputs of information and meet jointly to discuss areas of intersecting policy responsibility ( bank of england ( 2014 ) ). taking each of the arms of policy in turn, at the highest level of resolution micro - prudential policy frameworks have been significantly revised in a number of countries since the crisis. often, this has had the aim of refocussing the microscope on the systemic, as well as firmspecific, risks facing banks. for the world ’ s largest banks, significant extra cushions of lossabsorbing capacity are now being required, together with changes to banks ’ organisational structures to make them credibly resolvable. in some countries, including the uk and us, large banks ’ activities are being separated or ring - fenced. these initiatives ought, over time, to lower the degree of complexity and inter - connectivity of these entities, making them less virulent super - spreaders of financial contagion. a second area of progress is stress - testing. a major step forward was taken last year in the concurrent stress - testing of banks across europe. this followed the successful practice first adopted in the us in 2009. concurrent stress - testing of the whole banking sector allows both top - down and bottom - up perspectives to be brought to bear when assessing individual firms ’ risks. this opens up the possibility of taking seriously complex behavioural interactions, both within the financial sector and between it and the wider economy. for example, a capital - deficient firm might withdraw funding and cause wider liquidity pressures for other banks. or a sequence of capital - deficient banks might contract lending in a credit crunch, thereby damaging the wider economy and feeding back negatively to other banks ’ portfolios ( haldane ( 2009 ) ). yet it remains early days in the development of stress - testing technologies. a system of systems perspective could be useful in enabling stress - testing technologies to better capture