industry and the banking system. second, it will discourage arbitrage that is based on technical accounting and regulatory factors. instead, convergence will enable the market to focus on arbitrage which reflects the substantive evaluation of risks where real economic value may reside. and third, the added transparency of interfaces between the two industries will enhance confidence in the risk transfer arena. that will help dissipate the sort of unease which i sense around the place at the moment. the data deficiencies we confront today where the actual location of risk is so opaque is to my mind a major challenge. better transparency will surely help to avoid adverse consequences of shocks which are inevitable from time to time. the infrastructure environment has to be robust enough to withstand these shocks. of course there are challenges. for example : in avoiding over - engineering and over - prescription in regulation and accounting standards, and sticking more to a principles - based approach. those principles have got to be based on best practice in the markets on the one hand, and the public policy needs on the other. here, i ’ m including adequate systemic security. my thesis would be that the very effort necessary to define those principles and the necessary engagement between leaders of the industry on the one hand and public authorities on the other will reward us with a system where all parties can operate and contribute with confidence.

, of various credit quality. in my view, this opacity is not conducive to long - term confidence in the strength of the industry. and, it certainly doesn ’ t contribute to overall systemic robustness. so this is the second area where gaining better understanding of the potential vulnerabilities before we face adverse outcomes could be of real value. supervision and regulation obviously, it ’ s pretty easy to make lists of risks and potential vulnerabilities. central bankers are meant to be especially good at it! but i ’ ve already referred to the significant benefits of risk transfer. they include wider distribution of risk, and potentially at lower cost to buyers of protection from those risks. that ’ s got to be of real value. the question is : can these gains be achieved efficiently whilst at the same time mitigating the risks? my suggestion here relates to the environment in which the industries operate : the general infrastructure i talked about earlier. if we want to get the full benefits of risk transfer, but with the vulnerabilities contained at acceptable levels then it ’ s worth reflecting on the value of co - ordinating some major elements of that environment : supervision, regulation and accounting, as they relate to the worlds of banking and insurance. i can ’ t help feeling that a genuine effort and real engagement in this area will help develop a better understanding of where risk really resides. in turn, that would mean greater predictability, enhanced confidence and better business opportunities. i ’ d like to give you a few examples. for a long time, the functional areas of banking and insurance were silos. so were the regulations and indeed the regulators! after all, they mirrored the different business realities i have just described. here in the uk, the creation of the fsa to oversee both of the areas - and other parts of the financial system as well - is a huge step forward. it helps in developing a regulatory framework which meets business realities on the one hand and public policy requirements on the other. whatever the complexities it may generate, i believe we are already seeing great benefit. and similar developments are taking place in other countries as well. now although the integrated structure of regulatory authorities is making significant progress in some countries, the nature of the regulations themselves are converging only slowly. there is as yet no real equivalent to the basel accord in the insurance area : no common prudential template for insurance supervisors exists yet internationally. that said, i fully recognise