support the efficient allocation of capital and therefore technical progress and growth. financial markets are fundamentally about risk - taking : credit risk, liquidity risk and market risk are basic components of even the safest and soundest banking systems. as a society, we need risk taking as part of the process of allocating capital to competing ends. and people who take risks – at least with their own money or their own careers – need to be rewarded ( appropriately! ) for that risk or they won ’ t take it. so we are not in a world where, as a matter of policy, we want to eliminate financial risk. the key is for financial risks to be properly appraised, priced, managed and provisioned. and we should discourage some of the cross - subsidisation of different types of risk taking if we want risk capital to be appropriately allocated. that includes any perceived public subsidy, which is what the icb recommendations are about. we also want to avoid profits being made the forum, city am, page 20, september 14 2012 ( http : / / www. cityam. com / forum / why - britain - s - banking - rulesaren - t - restricting - our - economic - recovery ) bis central bankers ’ speeches out of dishonest practices such as insufficient provision of information, the deliberate mis - pricing of risk or other market abuses. the new financial conduct authority will have an important role to play in that. the regulatory reform process will inevitably take time. and while the process is developing there are risks arising from the uncertainty that it brings. we need banks to raise more equity capital. but when we ask potential equity investors in banks what is holding them back, they often cite the uncertainty over the rules which will affect their future risk profiles and profitability. such uncertainty will add a discount to the price of bank equity ( although there are many other important factors too, such as the uncertain valuations of bank assets ). similar concerns about the rules have affected the attitude of debt investors, particularly the debates on “ bailing in ” senior debt. the rule makers are moving as fast as they can. the good news is that, once there is more certainty, we should expect a positive response from investors. within, say, a year or so from now, i would expect a lot of progress to have been made such that the outlook for the financial sector is much brighter – at least in this regard. in the short - term, there can be a

capital base of the bank of england – around £3 ½ bn at end - feb 2009. detailed characteristics serve to make several points in the context of this talk. the sls did not provide the banks directly with funding. rather it swapped illiquid private sector assets held by the banks for highly liquid treasury bills borrowed from the debt management office. the commercial banks then obtained their funding from the market by repo of the treasury bills. essentially the sls provided a temporary collateral upgrade for the banks. by the time the scheme closes, sls participants need to have either generated alternative sources of funding or created alternative collateral which the market will be willing to hold in place of the treasury bills. recently, there have been some calls from interested parties for the sls to be extended beyond its three - year horizon. if the sls were to be extended, that would mean an implicit subsidy for specific banks. albeit for a fee, those banks would be funding on an ongoing basis their illiquid, risky assets, by borrowing at “ risk - free ” government interest rates. that would give a significant competitive advantage to banks that had most recourse to the sls. but central bank operations are not carried out to protect individual banking franchises, they are there to ensure overall monetary and financial stability. as the governor has already made clear, the sls will close at the end of january 2012. the banks liquidity insurance facilities are, and will be available – but, as i have noted, these are for temporary usage during periods of stress, are set at an appropriate price and are not there to provide sustained funding for the banking system. market - making operations by the central bank as part of its broader remit, however, a central bank is fundamentally concerned with maintaining conditions for the stable provision of financial services to the wider economy. this crisis has demonstrated that specific financial markets can sometimes fail and that raises the possibility of the central bank stepping in as “ market maker of last resort ” ( mmlr ). acting as a mmlr is not something of which we – or other central banks – have had a lot of experience, but there are some basic principles which, if followed, can allow such operations to be run by the central bank consistent with its other objectives. my colleague, paul tucker, outlined these in a speech last year ( tucker 2009 ). the most relevant are : ( i ) mmlr activity should not interfere with the setting of monetary policy by creating additional central bank money independent