paul tucker : the programme of reform remarks by mr paul tucker, deputy governor for financial stability at the bank of england, at the institute of international bankers ’ annual breakfast regulatory dialogue, washington dc, 11 october 2010. * * * an earlier version of these remarks was delivered in the concluding panel session, chaired by jacques de larosiere, at the eurofi financial forum, 30 september 2010. thank you very much to our hosts. i might start by saying that i believe that a material contributor to this crisis was the failure of the official regimes for overseeing the financial system – the intellectual framework, the machinery, and regulation and supervision – to keep up with the extraordinary evolution of our capital markets over the past two decades or more. the programme of reform is, accordingly, formidable. it will also be transformational. there is no doubt any more that the global financial system, regional financial systems and national financial systems are going to be transformed in the years ahead. and if there was any doubt in the market 18 months or so ago, i don ’ t think there can be doubt now that the energy behind reform hasn ’ t flagged. that is unsurprising given that unemployment remains intolerably high throughout the western world. many of us have already had to take national measures, make national reforms. but, of course, it was a global crisis, and so it is essential that we also take measures at the global level, through the g20 and the financial stability board. whatever our national or regional approaches, we have to be part of that global agenda. capital and liquidity we ’ ve got our first landmark : the new basel capital accord. the uk, the bank of england, would have liked it to be more rigorous in some respects, but we most certainly think that it is an accord worth having. it is a significant stiffening of the regime which has prevailed up to now – perhaps more in some respects than commentators immediately appreciated. it remedies problems not spotted in basel i. finding remedies for some of the problems with basel ii remains work in progress. the bcbs ’ s “ fundamental review ” of capital requirements for trading book positions will be one of the most important endeavours of 2011. its main objective must be to tackle two things. the venal regulatory arbitrage that existed between the “ banking book ” and the “ trading book ”. and requiring capital to be held against the risks of violent swings in liquidity premia for instruments that

. and the final area is leaning against the credit cycle when it threatens stability. the zeitgeist embraced the seductive idea that either there wasn ’ t a bubble or if there was a bubble that there was nothing you could do about it. which was dangerous nonsense, as events have proved. this is not about fine tuning the credit cycle. but we do need to be prepared to take the punchbowl away before the party gets completely out of control. that was the view 50 years ago. forward to the past. this will have a national dimension to it, a regional dimension in europe through the eu ’ s new systemic risk board, but it will also have a global dimension too. the extent of co - operation between nations will have to intensify in this area. in the monetary policy area, it is important that we listen to each other and understand each other but in a world of floating exchange rates we can, on the whole, go back to our countries and make our own decisions. in the financial stability area, i won ’ t say we have to co - ordinate with a capital “ c ” but we are going to have to move from listening to each other towards co - operation. that will be healthy, but not easy. and it might entail rethinking the division of labour between host and home prudential regulation. these areas of shadow banking and a macroprudential approach to supervision and regulation lie ahead for the fsb agenda and for the g20 agenda. they will sustain important parts of the reform programme into next year and beyond.