the package of reforms, namely the measures proposed by the commission chaired by sir john vickers, which the government intends to place into legislation in the near future. i fully support the vickers proposals. the key plank of this is to ring - fence commercial from investment banking and, in doing so, define the scope of commercial banking that can be inside the ring - fence. this will be a major structural change for the banking system, and will have important implications for us as regulators. there are two key points for me in the vickers reforms. first, in the last ten years or more, the nature of investment banking has changed to include a much larger element of proprietary position taking. the incentives and risks of this activity are quite different from commercial banking, and i do not believe that the two should be mixed in the same legal entity. regulators around the world have struggled to regulate this mixture, and will continue to do so even though we have raised the cost of doing investment banking business through changes to the regulatory regime. second, in a world where we will not accept banks being too big or complicated to fail, it is sensible to be able to resolve commercial and investment banks separately, and to achieve this we need the ring - fence approach. this will support the continuity of provision of financial services. in conclusion, we have a very big programme of reforms under way, with the central objective that we must not let a financial crisis of this scale happen again. the reform programme is founded on very clear public policy objectives. we are absolutely committed to the reform programme and knitting together the various parts. we expect financial institutions to abide by the spirit of it too. there are big changes in what we are doing, and it is an exciting time to be putting these changes into effect. we will get a much clearer focus from splitting prudential and conduct regulation for banks and insurers, from introducing macro - prudential regulation to help to protect the financial system as a whole, and from bis central bankers ’ speeches focusing our regulation on applying judgement in a transparent way. firms that mess up should, and will, be allowed to fail, but it must not be at the cost of damaging the financial system and economy. ringfencing commercial and investment banking will help to achieve that objective. and, out of these reforms i hope we can encourage a banking system that is more open to competition and serves the public more effectively and, more broadly, a financial system that delivers the public policy objective of financial

the new approach to financial regulation. another key plank concerns the macro - prudential approach to regulation. the legislation will establish the financial policy committee ( fpc ), charged with the primary objective of identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the uk financial system. in june, the chancellor announced that the government would amend the bill to give the fpc a secondary objective so that subject to being content on the first objective, it should support the economic policy of the government, including its objectives for growth and employment. currently, the fpc is acting in an interim capacity to undertake, as far as possible, the future statutory fpc ’ s macro - prudential role. macro - prudential regulation is focused on protecting the financial system as a whole. in a very “ big picture ” sense, there is nothing new about this activity. the problems of the last five years have emphasised the close links between the health and behaviour of banks and the condition of the economy. this is a lesson of history, and one that should not have been forgotten. but, forgotten it was. at present the fpc is pursuing two important objectives : seeking to increase the resilience of the uk banking system, including to the threats emanating from the euro areas ; and, subject to being content with the path towards greater resilience, supporting the creation of credit in the uk economy. i am in no doubt that if banks take reasonable steps to enhance their resilience, they will be better placed to sustain the availability of credit to the economy by lowering their cost of funding and reducing their vulnerability to unanticipated events. macro - prudential regulation takes a system - wide view of the risks we face and the buffers of capital and liquidity that banks should hold against possible stress events. this is very clearly the resilience objective for the system, to which the fpc attaches great weight. banks in the uk have made substantial progress over the last four years in building that resilience, from of course a very low base. we believe that there is further to go on capital, and the fpc has set this position out, but in doing so we should not forget the distance that has been travelled. we should also remember that more capital cannot be conjured from thin air, particularly as there are at present quite severe constraints around the rate of return earned by banks