persistent, factor is the pace of technological change. related to that, we are seeing a trend towards consolidation – at first nationally, but now also internationally – amongst financial services providers. so i also want to make a few remarks about these factors. before i go into these issues in more detail, i just want to sketch out how the bank stands in relation to uk financial services. obviously the changes in the bank ’ s remit announced in may 1997 by the incoming labour government, and largely enshrined in the 1998 bank of england act, were profound ones. the arrival of monetary independence meant that the work of the mpc – of which i am one of the nine members – has scarcely been out of the news. less obtrusively, the departure of banking supervision to the new fsa meant the end of one substantial – though actually comparatively recently acquired – function ; and the shift of debt management to the dmo brought to an end another, much older one. so does the “ new ” bank have a new relationship with the financial services sector? let me first say that, though the bank has been through a period of profound change, its core purposes remain the same. one is obviously to promote monetary stability ; and there our role is now much more substantial and overt. but the bank has two more core purposes, and both relate directly to the financial services sector. the first is to promote the overall stability of the uk financial system. this role is not new, though it has recently been set out explicitly in the memorandum of understanding between the bank, hmt and the fsa. broadly, promoting systemic stability means working to ensure that the financial system continues to perform its key roles in support of the wider economy – settling transactions, providing liquidity and allocating savings. in pursuit of this we look at factors affecting the underlying robustness of the financial system, as well as potential “ triggers ” which, especially at times of structural weakness, could bring on a crisis. our remit is of course in relation to the uk financial system – but this work has a substantial international dimension, given the openness of the uk economy, and the international character of much of the city. what does this mean in practice? the bank ’ s financial stability work include such things as overseeing the uk payments systems ; analysing broader developments in the banking, securities and insurance sectors, and the evolving strategies of london ’ s securities exchanges ; looking at developments in emerging market economies ; and

##quification will of course take time – but there are signs that it is under way, especially in the relatively strong growth in the market for continental high technology stocks. what about the traditional banking market? i leave this to last because some of the likely changes are just the counterpart of factors i have already mentioned. but for instance, greater reliance by capital users on equity as opposed to debt capital, and bond as against bank finance, would, other things being equal, be expected to lead to some shrinkage in banks ’ balance sheets in relative terms. the extent to which this may happen is of course uncertain. it will depend on many factors, including the impact of any changes to the basle accord. but even if there is substantial disintermediation, it does not mean that banks will cease to be dominant players. my point is just that as euro securities markets develop and deepen, more of the finance banks arrange will be off balance sheet. i ’ m inclined to think also that we will see further consolidation within the european ( and indeed global ) banking sectors, though i think that will not primarily be a function of the euro, and is something i will touch on in a minute. now, all these developments offer opportunities for financial services firms globally. this is not a zero sum game. i expect to see financial centres within the euro zone growing in size over the next few years. but london will grow too, and i think it is significant that many of these potential developments depend on market practices and techniques pioneered in london. i see london as the engine for growth and innovation in the european capital markets. this is not a narrow parochial point. as i have already emphasised, uk financial services are highly internationalised and many of the uk – based beneficiaries of this process are owned elsewhere – in the us, europe, asia and elsewhere. nor does it reflect complacency. although london has tremendous critical mass – especially in the crucial area of human capital – one major implication of what i will say in a minute about technological innovation is that certain aspects of financial services – especially trading and settlement – are potentially more geographically mobile now than in the past. we are already in a market where it is possible for a trader in london to deal on a german exchange, call for delivery in luxembourg and make payment in paris. so, the advent of the euro is just one factor transforming the environment in which uk based financial services firms must operate. i would now like to