involve the central bank in significant financial risk. but in more difficult - and mercifully rare - situations, where the failure of one institution could bring down other - otherwise viable - institutions, the central bank may need to consider acting in the role of “ lender of last resort ” to the failing institution, against poorer quality, less liquid, assets which might expose the central bank to financial loss. the key phrase here, of course, is “ where its failure could bring down other otherwise viable - institutions ”. the central bank safety net is not there to protect individual institutions from failure. it is there to protect the stability of the financial system as a whole. in the absence of a serious systemic threat, the right course would normally be to allow the institution to fail. if any institution felt that it could rely on being bailed out if it ran into real difficulty, that, too, would introduce “ moral hazard ”, encouraging excessive risk - taking and financial fragility in the system as a whole. there can be nothing automatic about “ lender of last resort ” assistance - and, when it is provided, it should always be on the most onerous terms that the borrower can bear : it is not provided to protect the shareholders who should be looked to first. nor is it there to protect the management. “ lender of last resort ” assistance, even when it is extended by the central bank, involves the commitment of public money - ultimately taxpayers ’ money - and it needs to be justified in terms of the damage that would otherwise result to the financial system and to the wider economy. for this reason the mou, to which i referred earlier, provides that the bank should always seek the chancellor of the exchequer ’ s explicit prior approval wherever circumstances allowed, or at least his tacit prior approval in emergency situations and where the risks are manageable in relation to the size of our capital. these arrangements ensure that we have the capacity to act to limit systemic damage where that becomes necessary ; but they rightly make such intervention subject to appropriate authorisation and accountability, by and to, both the chancellor and court. conclusion mr chairman, we have come a long way in the bank, even since i first joined it some 35 years ago. we tended at that time to explain our role as being the “ banker to the government and banker to the commercial and other central banks ”. and the truth is that our responsibilities, and the extent of our authority, were never very clear.

1 ), and in kensington and chelsea average house prices have risen by almost 40 % since the start of 2005, compared with 20 % for greater london as a whole. eca international published a survey comparing average monthly rents for a 70 - square metre unfurnished flat in the largest cities and showed london over € 2, 100, compared with new york around € 1, 750 and paris below € 1, 500. the figures on output also show that london has been growing relative to the rest of the country ( chart 2 ), and that has reflected the growth of financial and business services compared with other tradable sectors throughout the uk ( chart 3 and chart 4 ). and despite the fall in oil production in the north sea, we have seen a rise in the real exchange rate by over 15 % when comparing the period 1987 - 1997 to 1997 - 2007, although of course the financial sector would not have been the only factor behind that rise. more immediately, the gdp figures in may showed that financial intermediation grew by 6 % in the sixth months to 2007 q1 – an annual rate of over 13 %. that is not the same as the city of course ; but there is every reason to think the city has been growing at least as fast as the rest. however, while the success of the city is currently one factor in these trends, it is not the whole story. for a start there is a lot more to london than finance. there are other successful industries and, on the other hand, london is home not just to the wealthiest boroughs but also to some of the poorest and most deprived areas in the country. as a result it has one of the highest regional rates of unemployment overall. secondly employment and profits in the city have been highly cyclical. on scale first, a recent estimate put the total number employed in “ city ” jobs, including supporting professions like lawyers and accountants as well as bankers and asset managers, at around 340, 000. that amounts to about 9 % of the total in london ; significant but still lower than the number in distribution or in government services. and the growth of employment will continue to be the net result from the expansion of activity and from the economies made possible by it and by the relocation particularly of back office work to cheaper areas elsewhere in the uk or abroad. the jobs figures understate the importance of the sector in the economy because on average pay may be twice as high in the financial sector as in the rest of the