. any solution must fall into one of those two categories. what does this mean in practice? consider the first approach. to reduce the likelihood of failure, regulators can impose capital requirements on a wide range of financial institutions related to the risks they are taking. this is the current approach underpinned by the basel regime. in essence, it makes banks build a buffer against adverse events. it has attractions but also problems. first, capital requirements reduce, but not eliminate, the need for taxpayers to provide catastrophe insurance. second, the “ riskiness ” of a bank ’ s activities and the liquidity of its funding can change suddenly and radically as market expectations shift. this means that what appeared to be an adequate capital or liquidity cushion one day appears wholly inadequate the next. indeed, the achilles heel of the basel regime is the assumption that there is a constant capital ratio which delivers the desired degree of stability of the banking system. after the experience of the past two years, and a decade or more in which capital ratios fell and leverage ratios rose to historically unprecedented levels, banks need more capital to persuade investors to fund them. a larger buffer gives new creditors greater comfort that their claims will be met in future, without resort to the public purse. and rather than pay out dividends or generous remuneration, banks should use earnings to build larger capital buffers. but how much larger? we simply don ’ t know. a higher ratio is safer than a lower one, but any fixed ratio is bound to be arbitrary. one way of dealing with this problem is to require banks to take out insurance in the form of “ contingent capital ”, that is capital in a form that automatically converts to common equity upon the trigger of a threshold that kicks in before a bank becomes insolvent. if a bank ’ s regulatory core tier 1 capital – common equity – remained above the threshold, nothing would happen. but if the regulatory core tier 1 capital fell below the threshold then the contingent capital would automatically be converted to common equity. when bank failures impose costs on the rest of the economy, it is reasonable to insist that banks themselves purchase a sufficient degree of insurance in the form of a large capital cushion available automatically before insolvency. such contingent capital instruments are very different from instruments, such as subordinated debt, which banks have been permitted to count as capital under the basel regime, but which do not provide a reliable capital buffer until too late – after the bank has failed. so at present the

information on the risks posed by a firm ’ s group is critical to the pra ’ s approach to supervising international banks. our expectations are set out in two parts. firstly, a clear baseline of information we want on all international banks. this concerns : the nature of the firm and group ’ s business model ; the resilience of the firm and its parent from both an operational and financial perspective ; material risks to the firm ’ s strategy ; and resolution planning. then, on top of that, a proportionate and tailored set of data that reflects a firm ’ s business model, its scale and potential impact on uk financial stability. proportionality is key here. we need more detail on a firm ’ s group where it is larger, more systemic and where its business model is highly integrated globally e. g. trading and custody. this is because the more highly integrated uk operations are within the group, so the more readily losses or disruption can be transmitted to the uk operations. all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice for highly - integrated businesses such as the trading activity of gsibs, we expect access to regular profitand - loss and risk data for key trading business lines. these are often fast moving so we need to monitor them on a daily or weekly basis so we can ascertain how businesses are performing and to identify product or risk management vulnerabilities. good practice examples of the data we typically receive where a strong and cooperative relationship exists with home state supervisors and firms, are set out in the statement. they include : a. daily or weekly profit and loss figures covering global and local business lines ; b. weekly or monthly group market risk reports ; c. the outputs from reviews e. g. the supervisory review and evaluation processes ; d. information on stress tests and how these affect the uk entity ; e. group liquidity information regularly in normal time and more frequently once there is a period of market stress ; f. any material change in the operational resilience of the firm or group, for example, cyberattacks that may affect the group systems and are used by the uk business or which threaten the survival of the firm or group ; and g. material findings from internal risk or audit functions, or external audit reviews ( particularly where there are common group wide systems and controls ). i would stress that, where we ask for group information, we are