, the new recovery and resolution tools, provided that they are credible, will reduce the implicit government guarantee and distortive risk - taking incentives created by bail - out expectations and artificially low funding costs. structural reform while the improved capital and liquidity requirements and the new resolution regime take us a long way in addressing the too - big - to - fail problem, they do not take us all the way. in october 2012 the high - level expert group on reforming the structure of the eu banking sector proposed mandatory separation of a deposit bank and a trading entity within the banking group to complement, not to substitute the ongoing regulatory reform. the motivation for our decision to propose separation was the following : first, to limit the spill - over of benefits from the deposit guarantee system and any implicit government guarantees to certain trading activities of banks. second, to simplify the structure of large, complex banks. reducing complexity by means of separation facilitates management and implementation of incentives and it facilitates supervision and monitoring by outside stakeholders such as shareholders, bank creditors and other market participants, thus reinforcing market discipline. third, to make it easier to impose recovery and resolution measures if a bank would nevertheless get into severe problems. simplifying the structure of the bank ex - ante would also serve this purpose. it is crucial to make credible the resolution also of the largest and most trading - intense banks. fourth, to reduce the mixing of two very different management cultures in 1 ) the customer - based retail and commercial banking and 2 ) the transaction - based trading activities. the aim was to shift the focus from short - term to long - term, which is more in line with the interests of the real economy and society at large. the choice of where to draw the line between the deposit bank and the trading entity was made so as to enable banks to service the real economy in the best way possible, while separating the activity that should not enjoy the benefit of the implicit government guarantee. because the difference between proprietary trading and market making is hard to distinguish, the group proposed to keep them together in the separated trading entity. in this way, market making would be provided on equal terms by trading units within banking groups and entities outside the regular banking sector. the high - level expert group also suggested that exposures to shadow banking entities such as hedge funds ought to be separated from deposit - taking and lending activities. finally, we wanted to preserve the universal banking model and keep the trading activity within the bank supervisory umbrella. this would also

remarks at a farewell dinner in honour of benoit cœure, member of the ecb executive board speech given by mark carney, governor of the bank of england european central bank, frankfurt 17 december 2019 i am grateful to clare macallan and james benford for their assistance in preparing these remarks. all speeches are available online at www. bankofengland. co. uk / news / speeches before i begin, i must emphasise that those who might be searching for cryptic central bank signals about future policy will be disappointed. i am speaking in the mpc ’ s quiet period, and my comments have no bearing whatsoever on the decision the mpc will announce on thursday. this wonderful evening celebrates an extraordinary individual. there should be, and will be, great joy and immense gratitude. but as with all such occasions there is also the melancholic feeling of an end of an era, the passing of the ancien regime. certainly, central banks face many challenges : markets prone to severe bouts of illiquidity ; a global economy that risks falling into a low growth, low inflation rut caused by deep structural forces, limited policy space, and growing concerns over the fracturing of the global trading system ; innovations in private payments encroaching on central banks ’ very raison d ’ etre, the provision of money ; and a growing climate crisis that will affect every aspect of finance. so it is tempting to ask : apres benoit le deluge? fortunately, the financial guillotine is not preordained, for benoit did not spend his days in power as did louis xv. where the king grew idle, benoit remained frenetic ( 189 public speeches during his eight years ). where the king was conservative, benoit was radical. where the king became nostalgic, benoit always looked forward. if central banks are to rise to their challenges and serve our citizens, we will need to build on benoit ’ s legacy. i. improving market functioning let me start with market functioning. before the crisis, financial alchemy appeared to have sliced, diced and distributed risk to those who wanted it most. the revolutions in securitised and derivative finance were cheered on by policymakers who saw more markets as the solution to any market failures and who believed the lie that markets always clear. but of course markets always clear only in textbooks. in reality, people are irrational, economies are imperfect, and nature itself is unknowable.