risk profile, in order to bring back their own asset portfolios to levels of volatility matching their requirements. therefore listed companies will have an incentive to adjust their risk profile and avoid more hazardous - which may also be more innovative - investment projects. therefore, “ entrepeneurship ” may be curbed and the growth potential may be influenced adversely. another impact of volatility on financial management is related to recourse to hedging, namely derivative products. as i mentioned earlier, derivatives are a driving force behind mature financial markets, and their strong development in the last two decades is merely consequence of the benefits they have generated. more precisely, derivatives and related financial innovations have enabled companies to transfer the impact of interest rate and currency fluctuations to financial institutions or investors that were ready to manage it, whereby facilitating international trade or project financing. meanwhile, the pricing of derivatives is closely linked to volatility. as volatility is indeed difficult to predict, market practitioners have developed models, which are constantly being refined. over time, market participants, - especially banks, - have become more competent in managing risk, while being left that residual risks which are more complex and harder to control. these consequences would not be a major concern, if the episodes of excessive volatility were only accidental. peaks of volatility clearly reflect macroeconomic imbalances, as soon as market participants take into account the relevant information. this has been evidenced in studies reviewing factors behind currency crises in emerging countries. macro data - such as balance of payment or fiscal policy indicators - prove to be discriminant - leading indicators from this point of view. however, i cannot affirm that the resolution of market imbalances would result in a reduction of volatility to levels that prevailed before these imbalances were taken into account by market participants. in my view one should not underestimate the part played by technical factors in the persistence of volatility peaks. this persistence in volatility is fuelled by technical features that facilitate the build up of mimetic behaviours ( amplifying effects ), or that reinforce the links between the various market segments ( diffusion effects ). mimetic behaviour is of course by no means a new phenomenon on financial markets. however benchmarking, index management, and risk management techniques may have gradually reinforced this type of behaviour, as participants are under increasing pressure to follow their peers through matching the performance of a benchmark. there is

is almost a year since we designed and began the implementation of the current fls. that was done against the backdrop of a much more febrile environment in the euro area in terms of sentiment and a real concern that the risks arising from the euro area situation were affecting the costs of funding for uk banks and therefore their lending and the economy more broadly. alongside that evidence, we could see that the sum of the projections for lending in the two years ahead for the uk banks was substantially negative. the case for acting was therefore strong, but the challenge was also that in its first year, success for the fls was in some ways to prevent the most negative outcome for lending, which in an absolute sense would not look great. what we have seen over the last year is quite a substantial change in the funding costs of banks which has fed through into lower lending costs, but more so in terms of the amount of lending in the mortgage market than for small firms. funding for the major banks have also become less disposed, which has probably increased the willingness of banks to compete on lending. but the uneven pattern of lending meant that we thought it was sensible to increase the incentives for banks to lend to small firms. we cannot say that this will conclusively deal with the question of whether the problem is a lack of loan supply or demand, but we can say that we have used our toolkit to create a big incentive for banks to lend to small firms. in summary, there is a strong public interest in the banks, which has been sharpened by the crisis. one element of that public interest is permanent – the role of banks in supporting the real economy. another is permanent, and like the first should be in the category of a given – namely, good conduct by banks. but the third – the dependence on public money – should not survive, hence the strong focus on developing bank resolution and ending too big to fail. president, we all have our work cut - out. you can take pride in the role of the institute in supporting the establishment of the professional standards board and their work on the code of professional conduct and the professional standards initiative. as a start, i understand that at least 70, 000 bank staff will go through the foundation standard by the beginning of july this year. this is a big achievement, for which those involved should be proud. there is a lot more to do i know, but let me congratulate susan rice, who has led the work, and everyone else