john gieve : financial system risks in the uk – issues and challenges speech by sir john gieve, deputy governor of the bank of england, at a centre for the study of financial innovation roundtable, london, 25 july 2006. * * * the bank and financial stability the bank of england ’ s central position in the economy owes a great deal to the development of its role in managing financial crises. the need for a central bank to provide liquidity to the market was identified as early as 1802, when henry thornton said : “ … if the bank of england, in future seasons of alarm, should be disposed to extend its discounts in a greater degree than heretofore, then the threatened calamity may be averted through the generosity of that institution. ” 1 it took until the 1870s for that role to be institutionalised. the arrangement to request a letter from the chancellor permitting the bank to issue notes not backed by gold at a time of crisis was important to the remarkable financial stability that ensued. indeed, some academics suggest that a true financial panic has not taken place in the uk since overend gurney & company collapsed in 1866. 2 of course a lot has changed since then but maintaining financial stability remains one of the bank ’ s two core purposes. the current institutional arrangements are spelt out in a memorandum of understanding ( mou ) between the bank, the treasury, and the fsa. it establishes a framework for cooperation on three joint responsibilities – first identifying risks to the stability of the uk financial system, second reducing the risks where we can, and third managing crises if they occur. the bank contributes to all three. • we bring to the assessment of risks both the expertise in economic analysis that we have developed as the monetary authority and the experience that gives us as a participant as well as an observer of financial markets. • we can help to reduce risks directly through our engagement with payment systems and by working with the fsa at home, and with other financial authorities abroad, to improve the resilience of the financial system. • as lender of last resort, we can contribute to the resolution of crises either by supplying liquidity to the market in general or, in rare circumstances, acting as the channel of support or facilitating transactions for individual institutions. the new mou makes plain that the decision to authorise support operations rests with the chancellor following independent advice from both the bank and the fsa. our concern is with the stability and resilience of the financial

would allow wider access to central bank payment and settlement systems both in time and space. in an extreme case in which cbdc provides the same functionality as banknotes as an alternate measure, it could enable everyone to access central bank accounts 24 / 7, year - round. some overseas central banks have started to consider the rationale for or to conduct researches and analyses on cbdc. also, amid the global trend of fintech, some non - bank companies and their services, such as paypal in the united states and wechatpay in china, have built up a large presence in payment and settlement services, and the structure and composition of payment service providers are now changing rapidly. accordingly, some overseas central banks have started to reconsider to whom they should allow access to their payment and settlement systems. as economic globalization and technological innovation advance, the environment surrounding central bank payment and settlement systems is entering a new phase. iii. initiatives taken by the bank of japan the bank of japan has been continuously improving its infrastructure. we established the bojnet in the 1980s, and then introduced rtgs and liquidity - saving features. in 2015, we started full - scale operation of the new boj - net. although economic globalization and technological innovation are causing dramatic changes in payment and settlement infrastructures, we are confident that the boj - net can keep up with such changes and continue serving as a core infrastructure in the new era. at the same time, regarding how central banks should provide their infrastructures under the changing environment, we need to consider various issues. first, there is the issue of how to strike an appropriate balance between central bank money and private - based money in the economy, and between the stability in settlements and private - led innovation. these are classical issues. nonetheless, as new fintech players have increased their presence in payments and settlements, big - data attached to payment and settlement transactions is becoming more important as a source of added - value in various businesses. we will need to focus not only on the classical issue of “ desirable sharing between central bank money and commercial bank money, ” but also on new payment instruments carrying additional information provided by new players such as “ non - bank fintech firms. ” the emergence of these new payment instruments will make things far more complicated. second, it is crucial for central banks to ensure the security of central bank payment and settlement systems, which are the core infrastructure of the economy. we may also need to consider how to manage the information