deposit at a bank, and we expect all of it back, with whatever rate of return is agreed, and we expect to have access to it in line with the terms of the contract. let ’ s contrast that with non - deposit debt ( bonds ) and equity contracts. if you invest in either of these, you are not promised all of your investment back, though of course you expect to make a positive return. such an investor ordinarily expects the full return of their investment, but this is not assured. investment in debt and equity can of course be managed on a collective basis, as asset management. you may remember the woody allen quote that a stockbroker is someone “ who invests your money until it ’ s all gone ”. cruel i know, but it illustrates the difference between deposits, other forms of debt and equity. a distinguishing feature of banks is that by providing deposit contracts, far more of their liabilities take the form of value certain contracts. this alone makes capital and solvency critical for banks. in contrast, for asset managers, the contract does not promise such value certainty. two particular conditions need to be met in my view to make asset management effective and robust to wider economic conditions. first, that there is no lack of clarity of the nature of the assets held under management. second, that there is no illusion give to investors about anat admati and martin hellwig : “ the bankers new clothes : what ’ s wrong with banking and what to do about it ”. p38 – 40 bis central bankers ’ speeches liquidity of their assets. it follows therefore that capital and solvency matter much more for bank supervision, and market liquidity conditions matter more for asset management supervision. so bank capital matters a lot. the next question, rather obviously, is how much of it banks should have as a liability on their balance sheet? this has been the subject of lively recent comment. most of that comment has focussed on the core issue of how much capital and overall loss absorbency banks should have as part of their balance sheet liabilities to protect the value certainty of deposits. this is a very reasonable debate because there is no monopoly of wisdom on such a subject. i do however discount heavily those commentators who have seamlessly switched from attacking on the grounds that as supervisors we were choking off lending by requiring too much capital ( the so - called at the time “ capital taliban ” argument ) to arguing now that we are falling down by setting the standard

resolution is a credible route to take, as it will be, why would the authorities want to put the cost somewhere else? john kay “ should we have ‘ narrow banking ’? ” the future of finance, lse report, 2010 anat admati and martin hellwig : “ the bankers new clothes : what ’ s wrong with banking and what to do about it ”. p271 anat admati and martin hellwig : “ the bankers new clothes : what ’ s wrong with banking and what to do about it ”. p74 – 78 bis central bankers ’ speeches now for supervision and whether it too can function effectively. make no mistake, in many countries supervision failed badly in the run - up to the crisis. prudential supervision of banks is all about understanding the risks firms take, the effectiveness of the controls in risk management, using the framework of rules and regulations to create the right incentives to control risks appropriately, and where necessary intervening directly to require actions to be taken that would otherwise lead the firm to a potentially unsafe or unusual position. there is nothing easy about this activity, and the lessons of the pre - crisis and crisis periods demonstrate the dangers of encouraging broader attitudes which act to discourage the work of supervision in favour of a light touch approach in which the risks in the system build up and are praised as contributors to stability and prosperity, until that is the crash comes. supervision is a continuous activity which needs to benefit from constant public attitudes towards it, and in turn supervisors need to be accountable and explain what they do. we have made big strides forward on these fronts in recent years. when we talk about banks, solvency and capital is at the heart of effective prudential supervision. the capital regime that is being put in place is stronger not just in terms of the quantity and quality of capital that is funding banks, but also because of the incentives that are being embedded in the regime. to end, i don ’ t believe that we can ignore the risk in banks, and the consequence if it crystallises. this helps to explain why the exercise of judgement is such an important part of the supervision of banks. therefore we have to create a system of rules, we have to supervise banks and have the scope and freedom to apply those rules in ways that create the right incentives for banks to maintain safety and soundness, and to guard against the time when something does go wrong we must be confident that our resolution regimes will work. i simply do