the surviving clearing members themselves or a new “ owner ”. on the face of it, the clearing members would have to be involved, as surely the stricken ccp ’ s default fund would also need replenishing in order for it to continue. if the default fund were to be replenished by its surviving clearing members, that could in principle be sorted out at the time or it could be pre programmed. in practice, making it up at the time must be dangerous. a pre - programmed allocation of losses would be akin to the old “ down to the last drop ” rule that used to be employed by a chicago clearing house, under which surviving clearing members ultimately had collectively to absorb all losses : mutualisation. ( it was dropped because, as banks became futures - exchange clearing members, bank supervisors didn ’ t like the unlimited exposure of cms who were banks. an example of unjoined - up thinking. ) that ’ s the option around propping up the clearing house to keep it going. the other option is some kind of wind down of the clearing house ’ s book. that involves a combination of closing out part of the book in the market, and doing something with any residue that can ’ t be dealt in the market. one obvious thing to do with the residue is to put it back, pro rata, to the surviving ( and fit ) clearing members. but that is also a variant of the dttld rule, but “ in kind ” rather than cash. bis central bankers ’ speeches maybe i ’ ve got this wrong but, in summary, it seems to me that questions about orderly resolution of a failed ccp have to involve clarity around the extent to which surviving clearing members pick up the pieces. summary the design, management and oversight of ccps is something that we are going to come back to again and again in the years ahead. i want, therefore, to conclude, if i may, with a quote from the post - ‘ 87 crash report of the hong kong securities review committee, published in the summer of 1988, nearly a quarter of a century ago : “ when everything else is stripped away, the most pressing issue is the management of risk. the focus of this is...... increasingly, the central clearing houses – indeed [ their ] prudent operation is perhaps the single most important objective for the market authorities and regulators. ” 2 it is time to catch up with that insight. your new post - trade fellowship will

whole. in the run - up to the crisis, the bank ’ s contribution to the effectiveness of markets fell short in three respects. in all cases, the bank is now responding. first, the bank ’ s framework for providing liquidity was shown to have lagged behind market developments. once under pressure, the bank could neither stabilise overnight rates nor support the banking system. fortunately, in the jaws of the crisis, the bank innovated rapidly and admirably to avoid a collapse of the system. those lessons are now embedded in a new, comprehensive framework for the bank ’ s sterling market operations. we have expanded the range of eligible collateral, and will lend to many more counterparties, at much longer maturities. the bank also stands ready to act as a market maker of last resort. constructive ambiguity has been replaced by open for business. bis central bankers ’ speeches second, like many others, the bank neither identified the scale of risks in the system nor spotted the gaps in the regulatory architecture. following the chancellor ’ s reforms in the last parliament, the bank now has statutory responsibility to protect and enhance the stability of the uk ’ s financial system, and is working as one bank to do so. the fpc and the pra have catalysed a series of actions that influence market resilience including stress tests of banks and hedge funds, system - wide capital actions, and new tools like the leverage ratio and minimum repo haircuts. 3 third, the bank ’ s arcane governance blurred the bank ’ s accountability and, by extension, weakened the social licence of markets. before my arrival, the bank ’ s governance was reshaped. the bank ’ s board of directors, court, has been strengthened. its external members now have formal powers to observe the meetings of the bank ’ s policy committees and to commission reviews into the bank ’ s performance. 4 i welcome the government ’ s intention to introduce legislation further strengthening the governance and accountability of the bank. the bank will continue to modernise its operations. following the grabiner report, the bank has focused its market intelligence programme, strengthened procedures, improved training and overhauled compliance. and the bank is introducing today a new code of conduct. the bank expects its senior management to meet the highest standards of professional conduct. as one example, the bank will apply the core principles of the senior managers regimes to its own senior staff, including the governor. this is in addition to existing obligations and scrutiny from