rachel lomax : staying ahead of the curve - remarks on recent uk monetary policy speech by ms rachel lomax, deputy governor of the bank of england, to the annual luncheon of the british hospitality association, london, 1 july 2004. * * * it is a great pleasure to be here today. judging by the capacity crowd, the businesses you represent are in pretty good spirits. what better way to start than by thanking you for your excellent hospitality. and what better place to celebrate an important double anniversary. because that ’ s what today is, for me. it is exactly a year since i joined the bank of england as deputy governor for monetary policy. and it is forty years, almost to the day, since i started my first job. i was a waitress : in a famous seaside town - the one that ’ s noted for fresh air and fun. it wasn ’ t much of a job. but then i wasn ’ t much of an employee, having no marketable skills, but plenty of attitude. i learnt how to carry several plates at the same time and a lot of interesting new words ; and the job paid for a memorable holiday in greece. looking back on it, i ’ m sorry i left without giving notice : though i ’ m not sure my boss was. my work habits have improved immeasurably since those far off days. and so i think has british hospitality. the ‘ eating out experience ’ has certainly been transformed. at the very top end of the market, there are now over a hundred michelin starred restaurants compared with less than thirty in my youth. the past decade has seen a huge investment in both hotels and visitor attractions. three of the top five fee paying visitor attractions in the uk are less than five years old, with the wonderful london eye now comfortably outstripping that doughty old trouper, the tower of london. london doesn ’ t have it all its own way of course - the ground breaking eden project now comes in at a well deserved number three. tourism has become more than good business. from the welsh valleys to the east end of london, it is increasingly seen as a catalyst for economic regeneration. with the success of the manchester commonwealth games, and liverpool ’ s ambitious plans for 2008 as european city of culture, not to mention london ’ s olympic bid, there ’ s no shortage of high profile events and projects to provide inspiration for the future. your industry is still a major employer, of course. you must provide

”. very few banks fail because they are insolvent today. they don ’ t get that far. typically, they fail because of a rising probability that they are expected to be insolvent at some point ( s ) in the future. this is important because regulating banks has to be forward looking, and in my view has not been adequately so in the past. it also means that a problem in a bank can spread to create a problem in the wider financial system, so called systemic risk. maintaining the stability of the financial system – financial stability – is therefore at the heart of the efforts of the authorities to prevent problems in banks spreading out of control. the financial crisis of the last three and a half years has illustrated starkly what can happen when financial stability is not maintained. so, establishing and maintaining financial stability should be high up everyone ’ s agenda, and we should embed financial stability as the objective of public policy towards regulating the financial system. you can reasonably ask, why is this difficult to achieve? financial stability is difficult to define quantitatively and precisely. some people say that you know it when you have it, but it might be better to say that you know when you don ’ t have it. what is being done to tackle the issue? a month ago, the government issued a consultation paper which seeks to define the financial stability objective that will be given to the new financial policy committee of the bank of england under its plans. the objective is defined at the high level as protecting and enhancing the stability of the financial system of the uk. more precisely, the bank ’ s objective “ relates primary to the identification of, monitoring of, and taking of action to remove or reduce ” risk to the stability of the uk financial system as a whole or to a significant part of the system, “ with a view to protecting and enhancing the resilience of the uk financial system ”. but the paper goes on to include in the objective the statement that : this does not require or authorise the bank “ to exercise its function in a way that would in its opinion be likely to have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the uk economy in the medium or long term ”. here then we have the recognition of the need to have regard to the impact of financial regulation on the long - run growth of the economy. to back this up, the government intends to include in the legislation a power for it to provide the bank with