andrew bailey : regulating international banks speech by mr andrew bailey, deputy governor of prudential regulation and chief executive officer of the prudential regulation authority at the bank of england, at the british bankers association annual international banking conference, london, 17 october 2013. * * * today is the bba ’ s annual international banking conference, and i therefore want to stick to that theme and explain the pra ’ s thinking on issues concerning the pressures on international banking business and the establishment and supervision of foreign bank branches in london. let me start with the luxury of a wider reflection. before i joined the bank of england over 28 years ago, i was an economic historian, with a specialism in nineteenth century economic history. all a bit esoteric you might say. well, it is the case that the late nineteenth century world economy was more open – and, to use a phrase i don ’ t much like, “ more globalised ” – than at any time in at least the first fifty years of the twentieth century. moreover, the rate of openness in the world economy probably only truly approached late nineteenth century levels in the last twenty or thirty years. the backlash to greater openness that came in the first half of the twentieth century is quite often attributed to the actual or perceived distributional effects of greater cross - border trade, flows of capital and flows of people. the world economy in many ways went backwards in the first half of the last century. why does this historical detour matter? the five or six years since the outbreak of the financial crisis have seen signs of a reversal of some aspects of the greater openness we had seen in the 1980s and 1990s. and probably none more so than the decline in crossborder bank lending. moreover, the uk experience in terms of lending has been amongst the more pronounced. but again, does this matter? my answer is yes. first, because many of us do believe in the economic benefits of free trade and capital flows, as well as the contribution of migration to balancing supply and demand in the economy. second, and closer to home, the city of london and its financial markets benefit hugely from, and are at the hub of, the open world economy. for example, whatever you think about the more troublesome recent innovations of banking, basic trade finance remains a core, simple and essential service provided by banks, and the city has for a very long time been a leading centre for providing this finance to support world trade. international wholesale banking

of the framework in its finalization. several of the remaining issues involve quite a number of calibrations based on the accumulation of very technical and expert considerations, such as the measurement of risk - weighted assets. the outcome of these considerations would have a significant impact on the determination of required macro capital and the risk - taking behavior of financial institutions. i would like to emphasize that the calibration should be finalized in such a way that the amount of risk - weighted assets and required capital as a whole would be maintained at an appropriate level, while taking a holistic approach in examining effects on the institutions. the second point is the necessity of a review of the effects and impacts of these regulatory reforms after their implementation. reforms of international financial regulations to date have been drastic enough that it is no exaggeration to refer to them as a “ fundamental re - design. ” looking at individual countries, large - scale financial and structural reforms are underway, as typified by the volcker rule in the u. s. the extent of the effects and impacts of these regulatory reforms on international financial intermediation and flow of funds in the financial sector as a whole remains unknown, and therefore requires close monitoring. from a long - term perspective, in order for the financial system to ensure stability and in turn contribute to sustainable economic growth, financial institutions need to be sufficiently profitable through active and innovative financial intermediation. in this regard, it is important to remove any regulatory excess, inconsistency among regulations, and uncertainty regarding the regulatory environment. concluding remarks that brings me toward the end of my speech. topics for discussion regarding macroprudential policy go beyond those i have raised today. one such topic regards the effective institutional arrangements for macroprudential policy. needless to say, there is no such thing as a universally optimal set of arrangements, as financial and economic structures as well as legal frameworks differ from country to country. moreover, the desirable form of arrangements would vary depending on the kind of macroprudential measures each country intends to utilize. looking at the recent developments in countries with multiple regulatory and supervisory authorities, there has been quite a number of movements to establish new bodies or councils in charge of macroprudential policy. in japan, the financial services agency ( fsa ) - which is legally authorized to conduct industry - wide supervision and inspections - and the bank - which contributes to financial system stability, such as through the “ lender of last resort ” function are making