sam woods : prudentist speech by mr sam woods, deputy governor for prudential regulation of the bank of england and chief executive of the prudential regulation authority ( pra ), at the mansion house, london, 22 september 2021. * * * i sometimes feel that regulators are a bit like dentists : they are necessary but no one, apart from a few masochists, really enjoys a trip to see them! one of the more surprising things about the last year has been, despite covid infecting our patients, the extent to which we ’ ve had to rebuild our toolbox for reasons entirely unrelated to covid. some of you may complain that this is because fertile minds within the pra are always dreaming up unpleasant new types of regulatory drills and toothbrushes, and that we should just stick with the old ones. others of you may have seen the 1970s movie marathon man, in which the hero ( played by dustin hoffman ) is tortured by an evil dentist who keeps asking him : “ is it safe? ” given the pra ’ s objective of safety and soundness, and in the spirit of post - brexit de - regulation, perhaps we could actually just scrap all the rules and adopt this approach with ceos instead, in the form of an annual visit to the prudential dentist. it might actually be rather effective. but honestly, i think we are just keeping pace with the world around us. i ’ m going today to set out what new instruments we have in that little metal tray next to the “ prudentist ’ s ” chair, and what we plan to do with them, so that you can prepare yourselves. view from the chair the good news is that, despite the impact of covid, our patients are generally alive and well. looking across the banking and insurance sectors as a whole, capital and liquidity positions are strong and operational resilience has largely held up to covid and cyber pressures. this is the result of the efforts that have been made by many people in financial services to get the industry onto a stronger footing following the 2008 crisis, as well as the fiscal, monetary and regulatory support provided in response to covid by the authorities. this means that we have the luxury of sitting in the dentist ’ s chair, and not in the hospital. a number of things seem much more visible than last time we were here : on the back of the door, a charter of regulatory freedoms to

doing very well ( including many of the services sectors and some manufacturing activity ) while other parts of the economy ( including much of agriculture, many manufacturing businesses and even other services sectors such as inward tourism ) face the toughest business conditions that many of them can remember. to take just manufacturing, total output has risen by only 2 % over the past two years, and it has actually fallen by 0. 9 % if you exclude the so - called “ high tech ” sectors ( ie computers, office and telecommunications equipment and electronic components ). total employment in manufacturing has fallen over that period by some 230, 000, of which 200, 000 were outside the “ high tech ” sectors. for what it ’ s worth there is a similar imbalance in the us, where total manufacturing has increased by 10½ % over the past two years, but by only about 1½ % similarly excluding the hi - tech sectors ; total employment in us manufacturing has fallen by some 435, 000, but by nearly 600, 000, outside the “ high tech ” sectors. there is no single explanation for these developments. they result partly from continuing and unavoidable long - term structural adjustment of capacity to market demand ; it results also partly from the effect of increasing global economic integration, inducing the relocation of manufacturing capacity in response to shifts in comparative productive advantage. but there is no doubt that some of these effects have been aggravated by exaggerated changes in foreign exchange rates - including the progressive weakening of the euro. that is a particular problem for the uk because of the relatively large proportion of our economy exposed to competition from the euro zone ( both in terms of our bilateral trade and competition in third countries ). even as a central banker i can understand why many euro - exposed businesses feel hard done by in present circumstances. and i can understand why they in particular might urge the monetary policy committee to signal that uk short - term interest rates have peaked. they make a seductive case. but in fact it ’ s not as straightforward as it sounds. if the intention is that by signalling that our interest rates have peaked we might weaken sterling against the euro, it is not at all obvious that it would in fact have that effect. today ’ s exchange markets between the major currencies are apparently being driven primarily by massive longer - term capital flows - direct and portfolio investments - which, for the time being, are overriding more conventional “ fundamentals ”. those longer - term capital flows in turn appear to be driven more by investors