paul tucker : introductory remarks at the book launch for “ investing in change – the reform of europe ’ s financial markets ” introductory remarks by mr paul tucker, deputy governor for financial stability at the bank of england, at the association of financial markets in europe book launch, london, 1 february 2012. * * * afme ’ s book is significant as it has reached beyond its own community – of investment and wholesale bankers. the contributions come from journalism, politics, academia, business, and central banking. each of our communities carries some of the responsibility for the mess that engulfed the world ’ s financial system, inflicting hardship on households and businesses around the globe. that must continue to drive us as we work to devise new “ rules of the game ” for a better financial system. this evening, i want to dwell on just one of the guiding principles of the international reform programme : banks should not depend on a safety net from taxpayers. of course, retail deposits – up to £85, 000 in this country – will continue to be insured. and we probably also need measures – possibly segregated accounts – that can protect the temporary high balances that arise when, for example, a person sells a house or receives a legacy. but regular creditors of banks should be at risk. pretty much everything underway in international finance at present reflects the dynamics set in train by a progressive withdrawal of the safety net. two points on how that will be delivered. and three points on what it will mean. on the “ how ”, the first thing to say is that going forward, banks are being required to carry considerably more capital and liquidity. second, as is now well known within the industry, the international authorities have agreed a blueprint for resolution regimes to manage the failure of so - called systemically important financial institutions in an orderly way. g20 leaders have committed to legislate that regime into their domestic systems where necessary. all resolution regimes have the effect of distributing the losses of distressed financial firms – ie losses already or prospectively exceeding equity – across unsecured, uninsured creditors. that is the only place losses can go if taxpayers are to be spared. “ bailin ” has focussed minds on this, but is in fact just one method, albeit a very important one, for ensuring that uninsured creditors take losses. those “ how ” points are very familiar. a few comments, therefore, on possible implications – all of which, looking ahead, point towards the

equally scathing verdict after a short visit to mauritius in 1967. this was well encapsulated in the title of the piece he wrote, and which he obviously liked as he retained it as the title of his subsequent book, which included the mauritius piece along with several other longer articles of his. what was the title? “ the overcrowded barracoon ” mauritius was not just reducing visiting world bank experts and noted political and social commentators to despair. the contagion engulfed such famous academics as richard titmus, the noted sociologist, and the future nobel economics prize - winner sir james meade. for them, and for many others who followed, mauritius was sinking under the weight of runaway population growth which its sugar economy could not conceivably bear. the country ’ s economic future looked dim and its citizens were leaving its shores in droves looking for better prospects elsewhere – australia, canada, south africa and the united kingdom. another bugbear exercising the minds of knowledgeable observers was that the country was heading for a monumental blow - up. surely, half a million people of diverse origin, − african, asian, european, − practising many religions and speaking a babel of languages, could not survive on this crowded, impoverished island. they were bound to be at each other ’ s throat as soon as the colonial overlord left. bis central bankers ’ speeches mauritius had indeed come down in the world. to understand the full impact of this decheance, it would be good to remind ourselves that, much earlier, during the height of the colonial struggle after vasco da gama had rounded the cape of good hope in search of the riches of the indies, mauritius was at the centre of the colonial scramble for position in this part of the indian ocean. a favourable location in the indian ocean, added to the prevailing trade winds, turned mauritius into a staging post of choice for sailing ships on their way to india and the dutch east indies. we proudly sport a relic of those glorious days, in our national coat of arms : stella clavisque maris indici. the star and the key of the indian ocean − no less! by the time of james meade and the others, sugar, which was the mainstay of the economy had earned the country the reputation of sugar bowl island. and sugar was rapidly running out of steam. the economic problem had been reduced to a race between population and productivity. the star had definitely lost its shine and the key was