. so far, so good. but it has been less easy to describe simply what constitutes financial stability. it doesn ’ t reduce to a single measure, like the rate of inflation. it has many heads. there is nothing wrong with this per se, but it may help to explain why it has taken longer to arrive at a stable institutional structure for achieving it. it is also the case, i think, that the success of the innovation in monetary policy obscured the need to develop complementary tools to achieve macro - economic objectives in financial stability, what is today known as macro - prudential policy. that meant too much dependence was placed on monetary policy and too little was done to develop macro - prudential policy. i say this because you should interpret the changes to the bank ’ s strategy and structure as very intentionally pushing the other way, to ensure that we are one bank integrating our public policy objectives for one public good. i want to spend a bit more time on this whole issue, and in doing so reflect on the first year of the pra, and then what lies ahead. my experience tells me that we have had to work harder, and still have to do so, to embed the idea that a stable financial system is a necessary condition for economic growth and other economic welfare benefits. let me give some examples. the most obvious one is that if we want a stronger recovery of bank lending, then we need a well capitalised banking system. if we want the banking system to be able to fund that lending, it needs to be well capitalised. i believe that the last year has seen good news on this front for the uk banking system. yes, we have had one or two very highly publicised revelations on legacy problems – but none of that should take away from the fact that the uk system is stronger today, in my view markedly so. but, i can tell you that achieving such progress on this public good has not been as straightforward or uncontroversial as you might think. and that continues to concern me, because it conveys the message that acceptance of the benefit of the public good is not as entrenched as it needs to be – we have work to do to build the consensus around what constitutes financial stability. i am firmly of the view that last year ’ s actions on capital were correct, and i have no doubt at all that the recovery in bank lending to support economic activity requires a belief and an expectation that the banking system is and

engagement ; bis central bankers ’ speeches • fifth, while it is a real strength of the new system that conduct and prudential supervision have their own institutions that can provide the focus that is essential, where we should work together we do, as the example of mortgage underwriting standards illustrates ; • sixth, our approach is to use judgment to set the right incentives for the firms that we regulate to take the actions themselves rather than default to the regulators to do the work. i welcome the action taken by firms on mortgage underwriting standards as an example of that process, and more broadly i welcome the recommendations of the parliamentary commission on banking standards not least because they put the whole issue of incentivisation of the right behaviour at the front of their recommendations ; • and last, returning to my earlier theme, we want to create and preserve financial stability as a platform to enable choices to be made in other areas of public policy free of concerns that our objective might be put in jeopardy by doing so. a prime example of this is to enable conditions to exist which can enable people to buy homes. i hope this gives a good sense of what we are about. thank you. bis central bankers ’ speeches