the rt hon sir edward george : reflections on the uk ’ s economic performance over the past year and future challenges speech by the rt hon sir edward george, governor of the bank of england, at the lord mayor's dinner for bankers and merchants of the city of london, 20 june 2001. * * * my lord mayor, mr chancellor, my lords, aldermen, mr recorder, sheriffs, ladies and gentlemen. it is always a privilege, my lord mayor, and a pleasure, to be invited to enjoy the splendour, and the generous hospitality, of the mansion house on the occasion of this annual dinner for the merchants and bankers of the city of london. you provide us with an opportunity – in an atmosphere of calm – to reflect upon the events of the year that has gone by and upon the challenges to come. and the past year certainly has been eventful – though it is notable that some of those events did not result in particularly dramatic change. i think particularly of the election and i congratulate the government on the outcome, and you, chancellor, on your own re - appointment. i very much look forward to continuing to work with you. but i think, too, of our relatively stable overall economic performance – despite the devastating effect on many farmers, and on rural communities more generally, of foot and mouth disease ; despite the weather and the floods ; despite the disruption on the railways ; and despite, above all, the pressures on the internationally - exposed sectors of our economy as a result of developments abroad. in this last context, my lord mayor, i was struck by a recent newspaper comment to the effect that if we were living on an island we'd be in reasonably good shape. now i have to confess that i'd always been under the impression that we were living on an island, but i let that pass. what i think the writer was drawing attention to is the fact that despite the recent global economic slowdown – notably in the united states, despite the continuing weakness of the euro, and despite the sharp rise in crude oil prices over the past year, we have in fact, in terms of our own overall economy, enjoyed another year of steady progress. gdp growth in the year to the first quarter – at 2. 6 % – remained above our longer term trend rate, and was above the rate of inflation, whether measured by the gdp deflator or our target measure of retail price inflation ( rpix ), for

. g. capital buffers, tier 1 capital, and capital adequacy ratios. however, there are other requirements which we still have to meet. among those is the whole issue of domestic systemically important banks, the so - called dsibs. we have at least two banks in our jurisdiction that would qualify as dsibs. these dsibs require a different regime. in other jurisdictions, systemically important institutions ( sifis ) are required to actually come forward with a living will. they are deemed to be too big to fail but they are also too big to bail. why are they too big to bail? because the cost of bailing them out is well beyond the resources either of the central bank as a regulator and lender of last resort, or well beyond the resources of the country that holds these institutions in terms of ratio to gdp of the banking sector assets. we fall in that category. therefore we need to be very careful not to end up with a banking sector bust up like ireland or like iceland, which would have tremendous implications for the public sector budget. the bank is currently working on a framework for the monitoring of such institutions which may be required to maintain additional capital. so, i am delighted to be proceeding this morning with the first disbursement under the special line of credit in foreign currency to an economic operator in the tourism sector, mr shakeel nundlall, who is here with us today and who, i am sure, will open the way for other economic operators to go and convert their stock of debt into foreign currency. i thank you for your attention. bis central bankers ’ speeches