system has elements of both. prudential supervision of insurance firms is carried out directly by a government ministry, which is unambiguously government regulation. banking supervision is carried out by the bank of england. constitutionally, this is not ‘ government ’ regulation, but rather regulation by a public body which is authorised by specific act of parliament. certainly no one describes what we do as self - regulation, even though the bank of england is a bank. on the investment side, the picture is more complicated. the government has delegated its powers to the securities and investments board. the sib ’ s governing board includes people who are active in financial services, but they are appointed by the treasury and the bank of england ( indeed i am one of them ) and are required to act in the public interest. again, this does not look like self - regulation. however, the various front - line regulators are called, in the act itself, ‘ self regulating organisations ’ ( sros ). their boards include a high proportion of active practitioners, elected by the industry to represent its views. practitioners are also heavily involved in policy discussions, rule - making and enforcement functions. but, like the sib, the sros operate indirectly under statute, and have a duty to regulate in the public interest. we therefore have no self - regulation in the strict sense, rather a variety of statutory and statute - backed bodies with practitioner involvement, each with different relationships with the industry and with government. effective regulation needs the input of all participants in the market if it is to offer appropriate protection without stifling innovation. regulators can benefit greatly from effective practitioner input but to retain the confidence of the investing public they must persuade them that regulation puts their interests, and not those of the firms and their shareholders, first. the system we now have is undoubtedly capable of achieving an appropriate balance between market sensitivity and consumer confidence ; it has, in many respects, worked well. but it has been stress - tested in a number of difficult episodes : the maxwell affair, the private pension mis - selling saga, the collapse of bcci, barings bank and sumitomo. these episodes have taught us something about the strengths and weaknesses of our system, just as the s & l crisis and the daiwa new york problem have done in the us. furthermore, markets themselves have moved on. the financial landscape of today is almost unrecognisable from the one which informed legislators ’ views in the early 1980s, before

here in london. given our position as a major international financial centre the stability of the system could be impacted by any significant storms from elsewhere. perhaps i can say a few words about what this means to us at the bank of england. responsibility for the overall stability of the financial system as a whole means we undertake activities ranging from behavioural research to oversight of payment and settlement systems ; from involvement in standard setting to implementing infrastructural change. to do this efficiently means, as our governor mervyn king recently reminded us, that we have to see the wood for the trees. the challenge is where you draw the line. this entails a prioritisation process to decide on the extent and degree of potential threats - and also a “ sunset ” approach where we subject each area of work to regular review to assess progress and continued relevance. there are a number of, interconnected, areas of work. these focus both on “ hard infrastructure ”, including payment and settlement systems, and on “ soft infrastructure ” ; standard - setting in areas like accounting, audit, prudential and legal standards. we also analyse key developments in the international arena, for example in relation to threats of failure of emerging market economies and response to this. 12. public policy response - institutional as to the second area - the institutional response - there are both national as well as international dimensions. on a national basis, countries increasingly recognise the distinction between supervision ( looking at the individual institutions and markets ) and the systemic factors involving concentrations, interrelationships and behaviour in relation to the system as a whole. each is an essential element in the provision of financial stability oversight. in relation to supervision, in some jurisdictions - including the uk, japan and germany - all the supervisory functions are carried out within one institution. in others they are handled by different agencies. certain countries have combined questions of the systemic issues with those of prudential oversight, and then put the investor and consumer protection aspects of regulation into separate agencies [ the “ twin peaks ” approach adopted in australia and france ]. yet others still survive with a multiplicity of agencies. the us is a case in point - and it is worth noting that, despite all its complexities and conflicts, the health of the us financial sector as well as its economy do not appear to have suffered unduly, despite episodes like the savings and loan crisis. however, the broad trend is to combine investor protection and consumer protection for banking securities and insurance, and