if that ’ s true for monetary policy, then it ’ s much more true for financial stability policy, where the complexities are even greater. there ’ s nothing in financial stability policy, for example, that corresponds to the core monetary policy objective of a numerical inflation target, or the single instrument of a policy interest rate : financial stability policy has a wide range of instruments at its disposal, and there ’ s no single summary indicator of aggregate financial risk. so i think we ’ ll need to avoid too much focus in this area on the simple formula. having said that, i ’ m not against the idea of the prudential regulator varying the capital requirement in response to changing circumstances4, presumably with some co - ordination with the central bank. but i suggest this is an area where it will take some time for national policy approaches to develop, and it ’ s one where too much effort at international standardisation isn ’ t going to be helpful. in fact, the basel ii principles under pillar ii already allow scope for this to occur. bis central bankers ’ speeches systemically important banks another area of ongoing international work is on systemically important financial institutions, known by the acronym sifis. this gets at the question of how to regulate institutions that are too big to fail – or, as some would prefer to call it, too important to fail, or too interconnected to fail. the focus on this question really arose from the experience of the united states, the uk and some other european countries during the crisis, when significant public funds were committed to rescuing failing institutions. understandably, those countries would like to reduce the risk of that happening again. one obvious line of approach is that, if an institution is considered too important to fail, then it should be made safer and, therefore, less likely to fail. on that front, it is proposed that institutions judged to be systemically important should be subject to an additional layer of required capital. work on this is currently being done in both the basel committee and the fsb. another line of attack ( and this isn ’ t mutually exclusive with the first one ) is to reduce the prospective impact of failure if it does occur. this leads into proposals for banks to come up with business resolution plans, or so - called “ living wills ”, which are supposed to ensure the orderly continuity of core functions if a bank fails. it ’ s very important, of course, that there should be good preparation for stress events, and i know a

two possible approaches for the next stage of its regulatory strategy. the first possible approach would be to step back from interchange - fee regulation, if it could be reasonably satisfied that this was not going to result in the fees going back up again. within that broad approach, the board saw two ways that this objective might be met through action by the payments industry. those were : by strengthening competition from alternative payment methods, particularly through development of industry - based eftpos and online payments schemes, coupled with further changes to honour - all - cards rules and increased transparency of scheme fees ; and by voluntary undertakings from the credit card schemes that interchange fees would not rise. the second possible approach put forward in the 2008 review was to maintain interchange regulation on credit card schemes, and to make a further reduction to 30 basis points. the board indicated it would follow this path if progress on the first track was unsatisfactory. as you know, the board undertook to make an assessment of that in august 2009. as you also know, the decision at that point was deferred. the board took the view that good progress was being made by the industry, but that it wasn ’ t yet enough to provide sufficient confidence that fees would be held down in the absence of direct regulation. so the decision was to allow some further time to assess developments. in the meantime, the board did make one further change of a more limited nature, which was needed to put the new eftpos scheme on a comparable regulatory footing to scheme debit. that announcement was made in november. i know that many of you involved in the industry would like me to give some predictions or clues about what the board ’ s next decision on these matters might be. i ’ m not in a position to make that kind of prediction today, but i hope i ’ ve conveyed some of the principles that are important. to reiterate : the reserve bank is a reluctant regulator. we ’ d prefer to see fees being held down by competition than by direct regulation. we believe there ’ s been good progress in promoting competition over recent years. but it ’ s not yet clear whether that will be sufficient. and hence, the board ’ s announcement in august last year explicitly left on the table both of the two broad approaches that i outlined earlier. let me conclude on a somewhat different note. i ’ ve talked mainly today about the payments system board ’ s regulatory approach. but obviously there ’ s more to the card payments industry