and the ability to change strategy or de - risk may be constrained by a number of factors. these factors include the illiquid or complex nature of the investments and the financial resilience of the balance sheet. in relation to security of benefits, once the pension scheme is bought out, there is no possibility of further scheme sponsor contributions to meet any member benefit payments. boards ’ ability to make decisions now, that carefully balance a long - term view against the pressure of short - term performance measures, is therefore critical to the future health of individual firms and to confidence in the sector as a whole. the events of the last two to three years, let alone last three or four decades, remind us that over the life of the liabilities taken on today, there will more likely than not be big changes ; and the uncertainty inherent in long - term business needs to remain front of mind. the pra is therefore keen to continue to work with boards to consider important questions around : which of the incentives for management encourage the sustainable performance of the business over the long term ; and which may favour shorter term? what could happen in the future and how resilient is the business to these risks? how easily could the business transfer from open to closed status if this became necessary? on what terms could the liabilities be transferred to a third party in a range of different market conditions? we have observed over the relatively short time solvency ii has been in force, that investment strategies for annuity business have been influenced by the up - front ma benefit that certain assets attract. the prudent person principle [ 2 ] is part of our rules around investment and we expect boards to challenge, approve and control the continuing appropriateness of the investment strategy. risk management moving from the challenges that boards face in respect of bpa business to risk management challenges associated with investing for the long - term. here success is about achieving a sustainable balance between investing safely for the long - term whilst also taking opportunities to diversify asset holdings, including into assets that have wider benefits for the economy as a whole. the pra recognises that the increasingly diverse range of features associated with ma assets may have a significant bearing on the level of risk and uncertainty around the future long - term business plan. specialised features of these assets affect both how easily they can be sold or restructured, and how attractive they may be to other market participants. bespoke and sometimes innovative features of some of these assets may increase uncertainty around this.

the music stopped. this partly makes the case for reconnecting supervisors and markets specialists in central banks. this is all part of getting the level of capital in the banking industry closer to what is warranted. adair has said a great deal about that this evening. but before coming to the associated international policy debates about the biggest and most complex firms, i want to go back to incentives. because whatever the merits of the riskmyopia argument i have been reviewing, we absolutely must not build a system that relies on dismissing the incentives argument. while i doubt that many bankers deliberately – that is to say, consciously – took outsized risks that crashed the system because they believed they would be bailed out, i do believe that their behaviour will have been profoundly affected by their cost of debt being too low because asset managers believed they would not lose money. asset managers held beliefs about the policy world that fatally diluted their incentive, as creditors, to monitor and discipline banks ( this is the too big to fail problem ). that brings me to the policy debate on resolution. those of us promoting enhanced resolution regimes, who include adair by the way, do so for two reasons. first, no one can guarantee that losses will not exceed equity cushions in the future and when that happens if the losses do not fall on bondholders – via resolution or the much more disruptive liquidation – they will end up falling on taxpayers. and second, exposing bondholders to risk has the potential to harness market discipline – or, as i have put it, to bring capitalism back into the heart of capitalism. that weighs with me both as a matter of principle, and because minds have been concentrated by the planned transfer to the bank of responsibility for micro prudential supervision of banks. a system in which our bank supervisors were the next line of adrian, tobias, and hyun song shin ( 2010 ), “ the changing nature of financial intermediation and the financial crisis of 2007 – 09 ”, annual review of economics 2 : 603 – 18. gorton g b and a metrick ( 2009 ), “ securitized banking and the run on repo ”, nber working paper 15223. see also shleifer ’ s comments on gorton and metrick “ regulating the shadow banking system ” bpea, fall 2010. bis central bankers ’ speeches defence after management would be badly designed. we need to set rules of the game that harness boards, shareholders, auditors and, in