interesting:
Markets are a major part of the UK economy. 350,000 people are employed in financial services in London alone, and 1 million across the UK as a whole. Across the country, their enterprise contributes £130 billion to our national income and £70 billion to our exports. On current trends, the UK-based non-bank financial system would increase from around six times UK GDP to nearly fifteen times by 2050.
Most fundamentally, our markets serve our real economy.
By financing firms to hire, invest and expand, our markets help drive UK growth.
By opening up cross-border trade and investment, our markets create new opportunities for UK businesses and savers.
By transferring risks to those most willing and able to bear them, our markets help UK households and businesses insure against the unexpected.
Much of this activity depends on fixed income, currency and commodity markets. These FICC markets establish the borrowing costs of households, companies and governments. They set the exchange rates we use when we travel or buy goods from abroad. They determine the costs of our food and raw materials. And they help our companies manage the financial risks they incur when investing, producing and trading.
Markets have become ever more important to people as they bear increasing responsibility for financing their retirements and insuring against risks. The suitability of those decisions will depend heavily on FICC markets. It is therefore vital that they work well. And are seen to do so.
followed by
, markets can go wrong.
Left unattended, they are prone to instability, excess and abuse.
Markets without the right standards or infrastructure are like cities without building codes, fire brigades or insurance.
Poor infrastructure allowed the spark of the US subprime crisis to light a powder keg under UK markets, triggering the worst recession in our lifetimes.
Poor ‘soft’ infrastructure such as codes of conduct that too few read and too many ignored.
Faulty ‘hard’ infrastructure like interest rate and foreign exchange benchmarks that were quite literally fixed; and
Weak banks whose light capital and heavy reliance on short-term funding created a tinder box.
and then his Real Markets is nice.
I believe everyone in this room would agree: we need real markets for sustainable prosperity. Not markets that collapse when there is a shock from abroad. Not markets where transactions occur in chat rooms. Not markets where no one appears accountable for anything.
Real markets are professional and open, not informal and clubby. Participants in real markets compete on merit rather than collude online.
Real markets are resilient, fair and effective. They maintain their social licence.
Real markets don’t just happen; they depend on the quality of market infrastructure.
his bit on reform
Reform is strengthening the resilience of major banks. Their capital requirements have increased ten-fold and their liquid assets are up four-fold. These banks’ trading assets are down by a third and intra-bank exposures by two-thirds.
Reform is ending the scourge of Too Big To Fail. The combination of eliminating the implicit public subsidy and increased capitalisation will correct the distortions caused by the structural under-pricing of risk on banks’ balance sheets. And by making a further shift to market-based finance inevitable, it is increasing choice and competition – real market forces.
Reform is also improving risk transfer by untangling the complex web of derivatives that meant failures like Lehman triggered chaos; and by creating simple, transparent and comparable securitisation markets.
This reform agenda has increased the effectiveness of FICC markets and reinforced their social licence. It is frustrating for us all that such major progress risks being overshadowed by misconduct problems.