The core of his message was that the recent crisis exposed a fundamental imbalance between the power of the financial system and its accountability for its actions – an accountability shared by individuals and firms for their own investments.
In his speech he focused on how we have arrived at this point of relative calm and tentative stability, and what we have learned along the way. The core of his message was that this crisis exposed a fundamental imbalance between the power of the financial system and its accountability for its actions.
A strong, independent, and commercial banking system must be our goal for the future. But as we rebuild the architecture of our global financial system, the task of rebalancing the power and accountability of the sector must define our efforts.
He made the following points:
· The financial sector must profit by enabling the ambitions of the economy to be fulfilled, not by dictating its direction.
· anyone in the financial sector believes that government alone will be un able to drive the change we need – the time for owners, governors and managers of firms to show leadership has well and truly arrived.
· There is a need to reaffirm our understanding of the role of finance in society and in our economy.
· If we are to align the interests of users and participants in the sector, we need to go right back to basics and reiterate the industry’s fundamental role.
· Management of risk: providers of capital must expertly assess investment opportunities in order to balance likely returns with the risks of an adverse outcome.
· It had been argued that for a long time financial institutions have effectively been subsidised by an implied guarantee from the Government. This moral hazard in the banking sector puts our economy at risk.
· In the future, banks must not be allowed to over-extend themselves in the knowledge that their risks will be borne by the state.
· Without action to strengthen systematically significant banks, we will find ourselves with yet more ‘too big to fail’ problems.
He concluded by saying that at the very core of these reforms will be the accountability of individuals and firms for their own investments, business decisions and choices. All necessary measures should be taken to ensure that we do not have a repeat of the recent crisis, and if people act with the knowledge that they will share in the losses – as well as the profits – of their choices, then the financial markets will again earn the trust of their users and participants.
© HM Treasury
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