Newscasts - Bank of England's Bailey speaks in Washington
23/04/2025 19:31
Click the following link to watch video: https://share.newscasts.refinitiv.com/link?entryId=1_su03hdev&referenceId=1_su03hdev&pageId=Newscasts Source: 'Reuters - Business videos' Description: Bank of England Governor Andrew Bailey speaks about the outlook for the UK and global economies against the backdrop of global trade tensions. Bailey speaks on the sidelines of the International Monetary Fund meetings in Washington. Short Link: https://refini.tv/42JkkLk Video Transcript: >> As for the financial services committee, we oversee the housing markets, which includes the GSEs, the government-sponsored enterprises, Fannie Mae and Freddie Mac, Federal Home Loan Bank system and then, obviously, we set policy for the depository institutions in the country through our Financial Institutions Subcommittee, and then the capital markets more generally. So the SEC and all things related to capital formation. And our philosophy about that is about being pro-economic growth. Since Sarbanes-Oxley in the early 2000s and Dodd-Frank in 2010, the American economy has just been more and more burdened with prescriptive, very detailed regulatory burden on all institutions of all sizes and it's really never been adequately tailored and as a result, you have responsibilities in depository institutions or broker dealers, or registered investment advisors that are the same for J.P. Morgan as they are for a smaller bank. And so one principal philosophy that is tailoring that regulation and when I was running for the chairmanship of the House Financial Services Committee, I published a three-page single-spaced list of things I thought that would make community banking great again but when I say that, it's not scaled only to small banks or small credit unions, it's up the entire ecosystem because here in America, we have the substantial proportion of the deposits in our biggest globally systemically important institutions but we have 5,000 depository institutions that are bearing this burden and as a result, we have a lot of small banks and we have the great big GCPs, and we want to make sure we've got a more distributed size and profitability throughout the industry. And I think you do that by better tailoring regulations. So that's a key theme. So what can we do that's pro-growth in housing, pro-growth in capital formation? We consider our committee the Access to Capital Committee for the United States. >> Obviously, you mentioned 5,000 institutions. Do you agree with J.P. Morgan to Bank of Murray where I grew, my hometown, $200 million balance sheet. Do we have too many institutions should we have consolidation? And how do the smaller institutions compete with the larger institutions in terms of just tech spend? J.P. Morgan spends 14, 15 billion a year on technology. >> Well, I think in the '90s, we've seen consolidation since the peak in 1980. So I think when I started my company in 1999, there were 275 or 280 banks in Arkansas. Today, they're 75 and when I started my career before many in this room were born in 1979, you probably had 30,000 financial institutions over the course of it and that's down to the numbers we talked about today. That was driven by profitability, it was driven by personal philosophy, I don't want to be in this business anymore. I want to sell it to somebody else who can do a better job. But in the '90s, it was driven by technology. And what's been exciting for me to see in the '90s and the 2000s is technology now facilitates even the smallest institution from offering competitive services both at consumer and commercial customers. And so technology is not a reason to exit the financial services business today, whether you're a $750 million community bank in Little Rock, Arkansas or a registered investment advisor working with small institutions. What's driving people out of the business today is the burden of regulation that is untailored and disproportionately borne by those smaller institutions. They don't have the scale now not to compete and offer their services to their customers. They don't have the scale to meet the needs of the FDIC, the Fed, the OCC, the SEC, the FINRA, the MSRB, the BYOB, all these organizations, checking to see if you're listening. And so you've seen Jamie Dimon's famous chart from the 2010 crisis which rivals Hillary Clinton's healthcare reform, 1994 chart. Well, it's no better. It's gotten worse on duplication. It's gotten worse on intrusion. It's gotten worse of ignoring the forest for some individual tree that somebody just invents as something that you want to go in. Attack an institution by an enforcement action instead of by thoughtful supervisory approach. >> How much of this is regulation versus supervision or the both? >> I think it's both. Fundamentally it's structured at the regulatory rulebook, but how we supervise is very important. Using some judgment and we're on most supervisory practices have another important three-letter acronym that's not an intelligence community agency, but CYA instead of CIA and Silicon Valley is the best example of that. Anyone could take the data of the call report data for two years before Silicon Valley's failure and identify immediately straight up this great analytical mind here would spot it straight up. But when former Vice Chairman Michael Barr at the Fed published his after-action report, and you see the UBPR financial call report data, and you layer in the supervisory data of when they had a phone call, when they had a board resolution, when they did a bank exam, and you see absolute abdication of responsibility. And that's supervisory. That is leadership. It's leadership in these agencies about doing M&A review, doing supervisory guidance. And Treasury Secretary Bessent, who's very active this week and making some fantastic remarks on behalf of the World Bank and the IMF meetings, we've had many conversations about the regulatory guidance, the harmonization approach, to make sure that we get it right at the federal and state level. And I appreciate that leadership commitment. One final point, I don't believe in regulation by enforcement. I haven't as a practitioner for four decades in finance and I sure don't believe it when I serve in government, either in the Bush administration, up on Capitol Hill in the Senate or now in the House. It's ridiculous. If you think a practice deserves to be remediated and corrected, let's go through the rulemaking process and have some consensus and do that and not play got you and hijack institutions over some micro complaint that some new staffer at the CFPB has cooked up over the weekend talking to his friend from grad school. Let's go through the process. Let's use the Administrative Procedures Act. Let's have consensus building. That's what made our country the largest, most liquid, most extraordinary capital market in the countries. >> The crown jewel. >> It's the crown jewel. >> Secretary Bessent, a few weeks ago, was it ABA, Rob Nichols, wonderful organization where he talked about deregulation today. He mentioned it, I asked him in the Q&As. Do we need to think about consolidating some of arguments you mentioned, see if essentially been eliminated? Do we need to consolidate some of these agencies, we need fewer and a different organizational arrangement or is the current arrangement fine? We just need smarter, more pragmatic approach or both? >> Well, even when we worked together, I still have in my collection of campaign buttons, one from the Brady Treasury that said one regulator. And I think every quarter century, a new group of thinkers in Washington says, wouldn't it be great if we just had one federal bank supervisor? That's what they do in other countries. And it really doesn't go anywhere because there's a constituency for our state federal approach. There's a constituency for a little bit of competition between the agencies among banks of different sizes, you're aware of that. But it creates a little sand in the gears of the economy. So this idea of harmonization, strict guidance on that when we do a bank exam, whether it's in residence exam at a big bank, where we've got a EIC resident in the bank permanently and you just rotate examiners through the large institutions, or it's every 18 months state or federal exam in one of our smaller institutions. Everybody's expectations ought to be the same. And I'd say they're not. And when we were at Treasury in the White House, we went through a major recession in 1990 and we had to get the regulators all "on the same page." And Secretary Nick Brady at the time, working with Alan Greenspan, we made those supervisors come to the Treasury. This is how we're going to do a bank exam. We're not going to play got you, and so leadership is important. On the subject of too many agencies, I have to tell you, again, I've been in the industry a long time. When now senator then staffer Elizabeth Warren proposed the CFPB back in 2009, and I have to tell you I was very opposed to it. I never once in my banking career had anyone shirk the compliance legal responsibility in a supervisor examiner. The compliance exam in a depository institution or in a broker dealer is an excruciating examination. It's without anesthesia as well. And so to say that we need another one, I said, this is just going to lead to confusion and redundancy and added costs. And she said to me, in 2009, in May in Little Rock at the Arkansas Bankers Association, no. We're going to simplify disclosures for consumers and my goal is that the stack of paper in a mortgage application will be shrunk. Well, has any of that taken place in the last 15 years? No. We've played I have got you. We've added more expense, we've added more intrusion. We've gone beyond the statutory authority. So if one were to eliminate an agency and go back to where that approach was, that would be the one. But I don't think that's even achievable legislatively. And so we've got to focus these institutions and make sure that they're doing a good job in supervision, a tailored job of supervision, a not redundant job in supervision. And Congress has to keep the heat on each administration to achieve that. And I'm pleased that I think Scott Bessent brings that philosophy to the treasury secretary and I think Paul Atkins will bring that leadership at the commission. >> You've been at the leading edge of technological innovation, and you obviously are in the midst of a staple coin legislative. You've got the same in the Senate. Where do you want to go with this legislation? Do you have a timeline? What do you think the final product looks like? >> Well, first, I want the United States to lead in this financial technology arena like we've led in other technological innovations and adaptations over many years in the past, whether it's in communications technology or the foundation of the Internet or in things as simple as as the development of the smartphone. >> But if we don't get the rules right, we drive that innovation offshore into other jurisdictions, and the venture capital and the venture capitalists follow that innovation out. So if we want to make sure that we do it right, I heard the commissioner used the term fit for purpose. I appreciate her copying our bill name last year on that subject. Fit-for-purpose regulation inside the digital asset space is critical because when you go to a peer-to-peer system, a more decentralized system, you've got to rewrite the rules and supervision covering the plumbing, because since 1930, we've done the reverse. We've allowed French to do business with Tim, and we do that through an intermediary. It might be a title company, it might be a broker-dealer, it might be a bank, it might be a custodian, it might be a real estate agent, but we have these intermediaries, and we then set the regulations for them, and they work to police our work between each other. So when you go to a more decentralized finance, that responsibility shifts to the buyer and seller more directly, and is a lighter touch on that intermediary. So we are trying to draft those rules. Two bills making progress. We did this in the last Congress, but now we're poised to pass these pieces of legislation in this Congress. First is a $1 back stable coin rule under federal law. Bill Haggerty, my classmate at Vandy, has introduced that bill in the Senate. It's gone through a Senate markup. It had excellent bipartisan support. We marked up our version of that bill, the Stable Act in the House. A couple of weeks later, we tried to harmonize those drafts as closely as we could, and the House Bill also got bipartisan support. If we think that the future of global payments is going to have a tokenized payment on a block chain rail, then you need $1 back stable coin under US law, under US supervision with high standards of quality and disclosure and auditing to set the global standard that I think will really improve the trust in that product. Secondly, if I have $1 back stable coin, all I have is an item. I have a tokenized payment concept, but where would you use it? How would you store it? How would Barclay serve as a custodian for it? How could someone use it to buy a digital asset or a regular asset out in the marketplace? And so the second bill that we're working on with the Senate, with Senator Lummis from Wyoming, Senator Gillibrand from New York, Senator Scott, our great chairman in the Senate, and our team in the House, including my good friend Brian Style from Wisconsin, is a market framework bill. We passed this last summer. It was called fit for purpose, the Fit 21 Act, got 71 Democratic votes across the House floor. Very bipartisan. We're going to essentially take on that market regulatory framework bill here in the month of May, and we will work to pass that bill. These two bills are essential to be passed. President Trump has asked us to put both of these bills on his desk before the August recess, and we're working mightily on a bicameral basis, on a bipartisan basis, and working with David Sacks, Donald Trump's artificial intelligence and digital asset advisor, to get this done. We're going to get it done. >> And there's views by many that this could become the de facto global standard, certainly the standard for many jurisdictions outside the US. Do you see that as well? And if that's the case, how does that affect the way you think about as you write these rules? >> Well, I think it'll be a solid standard for the US that will attract coders back into the US, and let people explore projects for tokenizing both real-world assets as well as digital asset projects that require raising capital. I'll bring clarity to that. I think on the dollar back stable coin definition, that yeah, I think that'll set the global standard. I think anyone who then wants to compete in that space better have an equally good standard, even if they're not incorporated and not regulated outside the United States. >> And you do see us globally, certainly US going to a tokenized central bank rail on which private tokenized money will flow. >> And this is a very important point, and it's a real important point for international cooperation is that just saying it doesn't make it happen. I'm saying this is a evolving payment rail that has to prove itself on interoperability, on ramp, off ramp, AML, BSA compliance, integration into the traditional finance system. So that I can debit cash, credit, my stable coin, if it's relevant, if I'm going on a trip, or if I'm in international business and I want to have a programmable payment to shrink my accounts receivable days to speed up my cash flow, these are going to be the products that are going to be developed. But to your point, they are going to be issued by the private sector, and we've seen for 60 years successful integration and interoperability of our payment system, both through central banks, but also through the private sector. If you look at Old Bank Americard and what became the Mastercard system to competitors that went from essentially a very over-the-counter ACH credit processing system to now they can participate in a real-time payment. >> This morning, when Secretary Best here asked about financial stability, he said he'd be getting a lot of questions about private credit in the NBFI space. I know Governor Bailey will mention this in his upcoming remarks. How do you think about NBFI generally, and is there anything about private equity or private credit that makes you nervous? >> Well, they don't make me nervous, but I think private credit traditionally is a longer-term fixed-funded source of supply that makes what we would think of as a intermediate-term credit. There's nothing that mismatches asset and liability risk there. You've got pricing risk, you've got credit quality risk. You have the GSIBs now providing warehouse lines to the private credit industry, which is where I think it principally touches the depository institutions, and that's a credit decision that needs to be looked at closely. In the hedge fund space, I think I formed a special task force this year for the first time in the House to look at monetary policy. I've asked Frank Lucas to chair it from Oklahoma. The mission of this is to focus on evaluating the Fed's role since Dodd-Frank and particularly since the pandemic, on how they're doing on their goal of price stability, how they've changed the operation of monetary policy since the financial crisis , and evaluating that. But this is where it touches treasury market structure, which is always not been fulfilled in Congress's oversight there. It's not in the Charlie Monger too complicated pile, but the course of business just seems to make it a secondary issue. I think they're linked, and in a world of enormous federal budget deficits, they're even more linked, and so we're looking at treasury market structure in that same task force. We're talking to the primary dealers, we're talking to market participants, and that's where your question about the hedge fund space touches the committee's jurisdiction, because family offices, hedge funds have made enormous buyers in the treasury futures market. That's changed the nature of bit. But that's also because of the mistakes in Dodd-Frank to take our money center, our GC banks, out of the interday treasury market. And so we're going to look at the regulatory impact and the market impact of how monetary policy and treasury market structure work together. And I think it's a very important task. I'm so glad Frank was willing to take it on. >> In our closing two minutes, let's just talk about the economy market confidence. Obviously, a lot of volatility in the markets. The last couple of days has been much better, but since January, we've seen a sell-off in all the major indices, a lot of concern about slowing growth, forecasts for potential recession. What are you hearing when you go back to Little Rock? What are the people on the street of Little Rock telling you about their view about the markets, the economy, and are they concerned? >> So before I was in Congress, I was a banker in Little Rock, my hometown. I was the chairman of the Chamber of Commerce, very involved in economic affairs in my home state. And for the decade, the number 1 complaint has always been finding the right talent from a human resources point of view to carry out whatever the mission of the business is, and that continues to be the top concern there is workforce, whether it's white collar, cyber, engineering, healthcare, or logistics. But uncertainty is risen to the top in the last few weeks over the tariff strategy of the administration. Because 30% of our output in Arkansas goes to Canada and Mexico, I have enormous international companies in my district, many from France, but from around the world, we're a capital city, we're a logistics hub in the mid-South, and so it's a busy place. People want certainty, and I think that has risen to one of the top concerns. I met with a lot of my major industries last week when I was in Little Rock, I had both steel fabrication and production as well as retailing and everything in between. We talked specifically about what their outlook is for 2025. How they're anticipating their business strategies to cope with this very back-and-forth, on-and-off-again tariff point of view. So this is something that I would urge the president to resolve quickly because on regulation, we're moving in the right direction, rebalancing, tailoring. On taxes, Congress will meet next week and start budget reconciliation, where we're going to work hard to commit that small businesses, entrepreneurs families are not going to have a tax increase at the end of the year. We want to give predictability to that, and that we are going to drop the slope of the rapid growth of spending coming out of the Biden administration, the pandemic, where we just went out of control in federal spending. So regulations going the right direction, spending and taxes, in my judgment, could be going in the right direction. Those are good things. So we want to get the trade issue in the right direction, in the right groove, and make sure it's producing results for the economy and for all of our citizens, so that good news is not stepped on by less successful. >> Well, Chairman, I wish we had more. You're a national treasure, and I wish you better at night. Thank you very much. >> Great American right here, no. Appreciate it. >> Should I say thank you to Tim and the chairman for that wonderful discussion, leading us right into lunch, as you can see. So please enjoy your lunch break, but be back here at 1:15 because you'll want to hear from the governor, Andrew Bailey, and Tim Adams, who will be speaking at that time, 1:15 PM. We'll see you then. Thank you. >> Ladies and gentlemen, please take your seats. Our program will begin shortly. >> Welcome back, everyone. I hope you've enjoyed some lunch, bring your dessert and coffee on in here. And hopefully you've made some good contacts and had some time to catch up with friends. Well, we are going to keep the fantastic programming going for you today. And I'm delighted to say that we will be bringing on to the stage Andrew Bailey the governor of the Bank of England. Now, on December 20th of 2019, Andrew Bailey was announced as the new governor of the Bank of England. He began his term on March 16th of 2020, and Andrew Bailey served as Chief Executive Officer of the Financial Conduct Authority from July of 2016 until taking up the role of governor. As CEO of the FCA, Andrew Bailey was also a member of the Prudential Regulation Committee, the Financial Policy Committee, and the Board of the Financial Conduct Authority. Andrew also previously held the role of deputy governor, prudential regulation, and CEO of the PRA from April of 2013. While retaining his role as executive director of the bank, Andrew joined the Financial Services Authority in April of 2011 as deputy head of the Prudential Business Unit and director of UK Banks and Building Societies. And I would also like to welcome the IIF's own Tim Adams back on stage to moderate this conversation with Governor Bailey. Tim, the stage is yours. [MUSIC] [APPLAUSE] >> Great, thank you, Nancy, I hope everyone enjoyed their lunch. We've got an exciting afternoon for you, and we're going to start off my good friend, the governor of the Bank of England and soon to be chair of the Financial Stability Board Andrew Bailey. Andrew, I just read your speech yesterday that you gave in the University of Leicester. Growth, what does it take in today's world? If you haven't read it, you should read it. It's very thoughtful, very deep. And I was in London the day after you gave it. And unfortunately, the news coverage was that it was a bit dour. But I thought, in fact, you put in there the key components of how do you get growth and it's very simple. You need productivity. And obviously, the numbers out of the first quarter were more positive than maybe we had expected. How do we get more productivity out of the UK economy? >> Well, thanks Tim. It's good to be here. No, you're right. We've had low growth in the UK economy really since the financial crisis. By the way, I say that, I'm not sure the financial crisis was the cause of it actually, but the timing happens to fit. Of course the UK is not alone in that respect at all, but when you look at it, the contribution to that low growth is productivity. It's not particularly labor supply. We've had very weak productivity growth. And although you say I came across a bit dour, the other point I was making, of course, the UK is not alone in this respect at all, is that we've got a population that is on average aging. So looking forwards, the contribution from labor supply to that growth, there isn't reason to believe that's going to expand rapidly. So it really does then come down to productivity growth. And I would say two things about that. One is there's obviously very substantial three things. One is there's a very substantial investment component and the UK again, has had weak investment, and I think both this government and the previous government are right and I very much support them on this to highlight the question of particularly in the pension system in the UK, the low level of risk capital investment in the pension system. It's not the only cause obviously of investment. So that's one thing. I think the second thing is the question of where is technical change going to come from? And in the speech, I gave quite a long view of the history of the UK. Posed the question, is AI going to be what we tend to call the next general purpose technology in the sense of enabling innovation across the economy? I think there's a reasonable prospect that it is. Although the history would suggest that we mustn't be impatient in the sense that it can take time for that to come through. But then we must go about actually enabling that to happen and promoting it. The third one I'd highlight and again highlighted in the speech, and it's very much obviously relevant to the times is trade. Again, the UK benefited greatly in the 19th century not only from technological change, also population growth, but also of course the opening up of world trade. And trade does support growth. We get that from Adam Smith, if nowhere else in many sense. And it is of course a very important point. I've said a number of times, fragmenting the world economy will be bad for growth. >> So given that we do have trade tensions occurring, tariffs certainly have gone up substantially. Although from this administration's perspective, the UK actually may escape some of the worst tendencies for a variety of reasons. How do you take this into consideration as you think through your model of the economy going forward? >> Well, we do, and we're currently working through that because we've got an interest rate decision coming in two weeks time. First of all, you say, well, the UK may well escape. I would say this, yes, in one sense of relative tariff levels. >> I think the president likes you, and that helps. >> That's good. I'm very pleased. We try to be good citizens. The reason is the UK is a very open economy, and therefore, it's not just obviously the relationship between the US and the UK, it's obviously the relationship between the US, the UK, and the rest of the world that matters here, because the UK is such an open economy. So when we do our modeling to your question, we also have to take into consideration the effect on growth in the rest of the world. Of course the IMF came out with its view earlier in the week. And again, I think we do have to take very seriously the risk to growth in that sense. >> In terms of AI, we've had conferences from the previous administration focusing AI, the current administration focusing on as well. How do we go from a theoretical discussion to one in which there's practical applications where corporates and small businesses begin to employ the technology way that actually makes a difference on a daily basis? >> Well, I think we have to encourage it. So I think there's a role for education and training, training of labor force. I spent a lot of time going around companies in the UK as part of my role. That's how we find out an awful lot about what's going on in the economy and it's fascinating. I love going into factories actually as one of the best parts of my job. So I'll give you an example. Two weeks ago, I went to visit a company that makes road sweeping vehicles. They showed me proudly at the end their prototype of a road sweeping vehicle with AI. Where they're using AI to optimize the amount of sweeping it has to do and therefore, the amount of energy it takes and so on. But this is what companies are doing. Now, it's quite fascinating when I go into factories because I never know what to expect. You go into some factories and they're absolutely on it. You go into others, and there's people everywhere. [LAUGHTER] And technology isn't quite the fore, but I think we have to encourage that. We have to make sure that the right encouragement is there. As I say, I think training and education in the labor force is a very big thing in that respect. >> In fact, Congress man Hill was just saying one of the issues he hears when he goes back home and certainly what I hear from my friends out in the real economy is we simply don't have enough workers. There's a worker shortage. We don't have enough labor. Same problem in the UK. >> Well, we also have another level to the problem in the UK is that we're not quite sure whether the official data at the moment are telling us how many workers we have got or not, which is an added complication. But no, it goes back to this point about participation in the economy, obviously about the average aging at the labor force. By the way, I should say it's not because I've got anything against old people because I'm getting there myself. It's not that at all. It's just that, of course, if you've got a population that is on average aging, then labor supply will be affected by it. So we have to take that very seriously and provide all the right training and incentives, it seems to me. >> We're obviously all here because of the spring meetings, the IMF and World Bank. The Bretton Woods Institutions are incredibly important. We heard Secretary Bessent here at our stage today reaffirm the US commitment to these institutions, in fact, laid out a framework, a roadmap to make them more effective. Basically, get back to basics factory settings approach. How do you think about these institutions and were you relieved to hear that? >> I was. I read Secretary Bessent's speech and I was very rightly encouraged because I think it's important that there is a commitment to the multilateral institutions. But I have to be honest, I think it's also important that we make clear that there are issues that we observe in the world today and the way the system is working, which pose hard questions about how the system operates. If you go back to Take One, it's as old as Bretton Woods literally. The original Bretton Woods design put the emphasis for adjustment on the deficit countries. The US was at that point, the world's surplus country. That obviously turned around. I recall a lot of books, honestly. I think it's good. But fascinating to go back and read the whole story about the Nixon 1971 period when obviously the Bretton Woods, the gold dollar link was broken and the number of parallels today in terms of the issues, including things like the burden of defense spending in Europe. And that was the point at which the US was in a sense, switching from being the surplus country to the deficit country. But I think we've got to get back to this question about how we get symmetrical adjustment responsibilities and in a sense commitments within that system. But of course, there's another thing I would emphasize in today's world is, of course, and I can say this, I'm not a politician. Of course taking those decisions in international organizations has to translate back into the domestic environment, and that's tough. >> Absolutely. >> We've both been in this world. It's a very tough thing to do. And that's again been an issue that's run throughout the life of the Bretton Woods. Then the system. I think third point I'd make is, we've got to look at this question about the interface between trade and macroeconomics. You've got macroeconomics in the IMF and the World Bank degree and you've got trade in the WTO. They're very different. The WTO is much more of a contractual in a sense, negotiating environment. But trade, of course, as the administration is pointing out, is a very big part of the macroeconomic picture. So how you make those two things sit together, because again, it's been one of the struggles of the Bretton Woods system to these interfaces, if you like. We've got to look at that again. So I welcome what Secretary Bessent said. I think it's very encouraging because we can't have a vacuum of the multilateral system. >> The managing director gave her curtain opener last Thursday in which she emphasized the importance of addressing imbalances. We may say, it's not sufficient or she needs to do more. But the question is, what tools does the fund actually have? If we want China to spend more domestic consumption, less investment, less manufacturing capacity, US the opposite problem. What tools does she have or does the fund have to actually make that happen? >> Well, first of all, I would say that, of course, I don't think we should adopt the approach that all imbalances are somehow wrong. There will always be imbalances in the world economy, and that's the nature of it because there was always comparative advantage distributed around the system. I think sustained imbalances. I read, Lighthouses book and I do think there is a point in there. I don't agree with quite a bit of his analysis, but he makes points which frankly, we have to take seriously about how the world trade system has evolved. Now I think therefore, the question of, at what point do you say sustained trade imbalances are not consistent with a stable world economy and what causes those? Because I think you make the point about China. My assessment would be China has had sustained weak domestic household demand, which of course is the way in which it has in effect, enabled a very big growth in its export-led manufacturing economy. But that's not sustainable forever and it's clearly causing tensions. Now, I must say in my experience, if you put this point to the Chinese, they don't disagree. >> Correct. >> But it doesn't follow. And I think that's the challenge. I don't think you can say to the IMF, well, that's your job. Your mission should you choose to accept it, but actually, you don't have a choice. The multilateral system is a multilateral system. The IMF is the organization in a sense is there to enable it to happen. But at the end of the day, it's got to be a consensual multilateral system. But there are challenges. And we've had 80 years of Bretton Woods now. We have to accept it has worked. It's the best system we have, but it's got challenges in it. >> I am more suasion, obviously. And if the US is indeed focused on deficit reduction, that's a critical component as well, right? >> Yeah. >> In terms of the funds approach, obviously we heard today that the Secretary wants them to get back to basics. Do you share the concern that maybe the fund or the bank has drifted into areas that probably isn't core to its mission? >> I think all of us in public organizations face in a sense, this pressure to expand our missions. I would say, look, we don't make this up ourselves first of all. In many ways, we represent the people we serve. These are issues that are out in society, and it's quite reasonable that they're out in society. I think I would agree with Secretary Bessent though, that I think organizations have core missions just as central banks do, and it's critical that we focus on those core missions. I've tried to balance this in the Bank of England's case. I would say this to take the question about diversity and inclusion. The way I always say to it, look, we serve the country as a whole, the people of the country. I think it's sensible that we bear a broad relationship to the people we serve. If we don't then we will be criticized. Eventually there will be an issue. But that's a very broad thing. It's not a campaigning thing, it's not a detailed thing. I think the central bank needs to broadly represent and look like the people it serves. We can do that in all sorts of ways. We do that in various ways. I don't think it goes beyond that. >> And that's the legitimacy of the institution. >> That's the legitimacy of the instiution. I want the people of the country to say, I look at those people and people like me are broadly represented in there. >> Moving on to your next role, which is chair of the Financial Stability Board, congratulations. >> Because I need more to do, obviously. [LAUGHTER] >> What do you worry most in this job? As you look under the horizon, obviously Klaus done a great job, you're surrounded by excellent professionals. But as you think about it, now you're the person in the chair. What worries you most about stability? >> First of all I've been involved in the FSB ever since the financial crisis, so it's an organization I care about a lot. I was honored to be nominated by my peers to do it, it's a very important role. I think financial stability, once again, we've been seeing this in the last few weeks. The world around us is changing and has changed. One of the things I said, I made a speech early this year actually on this. We have seen very big changes in financial markets in the last five years, certainly since the financial crisis. It's interesting, a good statistic of this, I think any of our major government bond markets, if you look at the share of bonds bought in auctions in government bond markets these days and how it's changed since the financial crisis. In all our cases, you see basically the non-bank fund sector has gone and the dealer banks have gone basically like this. You've had this huge growth of the non-bank world. You've got a lot of leverage in there. One of the things we've all been watching for the last, weeks is to what extent we're seeing rapid unwind of leverage in government bond markets and is the system able to sustain that and handle it? We did what we call a system-wide exploratory stress test last year to test this out, actually. Markets have functioned in the last few weeks. It's not been normal, but markets have functioned, but when the dust settles, we're going to have to do a lot of work. It's easy to say, what do we learn from this? Do we see points where stress has occurred? The fact that I think that had already been quite a bit of deleveraging before the liberation announcement meant that possibly the industry had taken the edge off it and we do we consider that something that was good or a bit lucky or what? That's one thing. I think the second thing that we're very focused on is the private credit investment world. This of course would be a slower burn thing, but again, it's got quite a lot of opacity around it. I don't say it's a bad thing. I don't for a moment want to say it's a bad thing. There's many good things about it. But I think we have to look again at what are their sources of tension in there? How are they playing out in a world where there's more stress in markets and the economy as a whole. Those two things, I think we will certainly be spending time. >> What about concerns about regulatory fragmentation and generally and specifically, we're still in the wilderness and Basel 3, the US. I think it is actually going to get this done, but it may take a year or so. >> Yes, I think it's interesting 15 or so years on from the financial crisis. If you read any of the Hyman Minsky, who's one of the great in a sense, furs of financial stability. And actually, you can go back to David Ricardo, who said, as you get further away from a crisis, memories fade. We are seeing, to be honest with you. I think we do have to keep saying there isn't a trade off between growth and financial stability. Bank of England that's one of our core things now. However, are we saying therefore that every regulatory decision we ever took and every regulator design we ever made is perfect? No, of course, we're not. It isn't because you have to do a lot of things quite rapidly, you do things where you don't quite know how it's going to work out in reality. So coming back and saying, how's the system working, are there points where we've overdone it, are there points where we've put it too much there or not enough there? Yes, we should do all of that and we are doing it. I would strongly encourage that. On Basel, what I would say is this Basel is both the international prudential standard. It's also the playing field on which international banks operate. It's not for me to say what the US should do, but you're strongly encouraged that there is a Basel implementation. It's for the US to decide what it is. Obviously, the Basel standard is set. I think it's important that we allow the US Time to decide what it wants to do, but I would say that I hope the US will do it because I think maintaining that playing field is important. Therefore, we delayed our Basel implementation. We announced we were delaying it by year. We're actually delaying the start point, not the endpoint, so we've somewhat compressed it. And I thought it's important to give the US time to decide how it's going to reframe its Basel implementation because we want to go ahead together. So I hope it's helpful. I think it is broadly helpful. But I would just make this point again that I think it's important that we maintain the playing field. >> And do we need reforms to the process? Should there be a time limit? As you said, we've been at this for many years. At a certain point, is there a shelf life where you go back and rethink, is it fit for purpose from the very beginning? >> Well, obviously, I think this is a point banks always make to me. There's a delicate trade off between. They always say, look, we'd love you to do this, that and the other and to change things, but we don't want you permanently tinkering with the system because if you permit in there with your bag of spans changing it, we can't plan. So there's a trade off. I do think there are things that I'd like to think we can get to a point where we say, look the system is now stable. I believe the banking system is stable, by the way. I really do believe that. I've said to colleagues, just think how much worse things would have been over recent weeks had we been dealing with a banking system that was frail. It's not at all fragile. That's a good thing. We must remember that. I think, you look at the Basel structure now and you think, could you have possibly made it more complicated if you tried? Is a laugh. The answer is probably not, actually. So I'll give you an example. My colleague Sam Woods has said this in public. I think we should look at the buffer system and seek to simplify it and consolidate it and say, look, let's try to reduce it to one buffer and let's make that one buffer usable because there are too many buffers that really aren't usable at the moment. Now, a question about how do you make it usable? Do you have something that there are two ways broadly to do it. Do you say to banks, you can go into the buffers and they say, really? Or the other way we do with the counter cyclical buffer, we can actually take the buffer away and say, we've read the tea leaves. We're going to remove and we should have that debate as to what the right struck, but it's too complicated. >> Just moving back to technology, Chairman Hill this morning was talking about writing Stablecoin legislation here and they're moving at lightning speed, which could become the de facto regulation for many other jurisdictions. What do you think about stable coins and are you following what's going on here in the US? And do you think it could be regulations that permeate other jurisdictions? >> We're following it very closely. I should have said to Chairman Hill, I do admire the US Congress for its ability to come up with names for legislation.So wWhat you've got the stable bill and the genius bill, we failed that test completely. Although I must I should say, I think it was before the financial crisis. Was it the American Dream Act, which led to the promoting of the subprime mortgage industry, not all great. But anyway, that all went well. I think it's very interesting. First of all, I do draw a distinction in the broad crypto world between the unbaked crypto world and the stable coin world in the sense that I don't regard unbaked crypto as money. A bolt, it's going to come down out of the sky and knock me out at this point. Stablecoins, I think, are set up to perform the functions of money. That's what they're there for. So I think we have to then apply in a sense, the rigor of money to them because there's a long history of commercial bank money take the US painful history to emerge to a risk acceptable definition of money. And I think that's where we've got to go with Stablecoins. I think, applying digital technology to money, both retail and wholesale is very important. Now, I have to say I'm fascinated by this question of Stablecoins though as to how the banks react to this. Because an alternative, of course, is what we tend to call tokenized deposits. Which is basically saying, let's take the definition of money we have in the commercial banking system and digitize it within that. Stablecoins on the face of it , a competition for that. So I'm fascinated to see how the banks view that and where it goes. But look, Stablecoins, I think, I would expect to see them develop. I agree with things that I know people in the US administration have said about, we've got to design the regulatory framework for them. I think going back to what I was saying, a big part of that is that if they are going to act as money, and they're going to help us by the way, in the money world, particularly if they're going to assist with things like improving cross border payments, which really do need improving. Then, we have to say, look this is what is in a sense, the definition of money and what's acceptable. Soo I think that's the debate, I'm very interested to see how US legislation develops in that respect. That's certainly how we're thinking. We put a consultation discussion paper out last year on it. I think we're now, I should say, in response to the debates we've had with the industry since my colleague, Sarah Breeden, is leading it, we're beginning to think through some of what we've seen since then and we'll probably modify some of the proposals. >> I was in Frankfurt in Brussels two weeks ago. The digital euro seems to have picked up some accelerating pace. I think maybe some of it in response to the US and the tariff wars. Every central bank around the world has got some scaled project and how they might think about a central bank digital currency. Here, it's actually been prohibited. Where is the UK? Is it something that's on the drawing board and the R&D? Is it something you're thinking that might be real? How does a digital euro make your life more difficult? >> It's on the drawing board. The first thing I say is, look, I think we want to see the benefits of digital technology applied to money as used in payments, both retail and wholesale. I think it would be a failure of imagination if we turned our back on that. If you take things like use of that technology to align delivery and receipt of goods and services with payment, one of the things we have in the UK, is a real long running problem about late payment, it's a real opportunity. There's real opportunities in antifraud, it seems to me. So there's real benefits in that world from this. Now, I tend to start from agnostic view. I would honestly prefer that the innovation happen primarily in commercial bank money and going back to tokenize deposits or whatever or digital payment systems because I think that's the way we set the system up. I think if we do introduce central bank digital currency and I've said this to our banks, it will be because it hasn't happened in their world. I said to them quite look if you don't do it, we will. But we're very much in there for both in the design world of saying, how can we design this to get maximum advantage? But also talking to the banks and saying, "Look, we're not trying to set ourselves up to compete with you on this." I don't think that's the right way to look at it. I don't think the world needs Central Bank digital currency for the sake of it. What it needs is digital payments. One way or another, we'll get that. >> And we certainly working on this on a cross-border fashion. >> Absolutely. Because cross border payments, they are lagging technology, if you like, cross-border payments are inefficient and expensive. >> Governor, thank you very much. Ladies and gentlemen. >> Pleasure. >> Applause, please.