Sam Woods: Bufferati

Speech by Mr Sam Woods, Deputy Governor for Prudential Regulation of the Bank of England and Chief Executive of the Prudential Regulation Authority (PRA), at the City Week 2022, London, 26 April 2022.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Concept cars

I have always wondered why car manufacturers produce concept cars – those futuristic prototype vehicles, not yet ready for production but good for getting the manufacturer's brand noticed. Is it to open the minds of their customers to new ideas coming down the track? Is it to create a halo effect, so that a middle-aged parent driving their family saloon can imagine they are at the helm of a sleek, spaceship-like craft from the future? Or is it just that it's really fun for the car companies' engineers to invent these concept cars, and for board members to check them out during the coffee break from their interminable audit committee meetings?

Well, perhaps a car company executive will read this speech and let me know. I concede that this is very unlikely, and indeed I would be very reluctant to buy a car from any company whose executives spend time reading my speeches! So I'm going to guess that it's a combination of all the above – but for my purposes today my main focus is the one about having fun.

Because what could be more fun than financial regulation? Or more specifically, what could be more fun than examining the way we currently set capital requirements for banks? I realise that the true answer to this question is a staggeringly long list of more entertaining things you can spend your time doing, including checking out the latest concept cars on YouTube if you are into that sort of thing. So in the interests of time I will move on swiftly.

Buffer usability

As many of you will know, there is a lively debate going on amongst regulators about what we call "buffer usability" – the extent to which banks are in reality willing and able to use their buffers of capital to keep lending to the real economy in a downturn. Learned colleagues on the Basel Committee, including Vicky Saporta and David Bailey from my own team, have put the current model of capital requirements back onto the assembly line and are painstakingly examining each section and considering how it has performed as part of an evidence-based evaluation of post-crisis reforms. They are also giving a little thought to the complexity of the current design, which I can tell you from having driven it a lot is very considerable.