Ladies and Gentlemen, Your Majesty, Your Excellencies, My Lord, Monsieur le Gouverneur,
It is a great pleasure this evening to welcome you to Lloyd’s Annual City Dinner.
Last year when I stood here, the Lloyd’s market was experiencing a very successful year, and in fact ended up posting the highest profits since our records began.
What a difference twelve months makes. This year, the insurance industry has had a very different set of circumstances with which to contend with. In 2009, mother nature was benign, but in 2010 she has shown us a very different face, with record levels, not of profits but of natural catastrophes, in Chile, China and Haiti as well as the loss of the Transocean rig in the Gulf Of Mexico. But insurers are used to this cycle. And despite the difficult circumstances, we have managed to post a responsible profit for the first half of 2010, mainly through looking carefully at the spread of our risks and the diversity of our books.
Of course, we are not simply prey to the forces of nature, we also have to navigate the sometimes choppy waters of the economy. Certainly it has been a challenge for anyone to derive investment income in 2010.
The economy may have moved out of crisis, but it is not yet out of recovery.
Last year, I said that arguments were raging about limiting pay, curbing bonuses and restricting financial activities.
Twelve months later these issues remain, they’re a focal point for the public and for governments around the world. And tonight I want to ask whether we in Europe are asking the right questions, or implementing the right policies which will lead us smoothly from recession to growth and which will help us to avoid the dangers of a double dip recession.
I’m afraid it seems to me that there is an almost unhealthy fascination with examining the entrails of the financial crisis of 2008.
Of course we all have to learn from past mistakes and make sure that we do not repeat them. But I believe that what Europe needs at this critical point, is not so much a safety net, but more a launch pad for the growth that will create the enterprise, and crucially the jobs which this continent so badly needs.
Practically every day, I open the City pages of a newspaper and read about new strategies to deal with disclosing salaries, or, more importantly, for dealing with large international banks which are deemed “too big to fail”.
This strikes me as somewhat macabre.
And also somewhat ironic. I sit on the board of the world’s second largest bank by market capitalisation1 . And guess what? It is not headquartered in London, or even New York, but in Beijing. As is the largest.
Ladies and gentlemen,
The question is no longer if China will become the world’s largest economy. It is just a question of when.
And we need to make sure that we are ready for this.
China is already providing new markets. It overtook the UK and Germany this year as the biggest importer of fine wines from Bordeaux.
And if you read the report yesterday, the largest increase in buyers of cellars in London went to buyers from China.
China as a valued customer is the easy part of the equation.
But China, and other emerging economies, are not simply customers, they are also competitors.
And so what are we doing about that?
When I am in Shanghai, or in Hong Kong, I don’t hear complaints that their banks are too big and too international. On the contrary, they are trying to build up these resources, which drive wealth and capital into their domestic economies.
The Chinese authorities do not spend their time debating the finer points of how to draft living wills for their financial institutions. They are too busy building them up into healthy, thriving vehicles for their own wealth.
So institutions which are considered too big to fail by the old Western economies may well be celebrated as a success in the emerging ones, if they decide to up sticks and move their headquarters to the East.
Now I do not dispute that we must find rules and regulations which police effectively the international economy.
I do not dispute that the public have a right to feel very angry at bonuses awarded to those who only recently were the recipients of public bailouts, particularly at a time when Governments across Europe must make severe cuts to the public sector.
But I do dispute that these are the only central issues facing us in Europe.
Bad mistakes have been made over the past few years, and governments need to address them. The assessment by the IMF that Britain is now on the mend is, we believe, a sign of some success. But the task for us now is to get the right balance between looking at the problems of the past and finding a way to solve those that we will face in the future.
We need more people in jobs. This is all the more relevant as we must shortly address how to fund a rapidly ageing population.
So it is absolutely crucial that we support private enterprise, particularly because many public sectors workers will need to find employment in the private sector in the very near future.
Would much of the time that we are spending on crafting regulation and building structures to prevent a re-run of the financial crisis be better spent on strategies for growth?
Many of us here tonight work in the financial services industry. And we have gone, in the space of a few short years, from a great success story – not just for Britain but for Europe – to a pretty vilified bunch of individuals.
It is neither fair nor accurate to lump financial services together in this way. Insurance is not banking. The great European insurers and reinsurers, Lloyd’s, Generali, Allianz, Swiss Re and Munich Re to name just a few, all weathered the financial crisis without recourse to public funds. We employ hundreds of thousands of people across Europe. This year, when European countries were struck by windstorms, and earthquakes hit in Chile, we paid out billions to our clients to ensure that they could rebuild. Yet we remain in healthy financial shape. Our risk management, our capital management is just different and effective.
Yet we find ourselves, two years on from the collapse of Lehmans, still fighting a rear guard action, trying to convince regulators not to impose too harsh conditions on us.
This is not simply a denial of justice, it is a failure of common sense. Why are we punishing strong performers, when the economy desperately needs them? Why are we deploying talent and time in sifting through regulations, when we could be developing growth strategies?
Regulation is a critical and essential part of any economy. And I welcome the efforts made by the international community in the wake of the financial crisis. Establishing frameworks of co-operation and best practice can only help the business community.
But more important are the regulators themselves. The success of a regulatory regime is driven as much by the people who police it, as it is by the actual rules. The regulators must stay close to the people whom they are regulating. So even if rules are written in Brussels, they must be upheld in London by regulators here in the City. And of course, regulators must understand the businesses which they are regulating.
And they must accept that it is valid and reasonable for financial services to aim to make profits and to grow their businesses.
Ultimately, I ask myself whether the economies of Europe are entrenched in a rear guard action, instead of blazing a trail in the areas where they have a head start against other economies, namely services, and specifically, financial services.
In the past, the City of London would look at Frankfurt and Paris as competitors. But now, the principle pretenders are outside the EU – in Hong Kong and Shanghai.
Traditionally, the rise of new economies has been viewed by pessimists as a threat and by optimists as an opportunity. It is, of course, both, and we must view it in this way.
We are living in the generation which saw Europe turn into a single market, which is one of the most ambitious economic projects ever attempted. A common space where over 500 million people trade on a level playing field.
But we could also become the generation that wrecks Europe, unless we address the competition we face from new global players.
We were able to build up strong businesses as barriers to trade tumbled across Europe. But what about the generation leaving universities and business schools today? Are we doing enough to stimulate their opportunities to be enterprising. Or are we creating new barriers, in the form of more red tape and more rules?
Are we, like Louis XVth, who, it is claimed, on surveying the glories of Versailles also said “Apres Moi, Le Deluge”.
Ladies and gentlemen,
Much of the debate around financial services and regulations hinges around the concept of security. Tonight, I would like to ask you to consider what presents the biggest threat to our security, a chastened and uncertain financial services industry, working its way through reams of regulation. Or is it the spectre of falling competitiveness? Of unemployment in Europe. Of lack of enterprise and entrepreneurs?
Now I realise that I have asked many questions tonight, so you will no doubt be glad that I will now introduce our guest speaker who will have strong views on these issues and who has very generously agreed to attend as our guest of honour tonight at very short notice.
Christian Noyer has been Governor of the Bank of France since November 2003 and in recent years, he has successfully steered the French financial system through this same financial crisis. M. Noyer is also very active at European and International levels. He spent four years in Frankfurt as Vice President of the European Central Bank. He also has extensive experience of global financial institutions acting as an alternate Governor of the IMF and Chairing the Bank of International Settlements in Basel. All of this experience will undoubtedly be immensely valuable to France, as it takes over the Presidency of the G20 next year.
There is no better person to speak to us about prospects for stability, and recent regulatory changes in Europe. M. Noyer was asked to Chair a new French Committee, the Prudential Control Authority which was set up this year as a response to the crisis, and he will of course, play a central role in the new European structures as they bed down in January of next year.
M. Noyer has been a regular and very measured commentator on the world economy since the financial collapse. He is a regulator who supports international action, but also the need for a strong local presence. He is well known for seeing both sides of the question, and has urged careful reflection rather than a headlong rush to action. I have been very struck by his steadfast determination to ensure that structures and rules support the aim of a sustainable and balanced economy. And I am sure everyone here this evening, will be very interested to learn his views on how this can be achieved in 2011.
1 - As per ICBC website
