Below is the text of the speech made by the then Chancellor of the Exchequer, Alistair Darling, at Chatham House in London on 29th April 2008.
1. Your conference today is about new financial frontiers. And I want to talk about the impact of those changing frontiers on the UK and indeed other developed economies.
2. The benefits of globalisation are undoubted; and you will find no greater champion of fair and open markets than us.
3. Our future depends on our being able to seize the huge benefits that globalisation brings. But we also need to make sure that we anticipate and respond effectively to the huge challenges that come with it.
4. Today, Governments the world over are dealing with greater and more complex cross border activity; the increasing value of intangibles and intellectual property, and changes in production chains across countries and continents.
5. Nowhere are these challenges more acutely felt than in financial services, one of the most integrated parts of the global economy.
6. And since last summer, global financial markets have suffered a prolonged period of turbulence with liquidity being squeezed.
7. The events of the last few months have demonstrated how a problem that might once have been confined one city or state, or even one country, can today spread rapidly to affect the whole world within a few weeks.
8. As we have seen, problems that started in the US housing market last summer have affected every other country, and Britain is no different.
9. The UK mortgage market now facing challenges as a result of the US sub-prime crisis.
10. Borrowers face tighter lending conditions as a result of higher funding costs.
11. Mortgage approval figures for March – released today by the Bank of England – show that mortgage lenders are continuing to reduce lending.
12. These events present real challenges both here and abroad. That is why the Bank of England announced its support scheme last week.
13. We need to deal with turbulence and uncertainty in the financial markets by acting together with other Governments and Central Banks.
14. We need to act both internationally and here at home to resolve these problems. And let me take the international response first.
15. It is clear that the international institutions set up 60 years ago need to change and adapt to reflect today’s realities.
16. And in Washington two weeks ago, the Financial Stability Forum agreed a range of action – some of it implemented in the next three months, others for the longer term.
17. The immediate priorities were to ensure that banks were as open as possible, in order to remove the continuing uncertainty as to their true positions.
18. Banks writing down losses and rebuilding their capital will help rebuild confidence because it provides greater certainty.
19. We also agreed to strengthened oversight of risk management, including capital and liquidity; clearer standards for valuation and transparency; and changes in the role and use of credit ratings.
20. We will also strengthen international co-operation, so we are better able to prevent crises and deal with problems that occur.
21. We are also working with the IMF and FSF to allow it to play a greater role in providing an early warning of the threats to financial stability, so that the authorities can take early action to prevent these problems in the future.
22. The use of international colleges of supervisors should also be expanded along with more concerted action between countries to deal with this problem.
23. And in the European Union we will next month be discussing how regulators can work closer together, recognising that banks operate in many Member States.
24. Improved co-operation between regulators is essential. Systemically important banks trade in many different jurisdictions in Europe, as well as in other parts of the world.
25. Closer to home, the British economy remains resilient and strong.
26. It has proved resilient to a number of shocks over the past decade, as a result of our macroeconomic policy framework and the promotion of open and flexible products, labour and capital markets.
27. As a result of this resilience, in the past decade, the UK is the only G7 economy to have avoided any negative quarter of growth. But none of us can be complacent. And all of us have to be vigilant.
28. With low inflation, record employment, and numbers claiming unemployment benefit at their lowest level for a generation, and with the action taken last year to curb inflation, Britain is well-placed to withstand the slowdown in the global economy.
29. But we will see the effects and the slowdown like everyone else.
30. So how do we respond?
31. First, by understanding the causes of the present problems. And putting in place measures to deal with them and to try to keep them from happening again.
32. The global economic stability that has characterised the recent years – low inflation and low debt – has coincided with a wave of innovation and restructuring in financial markets.
33. Financial innovation has brought considerable benefits.
34. It has increased the access to finance, with the easier and more efficient allocation of capital with, and between, economies
35. It has also increased the scope for risk to be diversified. That is all to be welcomed.
36. But there are also more unwelcome effects. And the first line of defence has to lie with the directors of a company.
37. The prevailing culture in the past few years has been one of achieving the greatest returns in the shortest period of time.
38. This has been driven, in part, by what is known as ‘the search for yield’ during a period where we have experienced historically low interest rates.
39. This has led to people developing, and others investing in, more and more exotic products.
40. As products have become increasingly complex, there has been less understanding of the risks they bring. Boards have not always fully understood what their organisations were doing, and the risks to which they became exposed.
41. Let us be clear: banks have a clear responsibility to manage risk in their lending, and institutional investors a corresponding duty to be diligent in their investments.
42. Primary responsibility must lie with the banks, their boards and their shareholders.
43. And banks will want to look at their own governance arrangements.
44. But it also means that we need the right level of supervision, and that regulators co-operate with each other in what is an increasingly international industry.
45.The problems in the wholesale markets are beginning to spill over into the retail markets, there continues to be a clear public interest to act.
46. Recognising this, the Government is taking action, to help ensure a fair and well functioning UK mortgage market.
47. Last week, I met mortgage lenders to discuss what the industry could and should be doing to address concerns of borrowers in difficulty.
48. I welcome the arrangements that the industry has in place, which they will continue to build upon, to help ensure borrowers are treated fairly and are helped through this period.
49. And last week, the Bank of England announced its special liquidity scheme designed to improve conditions in the financial markets.
50. The Governor of the Bank has made it clear that the Bank will take whatever action is necessary to provide the banking system with the liquidity assistance it needs to function normally.
51. It is not a case of more and more rules and regulation. There are gaps that need to be plugged. But you cannot have a rule or regulation for every possibility: overregulation brings its own problems.
52.But we do need to have the right supervisory and regulatory regime to make sure that we can respond. And we need to ensure that regulators do what they are supposed to be doing more effectively.
53. We need to close gaps within the system – that is why we consulted on changes to our supervisory system earlier this year.
54. Here we are proposing reforms to the banking system with legislation later this year.
55. These reforms will make it easier to intervene in the event that a bank gets into trouble, in order to protect depositors and maintain the stability of the financial system.
56. We will also make changes to the Bank of England to strengthen its role in maintaining financial stability – alongside its responsibility for monetary policy.
57. We will continue to discuss these proposals to make sure that we get them right. But we must have legislation ready for early next year.
58. Today’s turbulence in the financial markets is one issue.
59. But there are others too, such as how governments respond to multinational companies’ increasing mobility and the impact that has on tax.
60. We need to anticipate a growing problem for all governments – how to protect revenues in an increasingly global market place for goods and services while promoting the competitiveness of our businesses so that they can take advantage of open markets.
61. This is another example of the new financial frontiers we all need to respond to.
62. The UK’s open and flexible markets and light-touch approach to regulation mean that the UK is a good place to do business. Tax is one element of this strong business environment that makes the UK competitive at a global level. We have one of the most competitive tax systems among major economies, including the lowest corporation tax rate in the G7.
63. What should a modern corporate tax regime look like in 10 or 20 years time? How do we respond to the changing world?
64. We are determined that Britain remains one of the best places in the world to do business, but we can never afford to be complacent about that. Our future depends on being able to seize the huge benefits that globalisation brings. But we also need to anticipate and respond effectively to the fresh challenges we are facing.
65. I am therefore bringing together a group with industry representatives to discuss ways in which the tax system can provide the long-term certainty multinational companies need, considering the competitiveness and other challenges facing both businesses and government.
66. Like the USA, Germany or France, the protection in the UK tax system includes rules covering the diversion of profit into foreign subsidiaries – the Controlled Foreign Companies rules.
67. We need to keep these rules under review, as an integral part of our work to reform the taxation of foreign profits: something which business has long asked for.
68. We will do so in a way which reflects the vital importance of maintaining a competitive tax framework. We are determined that Britain remains a good place to do business.
69. We have been working closely with businesses, and as a result of those discussions our thinking has developed substantially.
70. So in the consultation document that we will produce shortly, we will show that we have made progress on issues such as how we apply intellectual property rules; our treatment of income already subject to levels of taxation comparable to those in the UK and a set of exemptions to lessen compliance burdens.
71. We are committed to continuing to engage with business in this area to ensure that the detailed proposals that we are bringing forward in the summer respond to businesses’ concerns.
72. The long-term stability of the economy remains our key priority.
73. We have taken steps to make our economy more dynamic and competitive – and globalisation drives us further down that road.
74. We are determined to remain one of the best places in the world to do business – but we can never afford to be complacent about that.
75. London’s history as a trading and financial centre over the last three centuries, and our long standing tradition of openness, internationalism and flexibility explain why modern Britain is responding to the challenge of financial globalisation, without the protectionist and nationalistic reactions that hold back many of our trading partners.
76. Such openness and transparency has also helped instill market confidence in investors – and we welcome that.
77. Here we have taken advantage of this rapid change, and as a result we have one of the world’s strongest financial centres.
78. New financial frontiers require new responses.
79. I am determined that we do what is necessary to remain one of the world’s best places to do business – and critically to ensure that we maintain our strong and resilient economy, as well as the world’s leading financial centre.