Andrew Bailey spoke on the new regulatory environment in the light of the financial crisis. He looked at how the behaviour of banks makes crises worse, because they engage in maturity transformation. He said this is a social benefit but makes banks inherently illiquid and susceptible to a bank run. He said the popular perception that banks fail because they become illiquid or insolvent is flawed – in his view banks get into trouble because they lose deposits and depositors remove their funds when they think the bank may become insolvent in the future. A problem with one bank can lead to systemic risk, and to financial instability. He looked at the financial stability tools necessary for regulators – transparency, accountability and an approach that recognises the spirit and the letter of the law. (Source: Financial stability – objective and resolution)