Mr Bailey explained the three core elements to modern public policy design: setting the objective of policy; designing the institutions that are responsible for operating the policy; and creating an effective mechanism of accountability for the policy.
"The key point to understanding how the accountability mechanism should change is to recognise that financial stability is a public good in which there is a public interest that can trump private interests of all sorts. This public interest should be enshrined in the objective of policy and thus in the actions of the institutions selected to pursue the interest, and it should therefore feature strongly in the accountability mechanisms. To give examples, there is a public interest in the levels of capital and liquidity buffers that institutions hold, in firms creating Recovery and Resolution plans to deal with failure should it happen, and in seeking to ensure that future remuneration of bankers is done in a way that is much more aligned to the risks their institution faces. These may seem like distant points, but history tells us that we will need to work hard to get these outcomes."
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