In a speech to the Chartered Institute of Bankers in Scotland, the Governor considers some of the reasons which have been advanced for the recent poor performance of the banking industry worldwide. Part of the explanation, he suggests, may lie with the banks: in a climate of increased competition, and lulled by the strength and persistence of the economic upswing during the late 1980s, they may have become less sensitive to cyclical risks. But at the same time, the downturn that followed was more severe than the banks might reasonably have expected. The recent banking difficulties were not, the Governor argues, a failure of supervision: by giving warnings supervisors can try to ensure that banks are alert to the risks of particular lending, but their job is not to second-guess the management of individual institutions. Action was also taken by supervisors on a global level to strengthen the stability of the banking sector with the 1988 Basle Capital Accord which set a uniform minimum ratio for internationally active banks. Instead, the Governor suggests that much of the banking sector' s current difficulties reflect the pronounced macroeconomic fluctuations, shared by other countries, of the boom years of the late 1980s and the subsequent recession. To avoid a repetition of these difficulties, the Governor argues that we need, above all, a stable monetary environment in which policy is geared towards avoiding macroeconomic shocks; and to continue to promote a stable supervisory environment for banks worldwide. For their part, bankers need to pay closer attention to the control and pricing of risk in the deregulated and highly competitive conditions of modern banking markets.