Consequently, the benefits of portfolio diversification will tend to be significantly overestimated by current models. Such a view of the world would also have important implications for approaches to the prudential oversight of capital adequacy for banks and other financial institutions. Regulatory minimum capital requirements for banks’ trading portfolios are now based on the banks’ own internal risk measurement models.
On the basis of current information, annual inflation rates should fall safely below 2% this year and thereafter remain at levels consistent with price stability over the foreseeable future. Any factor which might alter this assessment in either direction will be carefully examined.