BIS Review 162/2009  1  inventories had been sufficiently reduced to encourage firms in a wide range of industries to begin increasing output again, contributing to the recent upturn in the nation’s gross domestic product (GDP). 2 Although the working down of inventories has encouraged production, a sustainable recovery requires renewed growth in final sales.
Much of that success relies on the effective measurement of risk, on high levels of competition, and on arm’s length transactions. Indeed, these elements support one another: competition requires institutions to correct mistakes quickly and assess risks as accurately as they can, while independent decision-making helps ensure that pricing reflects risk. Sound pricing, in turn, produces good returns to investors and spurs further competition.