All in all, some progress has already been made in the area of reforms to financial market regulation, with the most notable advance being the agreement reached in the Basel Committee, i.e. “Basel III”. The accord calls for a strong reinforcement of current capital requirements and the liquidity reserves of financial institutions.
It is, however, extremely difficult to achieve these two requirements simultaneously. Let me explain how the two requirements conflict. In order to make timely policy responses, it will be necessary for the central bank to act based on its projections of the economic and price situations one or two years ahead.