Thomas Jordan: Globalisation and financial markets – challenges and opportunities Summary of a speech by Mr Thomas Jordan, Member of the Governing Board of the Swiss National Bank, at ETH Alumni Engineering & Management, Zurich, 13 November 2007. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  In the past few years, globalisation of financial markets has attained a remarkable level, exceeding that of goods markets in a number of respects. The future is likely to see considerable further development in this direction. In principle, the effects of financial market globalisation are positive. It leads to a higher level of efficiency in the international allocation of capital and allows for better risk distribution in investments. However, the globalisation of financial markets in Switzerland means that more companies are being taken over by foreign investors, while new risks arise in the case of investments abroad – risks that are difficult to quantify. The globalisation of financial markets confronts monetary policy with a dual challenge. On the one hand, it changes the way in which the monetary policy transmission mechanism works, and the interpretation of economic models becomes more difficult. On the other hand, external shocks have a greater impact on both domestic financial markets and the domestic economy. Consequently, globalisation of financial markets results in greater uncertainty in monetary policy and increases the necessity of monetary policy stabilisation by central banks.
After all, information is a  2  BIS Review 2/2008  public good and rating agencies are the providers of this good. But the case for further regulation has not as yet been compelling. First and foremost, we should consider the contents of possible improvements. I would pinpoint three areas, among others, for consideration: first, greater transparency of rating methods and the overall role of rating agencies in the securitisation process. Second, a marked difference in the metric used for rating bonds and structured products, which would restore confidence in ratings. This could be done in two ways, which could also be combined: either by adopting another rating scale for structured products (with another symbol for example); or by including an additional measure in the credit rating, in particular on its volatility in times of market or liquidity stress. Third, a specific rating for liquidity risk. I am aware that rating agencies are considering this, despite the difficulties of such an exercise. We must hope that the discussions currently underway in international fora, such as the FSF and groups of central bankers in which the Banque de France is actively involved, will restore the integrity of the ratings system, given its prominent role in the development of modern financial markets. Ladies and gentlemen, thank you very much for your attention. BIS Review 2/2008  3