They may perceive that there is a first-mover disadvantage in attracting and retaining talent. Another possible reform could involve putting a greater onus on senior management for the costs incurred from regulatory fines or other legal liabilities, rather than on shareholders alone. Shareholders should not be shielded from such costs and fines—as they may have also profited from associated gains—but it doesn’t seem fair or prudent to shield the decision-makers from responsibility for costly breakdowns as much as they are now. Greater personal liability may also be a powerful incentive to promote better behavior. I suspect changes in these areas would lead senior managers to encourage their staff to speak up earlier about emerging risks, be more attentive when red flags were raised, and respond sooner and more forcefully. I would also note that the many regulatory reforms introduced over the past decade may create incentives of their own, with important implications for bank behavior. Such incentives may alter the nature and locus of risk-taking, and therefore need to be closely monitored. Risks could be shifted outside the banking system, or the incentives could lead to different bank strategies, business models, and product offerings that introduce new risks. There is a long history of such behavior. For example, off-balance-sheet instruments rose sharply in the 1980s in response to the introduction of minimum primary and total capital requirements based on balance sheet size.
Recently, moreover, there have been tendencies for households to be more uneasy about their own economic situation. A more positive development is favoured by the fact that the international financial crisis has subsided. During the autumn there were strong fears that financial problems would subdue international activity for several years. With the normalisation to date, the probability of this has decreased. The December outcome for consumer prices was somewhat lower than expected. The CPI fell 0.6 per cent, which can be compared with our forecast of a fall of 0.3 per cent. The main explanations are a weaker development of commodity prices and falling interest rates. The assessment of future inflationary pressure has to take these and other factors into account. At the same time, the downward path of market interest rates in recent months represents a demand stimulus further ahead. This, too, must be considered in the assessment of inflation. If nothing untoward happens, the Riksbank’s next monetary policy meeting will be held on February 11th. It will then be up to the new Executive Board to evaluate the information that has been received and decide the level of the repo rate. *  BIS Review 9/1999  *  *