The increase was particularly large for issues with a lower rating. For example, issues with a Baa rating increased by 500%, albeit from a very low level. From a global perspective, the growth in the bond market is contributing to the internationalisation of the euro. In 1999, international bond issues denominated in euro amounted to 40% of total worldwide bond issues. This constitutes an amount comparable with bond issues denominated in US dollars. In the same way, the integration of stock markets is progressing, although they will have to overcome barriers of the same kind as those which I have just mentioned in relation to the bond markets. A notable increase in transactions on the new European indices has been observed. Moreover, the “new  BIS Review 58/2000  6  markets”, with growth figures benefiting greatly from the establishment of the large European market, have expanded considerably. Finally, the announcement of stock exchange alliances and mergers over recent months reflects the logic of stock market integration and will accelerate the process. As I have said, the broadening of the capital markets and their greater integration are contributing to a more efficient allocation of savings. First, this development is leading to lower transaction costs and is increasing the liquidity of the traded instruments. This, in turn, will contribute, all other things being equal, to reducing the absolute level of interest rates. Second, it is multiplying investment opportunities, increasing the range on offer and fuelling competition between issuers.
Ensuring we have central bank tools that are effective: to backstop these new forms of systemic liquidity risk effectively, central banks need the right tools – to detect risks in a timely way; and to respond. In the LDI case, early warning required the use of qualitative as well as quantitative market intelligence. Effective response required the use of a buy/sell facility. Lending directly to non-banks would not have worked in this case. But it has many desirable properties for other scenarios, and is a high priority for future work. 4. Calibrating central bank tools to minimise risk: backstop facilities must be carefully designed if they are to be effective in removing the threat to systemic stability while minimising risks to the stance of monetary policy, to public funds, and to the incentives of market participants. In the LDI case, we sought to achieve that by grounding the objectives of the tool in restoring financial stability, targeting it on the parts of the market most in need of assistance, pricing it as a backstop to ensure we bought no more than needed, and ensuring it was strictly time limited, in its operation and in its unwind. The LDI operations were successful, but highlight many questions for the future. For me, three in particular stand out: Where do societies want to draw the line between public and private insurance against systemic liquidity in non-banks, and how do they ensure regulatory and central bank facility thinking develops in a co-ordinated way?