But we also must keep in mind the implications for the functioning of the global financial system in the near and medium term. This requires consideration of prospects for restoring normal market functioning and access, and the creation of appropriate incentives. •  When difficulties arise, the challenge remains, as always, to encourage and work with countries that are ready and able to implement strong corrective actions and to find financial solutions best suited to both the specific case and the broader functioning of the global financial system. A flexible, case-by-case, managed-market approach, represents the best bet - - and the only realistic option - - for achieving those goals as we face a challenging future. Thank you. BIS Review 61/2002  7
I think we have helped to contribute to the considerable progress made on a number of fronts, including making the financial system more resilient and robust and helping make monetary policy more effective, even at the zero lower bound. But there is much more work to do. In particular, I think we have just scratched the surface in understanding how developments in one area, such as capital and liquidity requirements for large, complex financial institutions, affect other areas, such as effective monetary policy implementation. We still don’t have well developed macro-models that incorporate a realistic financial sector. We don’t understand fully how large-scale asset purchase programs work to ease financial market conditions – is it the effect of the purchases on the portfolios of private investors, or alternatively is the major channel one of signaling? There are many other riddles that remain to be solved. How does one design an effective reference rate that is informative, verifiable and not vulnerable to manipulation? If you manage to come up with one, how do you migrate the trillions of dollars of existing contracts to the new standard? The U.S. unemployment rate has declined more sharply than one might expect given the economy’s growth rate over the past few years. Is this permanent or will it reverse if the economy continues to grow and the pressure on labor market resources increases in the coming years? How does one end “too big to fail” for large global firms operating across different jurisdictions? The list goes on and on.