12  All speeches are available online at www.bankofengland.co.uk/speeches  12  aftermath of a crisis by 0.1% – broadly consistent with the evidence here - this would raise optimal capital requirement by around 2 percentage points, other things equal.14  Working in the opposite direction, however, have been developments in resolution arrangements and new standards for TLAC. No account was taken of these in the LEI study. But if TLAC can be credibly bailed-in, including for systemically-important institutions, this would tend to reduce both the likelihood and severity of future crises.15 It may also discipline banks’ management, avoiding them taking excessive risks in the first place. Some studies suggest this market discipline effect could be material, reducing the likelihood of a financial crisis by as much as 30% (Afonso et al (2015), Brandao-Marques et al (2013)). Colleagues at the Bank of England (Brooke et al (2015)) have estimated that, if these measures of the beneficial incentive effects of TLAC and credible resolution regimes are correct, and if increased resolvability in addition reduces the cost of crises by around 60%,16 then optimal capital ratios for the UK banking system could be up to 5 percentage points lower than would otherwise be the case. A recent study by economists at the Federal Reserve Board (Firestone et al (2017)) also considers the impact of improved resolution arrangements. They use estimates from Homar and van Wijnbergen (2016) to model a reduction in the expected duration of crises from such arrangements.
In this regard, promoting capital market development is important to open up additional channels of funding for long-term investments such as infrastructure. The good news is that the region is already taking steps in the right direction by improving the financial infrastructure of bond markets and expanding the investor base. Meanwhile, many economies are also making greater use of public-private partnerships to promote critical infrastructure investment projects. 9. In the face of these significant uncertainties and challenges ahead of us, IMF’s assessment of the prospects and risks, as well as advice on policy response for the region is particularly important at this juncture. We look forward to the presentation by IMF and the dialogue during the panel discussions. 10. 2  Thank you. BIS central bankers’ speeches