If you are honest only in some places or circumstances, but not others—or only with some people, but not others —then honesty is hardly integral or integrated into your life and work. The importance of this particular meaning of “integrity” was made apparent to me on a recent visit I made to the United States Military Academy at West Point. The faculty and students there believe that strong individual ethics are what make large organizations like the U.S. armed forces succeed. The commitment of cadets to living the ideals of the institution was impressive and humbling. They embodied the word integrity—alignment of word and deed in all aspects of life. Another lesson that I took from West Point is that cadets commit to integrity because their careers—and, in combat, their lives—depend on others. We are in this together—this city, this industry, this country. And if we’re in it together, we all have to behave in ways that benefit the group.7 We have to behave in ways that merit the trust of others. Whether we are citizens or soldiers, the most important relationships in our lives are built on trust. In our personal lives, we take action when our trust has been betrayed. To reform financial services, we need to bring the same expectations of trust—and the consequences of a breach of that trust—to the office each day. If you would not tolerate a practice in your personal life, do not tolerate it in the office. Calling out bad conduct is not easy.
The first is the greater income and consumption volatility that have been observed in emerging markets, both in terms of the level and in terms of growth relative to developed economies. And the second is the fact that economic agents in  1  The views expressed in this paper are those of the authors and do not necessarily represent those of the Bank of Thailand or Bank of Thailand policy. I would like to thank Piti Disyatat, Ashvin Ahuja, Sarawan Angklomkliew, Jaturong Jantarangs, Nawaporn Maharagkaga, Don Nakornthab, Kobsak Pootrakool, Mathinee Subhaswadikul and Supradit Tangprasert of the Bank of Thailand for their substantial contribution to the drafting the original paper. BIS Review 98/2008  1  emerging markets face greater limitations in the ability to smooth consumption in response to shocks. The empirical evidence from two recent studies are summarized in Table 1. As documented by Aguiar and Gopinath in 2007, consumption is around 40 percent more volatile than income at business cycle frequencies for emerging markets, while the ratio is less than one for developed economies. The same is true when comparing relative volatility in growth rates of consumption and income. A study by Kose, Prasad, and Terrones in 2005 also shows greater income and consumption volatility in emerging markets relative to developed economies. Such heightened volatility in macroeconomic outcomes undoubtedly has adverse implications for welfare.