In the case of the United States, the correction of the external deficit necessarily involves reducing the high budget deficit, which is a result of the highly expansionary fiscal policies pursued in recent years. The United States and other countries must, in the near future, adjust their monetary policy towards a stance more in keeping with a more advanced cyclical position, departing from what are at present very low official interest rates that entail a notable stimulus for activity. In this respect, an appropriate communication policy, avoiding the overreactions to which financial markets are prone, is essential. This is particularly important, moreover, given the continuing geopolitical uncertainties and the fact that the recent oil price rises, were they to become entrenched, would bear unfavourably on both price stability and the cause of global recovery, making the task of central banks more complicated. In sum, ahead of the current upturn in the international business cycle, we should bear in mind one of the main lessons of previous cycles. This is, namely, the importance of taking advantage of the good times to make the adjustments needed to correct imbalances and to equip economic policies with greater room for manoeuvre that may be used when more difficult times arrive. It is therefore vital that the emphasis of economic policy shift from the short to the medium term, as regards both the fiscal and monetary strands of policy and structural reforms.
In my opinion, this work is going in the right direction. For example, we have a general agreement that not all SIFIs are the same or pose the same degree of risk to the system, and that the framework should recognize this. Along the same lines, the idea is to have a system which builds in a sufficient degree of supervisory judgement to reflect aspects that cannot be quantified, but balanced with “constrained discretion” and a peer review process to ensure that there is a level playing field. And I think, and others think, that the resolvability of an institution should be taken into account in determining the systemic risk of a Global SIFI. For instance, a proper “living will” is a mechanism to reduce the impact of a bank failure and, therefore, to reduce the systemic risk these institutions pose. Finally, the FSB places strong emphasis on the importance of intensive supervision. The aspect of the FSB approach to SIFIs which has attracted most attention is the setting of higher capital requirements (or “loss absorbing capacity”) for SIFIs. We would be extremely naïve to think that extra capital is the answer to systemic risk. Holding extra capital does not resolve the problems of poor management or ill-advised risk taking. And we will never be able to require SIFIs to hold a level of capital sufficient to absorb the huge costs related to their potential bankruptcy.