The challenge, now, is to calibrate and phase in the new framework in a way that does not impede the recovery and does not contradict our macroeconomic objectives. In the long run, we want stronger balance sheets in the banking system but too high capital requirements could have negative effects, reducing loan supply and, paradoxically, fostering risk-taking in order to keep a high return on equity. In the immediate future, disorderly deleveraging is one of the main downside risks to the recovery process. A macroeconomic assessment of the reforms is underway and will help us strike the optimal balance. The broader point here is that the proposed reforms may have significant macroeconomic consequences and these should be factored in when designing and implementing them. A critical issue put forward relates to the behavior of banks with respect to the capital buffers that they retain on top of the existing minimum. If banks target buffers above the regulatory minimum, which is an endogenous market outcome, they may need to raise even larger amounts of equity than what can be expected by just looking at the current package. We know from empirical studies that weaker capitalized banks typically exhibit weak loan growth compared to other better-capitalized banks. We also know that banks may find it less costly to adjust loan volumes and loan pricing than capital, as frictions in the market for bank capital make the latter option more expensive.
To reap the benefits of financial innovation and reduce its risks, we need robust and resilient financial systems and infrastructures. In this respect, concentrating systemic risks in central clearing counterparties for the most important markets (such as interbank and derivatives markets) may bring us a long way towards reducing them, provided these CCPs are properly regulated. In this respect, I think that locating these infrastructures in the same area as that of the currency they deal in and allowing them access to central bank money are key factors. A last option which is currently gaining some international momentum concerns the possible taxation of financial institutions and activities. In principle, this idea seems quite appealing. However, the diversity of objectives that may be given to such a tax shows that the policy  BIS Review 57/2010  3  debate must be clarified. In a financial crisis prevention perspective, it is aimed at changing incentives and at forcing financial intermediaries to internalize the risks that their activities generate for the whole system. In a crisis management perspective, it should enable governments to recoup the costs of financial bailouts in a systemic crisis. My main concerns regarding this issue are twofold. My first point concerns the articulation with regulation. The added value of a tax over prudential regulation still remains to be demonstrated for countries, such as France, that have taken advantage of an effective regulatory and supervisory framework and in which public interventions in the financial sector have entailed no net costs to the government.