We may very well be setting a new expectation, standard and text-book for bank resolution, and it may not be the standard we want to set going forward. Moral hazard and time inconsistency are always difficult subjects. For financial institutions in the SEANZA region, many regional financial institutions, thus far unaffected directly by the crisis, are also moving into new markets, such as expanding regionally. Indeed, there is some indication of search for yield, as managed funds start to flow overseas to markets which have attractive risk-return prospects, for example due to prospect of faster recovery, or due to some distortion created from implicit risk-guaranty on certain asset classes as a consequence of rescue package. In some countries, certain asset classes such as real estate may be benefiting from ample liquidity, giving rise to concern on asset bubble. 2  BIS Review 146/2009  All these spell potential for increased volatility and demand increased vigilance on management of risks, not only for those arising from country risk and market risk exposures, but also to exposures from counterparty and liquidity risks arising, for example, from hedging positions in OTC markets. Some of these risks, such as country risk, may have hitherto been marginal for regulators in emerging markets, but going forward things may change quickly. Moreover, with credit-play still a very risky and expensive business, with lending subdued by low demand for loans, treasury return could be a potential profit centre, especially with various liquidity support in interbank markets globally.
Reference to excessive monetary growth made central banks relatively immune to daily political and fiscal pressure, even in places where institutional independence had not (yet) been established. Control of the money supply lost some of its attractiveness because its central analytical basis was subject to successive erosion. Money demand functions became increasingly unstable. Given some differences between countries on the one hand and the aggregates employed on the other hand - mainly M0 to M3 - the connection between the intermediate target and the ultimate target became more and more unreliable. That was also the case in Switzerland, even if with a time-lag and to a lesser extent than in other countries, notably English-speaking ones. We recorded shifts in cash  BIS Review 35/2000  2  holdings which we could not even explain satisfactorily ex post, much less have forecast them with any degree of accuracy. The central banks reacted differently to this experience. Some rapidly threw money supply targeting overboard. Others - including the SNB - changed from annual to medium-term targets. The extended room for manoeuvre made it possible to consider various indicators in shaping the policy course. One could use the term pragmatically adapted targeting of the money supply. In actual fact, this step came close to a transformation of the money stock from an intermediate target to a monetary indicator, albeit the most important one. The destabilisation of money demand as previously set out has complex reasons on various levels.