We supplement this survey evidence with assessments from internal models. These models are data-driven and estimate percentiles of the distribution of possible forecast outcomes for growth and inflation. Our estimated models have indicated a greater degree of uncertainty than reflected in the U.S. SPF, and suggest downside risk to both the growth and inflation forecast. BIS central bankers’ speeches  3  But, I would caution that these models are still relatively new in terms of their development and their results need to be supplemented by judgment. Now, putting these inputs and my judgment together, I see the uncertainties around my forecast to be greater than the typical levels of the past. This assessment reflects the divergent economic signals I highlighted earlier, and is consistent with the turbulence we have seen in global financial markets. At this moment, I judge that the balance of risks to my growth and inflation outlooks may be starting to tilt slightly to the downside. The recent tightening of financial market conditions could have a greater negative impact on the U.S. economy should this tightening prove persistent and the continuing decline in energy and commodity prices may signal greater and more persistent disinflationary pressures in the global economy than I currently anticipate. I am closely monitoring global economic and financial market developments to assess their implications for my outlook and the balance of risks. U.S. Monetary Policy in a Global Environment Thus far, my remarks have focused on the U.S. outlook and the risks relative to this outlook.
The bank’s capital is examined in relation to all of its assets, even offbalance sheet items. And to meet the requirements, the capital must not fall below a certain ratio. One does not take into account historical risk relationships and other aspects usually used in the banks’ risk calculations. The leverage ratio thus limits risk taking regardless of whether the banks’ models show that their risk is low. Alternatively, the banks are forced to allocate much larger capital reserves than they do now. Otherwise, the leverage ratio will hamper growth in their lending. In this way, gross solvency functions as an additional protective layer against the type of incorrect assumptions in the banks’ models and measurements that were revealed during the crisis. Because the leverage ratio is a relatively uncomplicated measure, it is also more difficult to manipulate or misunderstand. This reduces the probability of the banks’ boards of directors, financial supervisory authorities, shareholders and others being deceived or else  6  BIS Review 159/2010  misinterpreting information. In connection with this, I can mention that the Basel Committee recently agreed on a number of principles that aim to clarify the role and responsibilities of the board of directors and to reinforce the independence and competence of the risk management function. Security and costs – a balancing act A valid question here is how all this will affect the banks and the Swedish economy. Various representatives of the bank sector have complained about the new liquidity regulations, for instance.