This is the pathology I worry most about. So I ask: Can my colleagues and I at the Fed cure this with monetary policy? Obviously, businesses cannot create jobs without the means for investing in job-creating expansion, so, yes, monetary policy is necessary to propel job creation. But as I have shown you tonight, the store of bank reserves awaiting discharge into the economy through our banking system is vast, yet it lies fallow. Take a look at this chart of total reserves of depository institutions: They have ballooned from a precrisis level of $ billion to $ trillion. 2  BIS central bankers’ speeches  There is plenty of money available for businesses to work with. Consider this: In fourth quarter 2007 the nation’s gross domestic product (GDP) was $ trillion; at year-end 2013 it was estimated to be $ trillion. Had we continued on the path we were on before the crisis, real GDP would currently be roughly $ trillion in size. That’s a third larger than it was in 2007. Yet the amount of money lying fallow in the banking system is 60 times greater now than it was at year-end 2007. One is hard pressed to argue that there is insufficient money available for businesses to put people back to work. Now, bear in mind that we at the Fed only control the monetary base (cash plus bank reserves), not the velocity with which money is used.
This way of organizing regulation will be an even bigger challenge when new regulation designed to hinder the build-up of systemic risk is introduced, since a host country and the home countries of banks operating in the host country may be in different stages of the business cycle. Output gap in the Nordic countries  This is illustrated in this chart showing output gaps in the Nordic countries. Today most economies are closely integrated with other economies, both through trade and through  8  BIS Review 113/2010  financial markets. Still there may be significant differences both in the timing (and amplitude) of peaks and troughs in the business cycle and in the functioning of financial markets. Asymmetries between countries mean that the appropriate regulatory parameters to dampen systemic risk will not necessarily be the same for all countries at the same time. To be effective, regulatory parameters, for instance those calibrated to ensure the buildup of countercyclical buffers, need to encompass all banks operating in the same jurisdiction, as put forward in the July 2010 BIS proposal. Finally, I will say a few words on crisis resolution. Resolution actions taken in one country in response to a crisis can have effects on banks in other countries that do not choose to introduce the same resolution actions. For instance, issuance of government guarantees in one country can weaken banks in neighboring countries without such guarantees (since government guarantees provide an incentive to move deposits to banks in these countries).