It also firms up an international 13  leverage ratio regime (borrowing a number of elements from the UK regime ) while also, and more controversially, introducing an aggregate output floor calibrated at 72.5% of standardised risk weights to guard against excessive risk-weight variability. By introducing the output floor in addition to the leverage ratio, model variance will be constrained at a wider set of banks. The leverage ratio acts as a break to debt-funded asset growth focussed on low risk-weighted assets (RWAs) (Chart 5). It binds for banks that specialise such assets, e.g. repo, clearing services, and low-LTV mortgages. On the other hand, the output floor affects banks for which the leverage ratio is not binding yet nonetheless might be exposed to model risk, for example banks that are active in a range of asset classes but their internal models tend to systematically produce results that are significantly lower than the RWAs based on standardised approaches. The Basel Committee will continue to monitor closely the implementation of the Basel III standards, which will include the impact on risk-weight variability. 14  What is next? The finalisation of Basel III signals that the wave of regulatory reform following the Global Financial Crisis is now over. You should not expect a lot of further reform to bank regulation, particularly regulations regarding banks’ capital and liquidity. 15  The focus of regulators, both in the UK and internationally , is pivoting towards three things:   Completing the implementation of the post-crisis reforms – e.g.
The central bank will ensure that economic agents do not believe that inflation of 5 per cent has become the normal level,  29  The new recognition that policy should be based on confidence rather than a series of surprises reflects the influence of theoretical developments on practical policy, c.f. footnote 24. 30  In recent times, central banks throughout the world have become more independent but at the same time more predictable in their communication with other economic agents. This is also related to the new recognition referred to in footnote 24. 31  Norges Bank reports on the conduct of monetary policy in its Monetary Policy Report and Annual Report. Norges Bank’s reporting obligations are set out in § 75c of the Constitution and § 3 of the Norges Bank Act. The Annual Report is submitted to the Ministry of Finance, presented to the King in Council and communicated to the Storting in the Government Credit Report. The Governor of Norges Bank also appears at an open hearing of the Standing Committee on Finance and Economic Affairs. 32  The objective of EMU is consumer price stability in member countries as a whole, rather than stable prices in the individual country. The arguments for a stable value of money are the same as for Norway. 8  BIS Review 136/2008  thereby preventing such a belief from affecting their behaviour. Under an inflation targeting regime, the central bank will accept, when shocks occur, a price increase without having to reduce other prices.