The global banks play a major role as providers of liquidity in home, host and international markets. Even in emerging markets, debt and equity market liquidity often relies on active participation by global banks. Enhanced regulatory requirements should therefore be targeted, risk appropriate, and applied in a non-discriminatory way on banks posing the same level of risk, be they domestic or global banks. The safety buffers for global banks, which clearly needs to be enhanced, cannot therefore rest too heavily on premiums in up-front capital, liquidity and other regulatory requirements. We should strengthen supervision and crisis resolution capabilities to complement and avoid an over-reliance on regulation. Strengthen continuous supervision rather than rely excessively on upfront regulatory requirements. Effective international coordination among supervisors requires more open and transparent sharing of information between home and host supervisors – home supervisors will want to be well informed about the requirements imposed on significant overseas subsidiaries, and host supervisors need to be kept apprised of developments at the parent bank. Cross-border supervisory colleges and crisis management groups are therefore critical, and they have to be strengthened to ensure that  2  BIS central bankers’ speeches  national policy measures are globally consistent and mutually supportive. So that is the first risk, of going too far with respect to global banks such that the global financial system is impaired. The second risk is that of the fragmenting or balkanising finance. We are already seeing signs of this, and most especially in the wake of the European crisis.
But there are other factors contributing to the recovery: the fall in oil prices, which is translating into a boost to household incomes and into a reduction in firms’ production costs; the very significant depreciation of the euro; and the favourable economic activity figures of some of our trading partners within the Monetary Union. Turning to prices, the annual rate of inflation has been negative in the first three months of 2015, running at –1.3%, –1.1% and –0.7%, respectively, although the non-energy CPI and the core inflation index have been more stable, posting positive figures. In particular, in March, on preliminary figures, the annual rate – though still negative – is estimated to have stood at –0.7%, an increase of 0.4 pp on February, which largely stemmed from the correction in oil prices. Following several quarters of sluggish growth, a recovery is discernible in the euro area. Most member countries are posting positive GDP growth rates, although there are significant differences. Among the major economies, the pace of economic activity is highest in Spain and Germany. In 2014, euro area GDP grew by 0.9%, compared with a decline of 0.4% in 2013. Driving this recovery has been the increase in private consumption, in a setting of improved household confidence and income. Other favourable factors have been the contribution of exports and gross fixed capital formation, the latter due to the pick-up in construction.