Jaime Caruana: The importance of transparency and market discipline approaches in the New Capital Accord Keynote speech by Mr Jaime Caruana, Governor of the Bank of Spain and Chairman of the Basel Committee on Banking Supervision, at the Market Discipline Conference, Federal Reserve Bank of Chicago and BIS, Chicago, 1 November 2003. *  *  *  Overview Good morning. I would like to thank President Moskow, Malcolm Knight, and the staff of the Federal Reserve Bank of Chicago and of the Bank for International Settlements for organising and hosting this timely conference. It is a pleasure for me to join your discussion in Chicago today. I can think of few venues better situated to talk about markets and to explore the links between transparency, corporate governance, and the role markets can play to encourage prudent risk taking. Bank regulators in recent years have begun to view markets as an ally to our system of supervision. We have consequently sought to incorporate market discipline directly into the supervisory framework. Markets value well capitalised and well managed institutions as much as supervisors do, and can create rewards for banks that manage their risks appropriately. Yet banks can be very complex institutions and no market discipline is possible without widespread public access to timely, accurate, and comprehensive information on a bank’s exposures, its risk management processes, and its outlook for the future.
xxvii  That is perhaps why studies of expansionary monetary actions generally find they reduce, not increase, inequality while raising demand and supporting jobs. xxviii  And there appears to be little evidence that  stimulative monetary policy makes groups worse off. Do these lessons apply to the most recent UK recession and recovery? Macroeconomic Outcomes The 2008 financial crisis threatened depression and mass unemployment, with the least well-off most exposed. Fiscal policy quickly came under severe strain as tax revenues plunged, the costs of social benefits rose sharply, and the huge bills for too-big-to-fail banks came due. Since then sustained austerity has reduced the fiscal deficit from around 10% of GDP in 2010 to around 3 ½ % today. While necessary, this has, on average, subtracted around 1 percentage from demand each year. Over that time, structural policies have boosted participation in the labour market but have been unable to return productivity growth to anything resembling its historic average. For seven years, in the face of severe headwinds to growth, monetary policy has been the only game in town. Its task has been complicated by those historically low equilibrium interest rates. These likely turned negative in the aftermath of the crisis, meaning that monetary policy has had to run very fast just to stand still. Given constraints on how low nominal interest rates could go, the Bank of England’s MPC had to buy gilts – so-called Quantitative Easing (QE). What if the MPC had not acted?