The financial institutions have the responsibility to establish a compliance mindset throughout the organization as a foundation that places high regard on ethics, trust and values. Energies that are used by some banks and financial institutions to design ways and means of flouting instructions and defying directives should be diverted to observance of governance and compliance. 6.2 I have highlighted the challenges that financial institutions could encounter in implementing GRC amidst ongoing increasing globalization, continuously changing laws and regulations, various forms of financial stresses and continuous evolution of complex financial products. These challenges underscore the importance of compliance and best practice, which have already been set by the financial services industry regulators and supervisors as well as the international standard setters. 6.3 In the present financial industry environment, where the stakeholders and other interested parties put pressure for greater transparency and corporate responsibility, the Board of Directors and senior management have to set high standards in all aspects of GRC. The increase in investments to improve the IT infrastructure and human resources to integrate GRC management can improve risk management as well as compliance performance and its efficiencies. The financial institutions that have strong governance and  6  BIS Review 15/2008  compliance processes in an integrated GRC framework will be more capable of winning public confidence, attracting investors, improving corporate reputation and efficiency, as well as contributing to promote financial system stability.
But the steep rise in implied future yields five years ahead suggests that inflation is expected to be higher in the medium term. That could be associated with expectations of softer macro-economic discipline, perhaps more specifically reflecting market uncertainty about EMU in the light of the ongoing debate about prospective membership and about how far the ECB will in practice be free to pursue its statutory task of maintaining price stability. It may, on the other hand, simply reflect some kind of market imperfection. The same analysis can be applied to Italy and Spain, for example, to try to assess market expectations about their possible membership of EMU as part of the first wave. It shows that notwithstanding the recent falls in short-term interest rates in those countries - which can largely be explained by their improved economic performance - 5 years forward yields remain significantly higher than those in Germany and France suggesting that early EMU membership is not at all certain in the eyes of the markets. BIS Review 22/1997  -4-  What can we conclude from all this, Mr. Chairman? Well, the conclusions that I draw are essentially threefold and hardly very surprising. I conclude, first, that markets at present are reasonably persuaded that the world economy as a whole will remain relatively stable at least by comparison with much of the post war period.