And any review mechanism must take careful account of the implementation costs incurred by banks when the rules change. But it is costly, too, to persist with regulatory standards where they are clearly out of line with market practice. Real effort has been made to tie the Accord to best market practice and thus to changes that banks will need to introduce anyway. Going forward, the guiding principle, difficult I know to achieve in practice, should be to keep to a minimum the difference between expenditure that banks would be incurring in any event and that required by regulators. Part of the trick is to ensure sufficient continuity of core aspects of the standards, so that changes to basic IT systems etc are minimised or at any rate can take place over time. Time is, after all, a major help in this respect. Implementing systems changed as part of the software obsolescence cycle may involve only modest marginal cost. More immediate and discrete changes are always going to be more costly. These issues will clearly need further discussion. In the EU context, however, it is particularly important that the arrangements for revising any Directive reflect, if not the letter, at least the spirit of Lamfalussy. It would be wholly inappropriate to try to hard code all the detail of the pillar one rules in an EU Directive, as if these can necessarily stand for a long period of time.
In Sweden, economic policy has charged the economy with a good deal of stimuli that can help to generate a broader increase in demand now that the stocks cycle is beginning to have a favourable effect and the prospects for the international economy are brightening. As a result of lower taxes and increased transfers, for example, most things suggest that household purchasing power is rising comparatively strongly this year. Seen over a complete economic cycle, the Riksbank’s instrumental rate is comparatively low. Considering the rate of inflation and the signs that activity is picking up, the real repo rate (the repo rate less the rate of inflation) can be said to be low. Then there is the weak exchange rate, which has subdued effects of the international slowdown and is now helping to stimulate the export-oriented sector. All this amounts to not inconsiderable stimuli to general demand in the Swedish economy, stimuli that look like materialising successively. How heavily should we tread on the accelerator? If inflation, even disregarding the temporary effects, is above the target initially, activity is entering an upward phase and economic policy’s impact on the economy is expansionary, then monetary policy ought to contribute to a somewhat lighter foot on the accelerator. But if most of the unduly high inflation stems from transient increases in the price level and if an economic upturn is not yet assured, it may then indeed be advisable to somewhat defer an upward adjustment of the instrumental rate.