This improvement evidences their willingness and ability to respond to market demands and to future regulatory requirements, although additional adaptive efforts to raise higher-quality capital may be required of some banks. 4  BIS Review 51/2010  With regard to liquidity, Spanish banks have always been attentive to this risk, as evidenced by their bond issues and long-term securitisations, despite the fact that the cost of short-term funding was more attractive. This conservative funding term structure on the liabilities side is one of the factors explaining the strength of Spanish banks during the crisis. However, the financial markets are still far from being back to normal, so it is essential that institutions continue paying particular attention to liquidity and funding. In the medium term, and despite that strong starting point, the new regulations will require additional efforts, particularly with respect to the short-term liquidity buffers which banks must have in place. Hence, in addition to the uncertainty resulting from the depth and duration of the financial crisis, banks have to deal with the additional pressure put on them by the new regulations, still to be defined in many cases. Banks have to make a special effort to explain to the market how they will meet the challenges posed by the crisis and to convey their plans for successfully coping with the regulatory changes. This transparency drive will have to be stepped up in the immediate future.
With growth in money wages running at close to 3%, and with productivity growth running closer to zero, domestic cost growth in the UK is already running at, if not slightly above, rates consistent with the inflation target, even before any further (limited and gradual) build in wage pressures. A limited and gradual build in domestic cost pressures is one important factor underpinning the limited and gradual pace of further interest rates rises expected by financial markets and communicated by the MPC. At present, financial markets expect rate rises of around 25 basis points per year over the next three years. That is not dissimilar to the projected build in wage growth over the period. There are two-sided risks around this forecast, reflecting both cyclical and structural factors. On the cyclical side, there remains a significant degree of uncertainty around the amount of slack in the economy. It is possible the NAIRU could be below 4 ¼% or that under-employment is greater than assumed. Each ½ percentage point of extra slack lowers the projected level of wages at the policy horizon by around 1%. While wage growth was undershooting, it made sense for the Bank to lower its estimates of the NAIRU. But with wage growth now tracking, and with wage forecasts no longer under-shooting, it is no longer clear risks to the NAIRU, and hence wages, are skewed to the downside. With wage growth picking up for the first time in a lost decade, the risks to domestic costs are now broadly-balanced, though still significant.