In Japan, the impact of the first arrow of monetary stimulus is at risk of being blunted by the recent consumption tax hike. •  The Bank of Japan has just announced a further expansion in stimulus – an openended asset purchase at a rate of about 15% of GDP a year until the inflation target of 2% is met. •  Meanwhile, the third arrow remains largely in its quiver. In China, the challenge is to strike a delicate balance between implementing the reforms necessary for long-term sustainability while supporting short-term growth and stabilising the property market. •  The reform agenda that emerged out of the Third Plenum offers a credible and comprehensive blueprint for the way forward. •  The leadership is keenly aware of what needs to be done and is committed. •  But significant execution risks remain. In India, there is a new government in place committed to improving the business environment for investment and building the infrastructure necessary for a strong manufacturing sector. •  But India needs to accomplish this while taming inflation and reducing its fiscal deficit, not to mention recalibrating the dynamic between the centre and the states that is critical for reforms to take root. BIS central bankers’ speeches  1  Reverting to mean or different this time? The weak and uneven global recovery post-Crisis has raised concerns about the pace of future economic growth and what it means for returns on investments.
As a recent paper by IMF staff stresses, a branch model for internationalization may be cheaper than one based on subsidiaries. However, it may also be riskier, both for the host and the home markets. Although nobody expects that these banks will need to be liquidated, we have seen sufficient black swans in recent years to show us that we need to hope for the best but be prepared for the worst. And if liquidation were needed, a stand-alone subsidiary model would have important advantages over a branch model, especially if there is substantial deposit taking activity at the local level. I am not saying that the liquidation of a global bank organized through subsidiaries would be an easy task. What I mean is that it would be much easier than for global banks which are deeply interconnected across countries through branches. 2  BIS central bankers’ speeches  The stand-alone subsidiaries model has an additional advantage, from the perspective of the supervisor. It is far more symmetric for the local supervisor than the alternative model, allowing them to really supervise the institution. And as a home supervisor, if a foreign bank has a significant share of a domestic market, I would rather have the domestic supervisor deeply involved in the monitoring of that bank. Our experience has taught us that local supervisors usually have a deeper knowledge and more accurate information on developments in their home banking sectors than distant parent company supervisors.