Two features stand out. First, respondents display very different views on future policy rates, consistent with the evidence in Slide 15. Second, the bimodality of the distribution shown earlier in Slide 10 is not simply the result of aggregation, but is a feature of many individual density forecasts. In fact, the majority of respondents appear to have a “low rate” model, which mostly lies in the 0 to ¼ percent range, and a “higher rate” mode, which varies substantially across participants and ranges from about 1 to 3 percent. The right panel of Slide 16 shows the cross-sectional distribution of the modal path projections. The cross-sectional distribution of point forecasts gives the misleading impression that there is broad agreement among respondents on the policy rate at year-end 2017, when in fact this is not the case, as we can see from the left panel. This misleading impression arises from the fact that when interpreting the modal projections one often assumes that the density is unimodal – an assumption that is clearly violated here. Conclusion In conclusion, I would like to re-emphasize three points. Survey respondents can answer probabilistic questions. Probabilistic questions produce measures of subjective expectations that are superior to point forecasts or most likely outcomes. Heterogeneity of beliefs is pervasive and can have important implications for policymakers. Thank you for your attention. 16  BIS central bankers’ speeches  References Adrian, Tobias, Richard K. Crump, and Emanuel Moench. 2013. “Pricing the Term Structure with Linear Regressions.” Journal of Financial Economics 110, no. 1: 110–38.

Fernando Restoy: Capital requirements and banking union Speech by Mr Fernando Restoy, Deputy Governor of the Bank of Spain, to the Analistas Financieros Internacionales (AFI) conference on banking regulation, Madrid, 27 January 2014. *  *  *  Good morning. Thank you, Emilio, for your kind introduction and for the invitation to take part in this AFI (Analistas Financieros Internacionales) conference on banking regulation. As we move into 2014, we face a year of major challenges for the banking industry. This is so, above all, because of the historic importance of the start-up of the single supervisory mechanism, which will effectively come on stream next November. At that point the ECB will assume supervisory powers over the main euro area banks. And this institutional change, marking the origin of the banking union, will come about against a background of deepseated changes in the regulatory framework of banking activity. Allow me to begin by reviewing some of the latest regulatory changes in the prudential field, before sharing some thoughts with you on the ongoing construction of the banking union in Europe. Solvency regulations One of the pillars of the financial reform, which arose in response to the shortcomings evidenced during the crisis, has been the measures aimed at strengthening bank solvency. As you know, the new solvency rules, known as Basel III, have been applied since the start of this year in the European Union. They have been incorporated into legislation through a Directive and a Regulation on capital requirements.