In answering that question, we should take into account that the biggest problems occur when global factors – cross-border financial integration and associated capital flows – and domestic vulnerabilities interact negatively. In principle, solutions could be directed at any or all of these. Some are obvious in their design and relatively easy to implement, especially if they can be implemented unilaterally by individual countries. Others are more complex in their design or require global, regional, or big-country action that is not necessarily forthcoming. One potential solution is to enter a monetary union, thus eliminating the small country monetary policy problem. It would also reduce the financial risks emanating from currency mismatches and foreign currency maturity mismatches in the balance sheets of domestic banks. But as this is currently not on the agenda in my own country and recent developments have demonstrated that it is no panacea – with pros and cons that extend far beyond my topic her – I will not dwell on it further. There is no doubt that flaws in the international monetary and financial systems exacerbate the problems that I have mentioned. Reforms that would reduce the current asymmetries in the adjustment burdens of surplus and deficit countries, or would to a greater degree internalise the global externalities of the monetary policies of central banks issuing major reserve currencies, could reduce the volatility of capital flows. However, in spite of widespread unease about the current state of affairs, such reforms do not seem likely anytime soon.

2  BIS central bankers’ speeches  2. Resources: On the resource front, we are seeing firms struggle to secure and retain sufficient expertise in some areas, with firms competing for the talent needed to implement the new standards. Firms need to get better at planning in advance, ensuring their recruiting efforts are providing a steady stream of qualified candidates, and looking for opportunities to move people around within the organization, particularly between the front office and control functions, for more well-rounded professions. This is likely to mean more aggressive, creative and targeted searches and a commitment to ongoing training. As the landscape and regulatory requirements change, firms will need to find the right balance between hiring new talent with specific expertise and training current staff to keep them up to speed and capitalize on institutional knowledge. 3. Regional coordination: Cross-functional regional coordination across business areas is necessary, as is coordination across regulatory change programs (EPS, Volcker, Derivatives, RRP, etc.). In addition, FBOs will have to manage several regulatory layers of risk governance including meeting the demands of their home regulator and various host country regulators. 4. Capital Planning, Liquidity and Stress Testing: As firms become more accustomed to – and experienced with – the range of stress testing and capital requirements, there should be greater appreciation for the expectations around governance, quality of modelling, quality and granularity of data, and the level of coordination needed with the head office.