Take synthetic credit derivatives, which were supposed to complete a market in default risk and thereby improve the pricing and allocation of capital. Financial alchemy appeared to have distributed risk, parcelling it up and allocating it to those who wanted most to bear it.11 However, the pre-crisis system had only spread risk, contingently and opaquely, in ways that ended up increasing it. Once the crisis began, risk quickly concentrated on the balance sheets of intermediaries that were themselves capital constrained. And with the fates of borrowers and lenders tied together via hyperglobalised banks and markets, problems at the core spread violently to the periphery. A truth of finance is that the riskiness of an asset depends on who owns it. When markets don’t clear, agents may be surprised to find what they own and for how long. When those surprises are – or are thought to be – widespread, panic ensues (Chart 3). 8  Such naïveté is striking given that evidence of disequilibria abounds in markets for goods and labour. In goods markets, there is ‘sluggishness everywhere’. Left to themselves, economies can go for sustained periods operating above or below potential, resulting, ultimately, in excessive or deficient inflation. Yet efficient market forces ‘should’ bring about changes in prices sufficient to equate demand with potential, leaving inflation as a purely monetary phenomenon. In labour markets, there is ‘rigidity everywhere’. Rather than fluidly adjusting to equate the demand for labour with its supply, periods of deficient labour demand can persist, sustaining mass unemployment and joblessness.

Less than a month ago the FAA – Finance Accreditation Agency, an entity responsible for reviewing the quality of the learning programs that serve the industry was launched. This agency complements the initiatives by the International Centre For Leadership In Finance (ICLIF) to produce capable and competence leaders. Taken together, these efforts reflect our motivation in ensuring comprehensive talent development solutions for financial sector professionals throughout their career progression from entry-level up to leadership positions. Equal emphasis is also given in the area of Islamic finance. Talent development has been identified as a key thrust to support industry growth and development, both domestically and globally. The role of several talent development institutions dedicated to serving the industry has been instrumental in contributing towards achieving this goal – the International Centre for Education in Islamic Finance (INCEIF) which is as a global university offering academic and professional qualifications in Islamic finance, the International Shari’ah Research Academy for Islamic Finance (ISRA) which is a centre for applied research in Shariah and Islamic finance, as well as IBFIM or the Islamic Finance and Banking Institute Malaysia – an industry-owned training entity for Islamic finance professionals. Despite being relatively new in existence, these institutions have now become increasingly recognised as leading providers of expertise in Islamic finance, providing the Islamic finance global community a reference centre for knowledge and talent development. BIS central bankers’ speeches  3  I am most inspired by the optimism set by theme of this year’s conference – “Waves of change, Oceans of opportunities”.