» ; J.Coffinet et J.S.Mesonnier, « Anticipations d’inflation du secteur privé et conduite de la politique monétaire »  2  S.Guilloux et E.Kharroubi, « L’impact des prix d’importations sur l’inflation domestique. Le rôle de la structure des échanges ». 2  BIS Review 32/2008  First, a natural process of real appreciation of currencies in catching-up economies is taking place, leading to upward pressures on the prices of their imports. Along with the catching-up in terms of standard of living, the level of prices in emerging countries tends to converge to the level of advanced countries through a combination of appreciating currency and higher inflation. Although somewhat hampered by exchange rate policies in the past decade, it seems to gather speed now with, as an example, the most needed faster appreciation of the Renmibi and at the same time accelerating inflation in China. This process will affect import prices of manufactured goods in developed economies. Second, the growth of emerging market economies and the rise in the living standards of their populations are also leading to a surge in the demand for natural resources, food and energy, which logically has a strong and permanent impact on inflation. Furthermore, by strengthening the magnitude of global shocks in relation to more specifically domestic shocks and favouring the international transmission of the latter, globalisation introduces a much greater synchronisation of inflationary cycles between countries, with the ensuing risks of amplification. Overall, the effects of globalisation have ceased – probably in the long term – to be spontaneously disinflationary.

That was why Basel II provided not only for the use of internal models in Pillar 1 of the regulatory framework, but also for the Pillar 2 and 3 requirements so as to provide a second view on banks’ solvency (Pillar 2), including one based on stress tests and performance measurement, and to facilitate market discipline via disclosure (Pillar 3). Unfortunately, the financial crisis and subsequent analysis have shown that bank and supervisory practices are not as consistent as they could be. For example, the risk weights of some banks that introduced internal models under Basel II have been trending downwards in recent years, when experience and intuition say they should have been moving in the opposite direction. Many people worried that Basel II would be procyclical. It would seem that those fears are largely unfounded, but for reasons that may be far from satisfactory! Increasingly, this has led to questions about the credibility of internal model-based capital ratios. Therefore, alongside the assessment of national regulations, the RCAP has also started studying the consistency of outcomes at individual banks. As with the introduction of a rigorous peer review programme, the significance of this initiative should not be underestimated. Never before have we had international teams of supervisors looking at the modelling practices at individual international banks. I think this is a quite telling example of the regulatory community’s commitment to improving the consistency, comparability and reliability of bank capital ratios.