The changing configuration of the global economy and financial markets, increasing regional economic and financial integration, increasing internationalization of financial services, the continued enhancement to the regulatory structures and approaches will have a significant bearing on the future of the financial services industry. The road in front of us is therefore likely to be significantly different to the one from which we have traveled on. The investment in human capital development is thus important for the future development and growth in the financial services sector. Building human capital has become much emphasised in today's world. Successful banking institutions in the future will be increasingly dependent on intangible assets such as talent. As competition intensifies, the need for banking institutions to attract and retain the best skills and talents will become more urgent. Going forward, the availability of talents will become  BIS Review 25/2008  1  the pivotal factor determining the capacity for the industry to reinvent and transform. Banking institutions would need professionals with the requisite skills and expertise not only at the strategic and management level, but also at the technical and operational level. Successful institutions will be the ones which accord high priority to the continuous enhancement of human capital. Human capital development has thus become of strategic importance and is integral to the success of an organisation. The involvement by senior executives in the management of human capital development has also become essential. Senior executives need to take the lead and devote a considerable amount of their time to this initiative.

This relationship between funding and market liquidity is also evident when we examine the relationship between the dispersion of Treasury yields relative to a fitted Treasury yield curve and Treasury bid-ask spreads (Exhibit 12). Large dispersions of Treasury yields from what is implied by a fitted yield curve may indicate funding liquidity strains, as market participants find it more difficult to arbitrage relative price distortions. 7 Again, we see a strong correlation between the sizes of the yield curve errors and of bid-ask spreads during a financial crisis, but not during non-crisis periods. The drop in the availability of dealer-funded repo financing also appears to have led to less efficient arbitrage between closely related asset pairs, such as on-the-run and off-the run Treasuries, corporate bonds and credit default swaps, and Treasuries versus interest rate swaps. The price differences or yield spreads between the more capital intensive and less capital intensive assets have widened. For example, we can see this in the difference between the fixed-rate paid on a 10-year interest rate swap and the secondary market yield on a 10-year Treasury note (Exhibit 13). Whereas historically this spread has been positive – reflecting the fact that an interest rate swap has more credit risk than a Treasury security – the spread has been negative since September 2015. Market participants suggest that this shift has occurred because the higher capital requirements have made it unattractive for dealers to arbitrage away this dislocation.