The size of external imbalances, the capital flows associated with them, and the accompanying constellation of interest rates and exchanges rates reflect a range of factors, from differences in actual and potential growth rates, and the degree of competition in financial and product markets and the presence or absence of capital controls, to differences in monetary and exchange rate arrangements, the degree of financial market development, and the net borrowing requirements of governments, and to a whole range of different factors that affect savings preferences and the perceived return on private investment. The relative importance of these factors is hard to assess, as is their likely persistence. And this complicates the task of understanding the implications for policy. The challenge of explaining these anomalies is illustrated by considering some of the explanations now prevailing. The decline of thrift in the United States is one common explanation. The sustained decline in net national savings in the United States is the necessary counterpart to the rise in the current account deficit. But this observation does not explain why that growth has not been accompanied by an increase in longer-term interest rates. The robust productivity outlook for the United States relative to the rest of the world is consistent with an increase in the U.S. current account deficit, such as we experienced in the late 1990s. If this gap in potential growth were sustained, the United States would be able to sustain a larger external imbalance than we might have thought historically would be the case.

Specifically there is asymmetry in the access to information and bargaining power between the consumers and financial service providers. These imbalances can be addressed by three mutually reinforcing strategies. Firstly, promoting stronger transparency and disclosure standards in financial institutions; secondly strengthening the mechanisms for consumer protection; and thirdly enhancing consumer education. An increasing number of countries have undertaken this more comprehensive approach in order to give greater focus to consumer protection issues for ensuring the soundness of financial service providers and ultimately to the stability of the financial system. This will also in turn promote more effective consumer participation in the economy, thus contributing more significantly to the economic growth and development process. The approach and mechanisms adopted to protect consumers in individual jurisdictions will vary from one country to another, given the unique characteristics prevailing in the different respective economies and financial systems. Consideration of country-specific circumstances and contextualisation is important to evolve relevant and effective consumer protection and education infrastructures. Individual countries need to customise the consumer protection and education framework to their environment, taking into account factors such as the stage of economic and regulatory development, the structure of the financial system and the level of consumer sophistication. BIS Review 86/2005  1  Prudential safety and soundness, competition and consumer protection need to co-exist to effectively serve the various stakeholders' interests. Hence, implementing an effective consumer protection and education framework involves achieving an appropriate balance between providing adequate safety for consumers while promoting competition and financial innovation.