These trends illustrate that Switzerland and the U.K. both face a trade-off between increasing economic efficiency on the one hand and retaining long-standing political and historical traditions on the other hand. Under pressure from rapidly evolving global economic forces and the need to adjust to them, both countries will need to continue to identify respective strategies to maximize economic welfare and optimize political structures. Recent economic history Let me now turn to some recent economic history. History shapes memory and experience. The work of Nobel Laureate Daniel Kahnemann demonstrates that experience constitutes a reference point for human beings by which current and expected welfare are evaluated against.1 The United Kingdom has experienced profound economic crisis relatively recently. In 1976, the pound sterling collapsed. The Labour government under Prime Minister Callaghan faced a near bail-out by the International Monetary Fund.2 The crisis left deep scars in the real economy. As some of you will remember, power failures were a common phenomenon in those days in London. The experience of a severe economic crisis commonly shared by the British people undoubtedly played a role in paving the ground for the ultimate acceptance of the far-reaching and rapid economic reform agenda under the leadership of Margaret Thatcher which boosted economic growth in the United Kingdom. In contrast, Switzerland has no recent memory of a comparable economic crisis. On the whole, economic reforms progress only gradually and fail to cover the economy as a whole. Fortunately, in some areas, liberalization has advanced rapidly.

For example, if national central counterparty is not a viable and efficient model for a small economy, then the cost of hedging would increase with higher risk weight under Basel III. Meanwhile, if derivatives are cleared overseas, through regional or global central counterparties, we need to consider implication for cross-border supervisory coordination, financial stability, and development of local financial market and competition. On a related issue of Dodd-Frank Act, restriction on proprietary trading of US bank could impact the liquidity of US dollar markets abroad, as well as liquidity of foreign government bond markets which are the back-bone of their monetary policy operation. Another key issue going forward is the balance of authority between Home and Host regulators. There are concerns about the proposal of Financial Stability Board on cross-border resolution of Global Systemically Important Financial Institutions, or G-SIFIs. The concern is that some Host regulators may not be included by the Home regulator in the Crisis Management Group or resolution planning, even if the institution is systemically important in their jurisdictions. We are glad to see the FSB taking initiatives to identify potential problems. Now it is the time to work together on solutions in an inclusive manner. This is because the inclusiveness of the process assures acceptability and commitment, and reduces the uncertainty from unilateral action of individual countries. These international regulatory  2  BIS central bankers’ speeches  standards have no direct international enforcement power.