It also accounts for a significant proportion of the rise in risky debt prices: a year ago, corporate debt prices were signalling larger losses on company securities than seen during the Great Depression (Chart 6).   Third, improved liquidity in financial markets has lowered decisively uncertainty about future market prices. This has lowered the compensation investors require for such risk – the liquidity premium – boosting asset prices. This accounts for around a half of the fall in spreads on sterling investment grade corporate bonds since March last year (Chart 7). Mirroring the recovery in asset prices, there is now convincing evidence of global output having turned in the second half of 2009. The IMF projects that the global economy will grow by 3.9% in 2010, having contracted by 0.8% in 2009. Surveys of manufacturing in the major economies are at levels last seen prior to the crisis. This combination of a stronger real economy and buoyant financial markets has generated a dramatic turnaround in fortunes of the banking system. Global banks’ net income in 2009 is expected to be around $ billion, compared to a loss of roughly that amount in 2008. Income from market-making in various financial products has been especially lucrative, given higher bid-ask spreads and client activity (Chart 8). This windfall gain has helped repair banks’ over-extended balance sheets. Global banks have boosted their Tier 1 capital ratios by almost 3 percentage points since the start of 2009. UK banks’ Tier 1 ratios have increased by around 3.4 percentage points.

As an example, it is more difficult to propose needed regulatory measures at the same time as promoting the growth of the financial market. To sum up: A country should be able to manage independence, accountability, transparency and efficiency satisfactorily in any kind of supervisory structure. For independence there might be some advantage with central bank supervision. But for cooperation leading to better efficiency there might be a slight advantage with a unified authority. Arguments for and against various supervisory structures After having discussed the conditions for good supervision let me now review some of the arguments for and against the various actual supervisory structures. I will first address the issues of having supervision inside or outside the ministries and the central banks. I will then turn to the arguments for and against unified authorities. Supervision inside ministries may provide some benefits in the form of insight and staff expertise, maybe also access to resources. But there is a strong disadvantage in the lack of independence plus the risk to the public’s confidence in the government if failures should occur in the supervised sector. There is also a serious governance issue in those countries where the government is the owner of financial institutions and also supervises them. Arguments for retaining supervision in the NCB What about supervision inside the NCB? First, banks have a special importance in the financial system. Their activities are often complex. Therefore, they need high quality, resource-intensive supervision. The NCB normally has independence and revenues.