Yet, such practices contribute to rapidly pushing up property prices. Thus, having observed that liquidity can disappear very rapidly, that central bank intervention must remain exceptional and that excessive maturity transformation increases systemic risk, a preventive approach is called for. Such an approach should take into account two aspects: –  I will start by discussing Basel III liquidity regulation, while stressing the fundamental goal: reducing liquidity risk and limiting maturity transformation. –  Nevertheless, whatever changes are made to the regulatory framework, this necessary but one-size-fits-all approach will still be inadequate if it is not accompanied, or even preceded, by new policies to manage maturity transformation by banks. BIS central bankers’ speeches  1  I. An overview of Basel III liquidity regulation  1. A fundamental goal: preventing excessive maturity transformation risks  Since banks are in the best position to reduce information asymmetries in credit markets, select and monitor loans and diversify their asset portfolios, they are at the heart of maturity transformation activities. In traditional financial intermediation, banks collect savings and provide liquidity to the whole economy through transactions on their balance sheets. To do this, they transform liquid short-term liabilities into medium- to long-term assets with poor liquidity. This activity generates well-known risks, in particular in terms of interest rates and liquidity. Maturity transformation is therefore subject to prudential regulation to ensure that basic security rules are followed. At the Seoul Summit in November 2010, the G20 leaders endorsed the Basel III framework that overhauls the current prudential regulatory regime.

On one hand, the United States, central and eastern Europe and - until the recent SARS epidemic - East Asia have been showing greater vigour. On the other hand, there has been economic stagnation in Japan, very modest growth in the euro-zone and a very disappointing performance in Latin America. Second, in contrast with the usual pattern in recovery phases, certain variables are showing no signs of improvement. Let me mention two: first, investment, despite the low level of interest rates, perhaps because of overcapacity in certain sectors, but mainly because of an overall lack of confidence in the recovery; and second, employment, which, particularly in the case of the US, continues showing signs of weakness. Third, macroeconomic policies have generally been more expansionary. Interest rates are at historically low levels, both in nominal and real terms, in most countries, and this applies also to the longer segments of the yield curve. Overall, fiscal policies are clearly expansionary, although the room for manoeuvre available to different countries in this regard varies greatly. Fourth, the current-account imbalances among the largest economies were exacerbated during the recession and the early stages of the recovery and their geographical distribution does not bode well for their correction. One particular reason for concern is that the huge US current-account deficit coincides with the role of the US as the only locomotive of the world economy in recent years.