More generally, I am happy to report that the Committee on the Global Financial System – one of the Bank for International Settlements’ central bank groups – is engaged in a project to determine what lender-of-last-resort gaps currently exist, focusing, in particular, on those that may create vulnerability in terms of financial stability. One area that I anticipate will receive considerable attention is whether there are any gaps with respect to the activities of globally systemic firms that operate on a cross-border basis. Another issue that still needs greater attention is the appropriate role for the home- versus host-country supervisor. The regulatory and supervisory responses for large, systemicallyimportant firms that operate on a cross-border basis need to be closely coordinated, especially during times of stress. In particular, expectations about who will be the lender-oflast-resort need to be well understood in both the home and host countries. We have made considerable progress in recent years in enhancing the safety and soundness of the U.S. financial system. But there is more that we need to do. In particular, we need to study and understand how market liquidity and funding liquidity conditions are changing and what factors are driving that evolution. Conferences like this one go a long way in that regard. They serve as an important forum for discussing ideas and improving our knowledge and understanding. This will provide a solid foundation for any policy actions. Thank you for your kind attention. I would be happy to take a few questions. 6  BIS central bankers’ speeches

Like most OECD countries, New Zealand had experienced high and variable inflation in the 1970s and the first part of the 1980s. Monetary policy was tightened and inflation fell. At this time, they needed a robust system that could ensure stable and continued low inflation. The arrangement chosen was part of a more far-reaching reform of the central government administration in New Zealand. Management by objectives, delegation and accountability were important aspects. Developments in Canada are of particular interest. This country is one of the industrialised countries with the longest experience with a floating exchange rate regime, first from 1950 and later from 1970. Canada spent many years searching for a credible and sustainable system. The UK and Sweden switched to inflation targeting after currency crises and the collapse of their fixed exchange rate regimes at the beginning of the 1990s. 2  2  Pétursson, Thórarinn G. (2004), “Formulation of inflation targeting around the world,” Monetary Bulletin 2004/1, pp. 57-84. BIS Review 43/2005  In Chile and Israel, the introduction of inflation targeting was important for reducing inflation. This has also been the case for a number of the countries that introduced inflation targeting around the turn of the millennium. The practice of inflation targeting varies. There are, nevertheless, a number of common features that we will refer to as the core of inflation targeting. First, low and stable inflation in the long term is defined as the most important monetary policy objective in inflation targeting countries. The government authorities state this explicitly.