Finally, and I think perhaps most importantly, the questionable behavioral norms in the industry – along with the weak control environments and compliance processes – that were uncovered during the investigations, exacerbated and facilitated the misalignment of incentives that are specific to LIBOR. It is a sad state of affairs if unethical behavior is socialized among new traders with the explanation that this is business as usual, and, if compliance and risk management are inadequate as a counterweight to prevent or identify wrong-doing. It is untenable if people working in compliance and risk are treated as secondclass citizens relative to the firms’ revenue generators. The official sector response The international regulatory community began to address these issues when the U.K. government published the Wheatley Review8 in September 2012. The Review recommended a ten-point plan, subsequently accepted in full by the U.K. government, for comprehensive reform of LIBOR. This led to many changes including the statutory regulation of the administration and submission process with respect to LIBOR, the selection of a new administrator for LIBOR, new governance and oversight regimes for the administrator and submission guidelines as well as a code of conduct for submitters. The BBA, the former administrator for LIBOR, for example, eliminated publication of certain currency and tenor rates and delayed the publication of bank-specific submissions. Perhaps most importantly, LIBOR-related activities are now subject to formal regulation and supervision in the U.K. I support the changes initiated by the U.K. government and believe they have substantially strengthened LIBOR.

This view is confirmed by the apparent difference between the ongoing recoveries in the US and Switzerland. While in the case of the US economy, the recovery is at the moment essentially focused on larger firms with smaller ones probably suffering from restricted access to credit, in the Swiss case, any diverging trend between big and small firms is not of major importance. Rather, the difference is more accentuated for firms that are predominantly export-oriented as opposed to those oriented towards the internal market. On the export side, the ability of Swiss exporters to continue redirecting their efforts towards the more  2  BIS Review 33/2010  dynamic regions of the world economy, in particular Emerging Asia may be a crucial test. This region is leading the world in terms of economic recovery from the crisis. It is clear here that the proponents of a reasonable version of the decoupling hypothesis are on the winning side of the intellectual debate. On a global level, inflation pressures are expected to remain subdued in most economies. In advanced economies, headline inflation is expected to pick up from near neutral levels in 2009, but remain low in 2010. For Switzerland, the path of inflation in the short term will be largely dictated by recent movements in oil prices and associated base effects. Inflation will nevertheless remain positive throughout 2010. This follows a negative rate of 0.5% in 2009. Assuming that monetary policy remains unchanged, the SNB’s forecast show that inflation will reach 0.7% this year.