the central bank ’ s balance sheet as a result. this type of swap would ensure that the full authority and responsibility for fiscal matters remained with the treasury and congress. congress has mandated the goals of monetary policy to promote long - run price stability, maximum employment, and moderate long - term interest rates. asking monetary policy to take on the role of fiscal policy undermines the ability to achieve this congressional mandate. central banks and monetary policy are not and cannot be real solutions to the unsustainable fiscal paths many countries currently face. proponents who believe otherwise are skating on thin ice. the only real answer rests with the fiscal authorities and their ability to develop credible commitments to sustainable fiscal paths. it ’ s a difficult and painful task to be sure, but a monetary solution is a bridge to nowhere at best, and the road to perdition at worst – a world of rising and costly inflation. once again, i want to thank everyone for coming today. i am confident that it will be a fascinating program. so now that i ’ ve told you what i think, let ’ s get stared and hear from the real experts. bis central bankers ’ speeches

that financial instruments and firms are sufficiently transparent can contribute to greater efficiency and awareness of risks exposures. the third principle i will stress is the role that market forces can play in effectively controlling risk - taking and enhancing supervision. simplicity let me begin with simplicity. the financial world has become very complex and so has financial regulation. it is easy to claim that complex regulation is necessitated by the increasing complexity of the financial markets. after all, regulations are, in part, shaped by evolving market structures. in some cases, new regulations arise in response to a crisis or a perceived failure of some kind. unfortunately, markets often evolve faster than the regulations ; detailed rule writing that underlies much of the complex regulation can become obsolete, which then requires more rule writing. yet, we should consider that causality can work both ways. regulations themselves give rise to incentives to evade the rules. such regulatory arbitrage can result in increasingly complex financial structures designed to fall outside existing rules. this activity then begets more complex rules that markets once again seek to avoid. consider the increasing complexity and granularity of the basel risk - weighting classifications. the logic of assessing capital requirements based on the risk of an institution ’ s assets is sensible in principle ; however, it creates incentives for institutions to structure assets in ways that minimize the use of capital, perhaps resulting in risks that become hidden in opaque or complex structures that are not addressed by specific rules or classifications found in the basel framework. such a cycle of increasing complexity raises both compliance costs and enforcement costs. thus, i believe, there is merit in developing simpler, more transparent regulatory solutions designed to work reasonably well in a wide range of situations. for example, higher capital requirements based on the leverage ratio, as opposed to overly complex risk - weighting schemes, might lower both compliance and enforcement costs while achieving similar or bis central bankers ’ speeches better outcomes in terms of the safety and soundness of individual institutions as well as overall financial stability. moreover, there are examples of how market participants ’ reactions to regulation may have contributed to the recent financial crisis. for instance, the expansion of the shadow banking system was in many ways a result of attempts to circumvent regulations placed on banking institutions. similarly, the use of bond ratings in setting bank capital requirements for securities holdings or in making eligible certain structured products for various investment purposes created incentives to inflate ratings of collateralized debt obligations, or cdos, and other structured products backed by subprime mortgages.