lower interest rates triggered by secondary purchases could give rise to bad incentives, impede market discipline and delay necessary fiscal adjustment efforts. this is the very reason why strict and explicit conditionality is attached to omts. 4. central banks have been active ; they have been audacious ; but they do not have unlimited power. this may be a good time to reflect upon what monetary policy can and cannot do. i will concentrate on one specific question : the so - called “ decreasing returns ” of non - conventional monetary policy. the argument goes as follows : balance sheet expansion and low interest rates create potential imbalances in the financial sector. past a certain stage, the potential cost and instability stemming from these imbalances far outweigh the short - term benefits for the economy. there is, indeed, a difficult trade - off. the very purpose of non - conventional policies is to induce some risk - taking, encourage portfolio rebalancing and stimulate lending by the private sector. the danger, of course, is that “ wrong ” risks are being taken with no credit to the productive economy and low interest rates causing a search for yield in speculative assets. the situation, therefore, requires a very subtle calibration of our overall stance. it seems crucial today that we carefully consider the joint effects of monetary and prudential policies – both on capital and liquidity requirements – to make sure that they do not produce unintended effects on capital allocation. 5. central banks ’ actions are not limited to fighting the crisis and stabilising the financial system. in the euro area, under the impulsion of the european council, we are working on building a more robust and efficient financial system. one major weakness revealed by the crisis is the strong link between banks and sovereigns. as a result, any negative fiscal shock or bad news has an immediate adverse effect on the overall financing conditions for the private sector. and, at the same time, difficulties experienced by banks give rise to expectations of a public bail - out and lead to a deterioration in the perceived creditworthiness bis central bankers ’ speeches of the sovereign. such very powerful and perverse feedback loops have been at work during critical phases of the crisis, over the last two years. the purpose of the banking union, decided on in june, is to break that link and create, as a first stage, a single supervisory mechanism in the euro area under the auspices of the ecb. it is essential that the banking union be rapidly

over the next couple of years, of the same order of magnitude as we ’ ve already seen over the past couple of years. a decline in the household saving ratio would be consistent with the tendency for labour market developments to lag developments in economic activity, including consumption, by a few quarters. consumption and gdp growth tend to pick up ahead of an improvement in employment growth, which would in turn be expected to occur before we see wage growth start to return to more normal levels. this was the case during the recessionary episodes of the early 1990s and following the global financial crisis ( graph 8 ). bis central bankers ’ speeches graph 8 non - mining business investment i ’ ve spoken at length recently about the factors that might have led to subdued non - mining business investment over recent years. 8 in short, i concluded that this outcome had been consistent with a period of greater uncertainty and below - average confidence. both of these have changed for the better more recently, yet firms still seem reluctant to take on risks associated with substantial new investment projects. if the appetite of businesses ( and shareholders ) for risk were to improve, investment could pick up. it ’ s hard to know when such a turning point in spirits might take place. but it is more likely when the fundamental determinants of investment are in place as they seem to be now. the ready availability of internal and external finance, at very low cost, is one such element of that. also, there is the stronger growth of demand across the non - mining parts of the economy over the past year or so and measures of capacity utilisation have increased to around long - run average levels. so there is a reasonable prospect of business investment picking up, in time. even so, let me note some reasons why the anticipated recovery in non - mining business investment might not be quite as strong as in earlier episodes. but i will stress at the outset that if that comes to pass, it does not mean that growth of activity or of our prosperity need suffer. one reason why investment in the non - mining sector might be lower than in the past is that service industries account for an increasing share of our economy – rising by about 12 percentage points in terms of the employment share over the past three decades. this is relevant to investment because service industries, on average, have much lower levels of capital relative to labour ( graph 9 ). so, in an economy in which services account for a higher share of economic activity, other things equal, the optimal