. 7, august 1994, pp. 1471 – 86, and “ risk - taking, global diversification, and growth ”, american economic review, vol. 84, no. 5, december 1994, pp. 1310 – 29. see also more recently, k. lewis and e. liu, “ evaluating international consumption risk sharing gains : an asset return view ”, october 2012, working paper presented at the 2013 american economic association meeting. bis central bankers ’ speeches one simple metric often used to gauge the extent of international risk - sharing is the ratio of gross foreign assets relative to gdp in major economies. this measure has the advantage of being able to draw on historical time series, allowing us to look at long cycles in financial globalisation. let ’ s look back for a moment. during the first wave of financial globalisation, which was driven by the british, who were often called the “ bankers to the world ”, foreign assets relative to gdp reached a peak between 1900 and 1914 ( see slide 6 ). following a sharp decline from 1914 to 1945, the share of foreign assets returned to its previous levels only by 1990. the period between 1990 and the global financial crisis was marked by extensive financial liberalisation, which led to an unprecedented rise in foreign asset positions. since the crisis started this process appears to have levelled off. i will come back to this in a moment. the euro was introduced in 1999 in a region where all restrictions on capital movements had been lifted. it is no surprise then that unleashed financial forces led to an expansion of intraregional cross - border capital flows ( mostly flowing from “ core ” to “ peripheral ” euro area economies ), exploiting the expanded risk - sharing opportunities created by the single currency. we now know that risk was neither well assessed nor well monitored, and that unchecked cross - border lending supported projects with low intrinsic profitability, such as in the housing sector. moreover, the structure of these flows ( i. e. wholesale interbank credit, rather than direct loans to firms or capital market investment ) was inherently fragile. credit between institutions with domestic deposit bases and implicit guarantees from their own governments soon fragmented along national lines when the financial crisis erupted and shook confidence in banks. let me highlight two salient features of the recent wave of financial globalisation, which have important consequences for the post - crisis steady state. the first feature is the geography of wealth transfers before and after the global financial crisis. as the academic literature9 indicates

can look forward to better balanced and generally stronger growth in our own economy. that will in due course mean that domestic demand growth - and consumer demand growth in particular - will need to moderate if we are to avoid a build up of inflationary pressure. it's quite possible, even still quite likely, that the necessary moderation of consumer demand - and i emphasise the word moderation - will come about of its own accord. and that would be the best possible outcome for our own economy. but if consumer spending were not in due course to moderate of its own accord, and depending on the timing and the strength of the recovery abroad, we would clearly need at some point to consider raising interest rates to bring that moderation about. but for the time being, and whatever the precise numbers, the overall prospect for the british economy over the next couple of years is for output growth picking up to around trend and inflation to around target. and if that is indeed how things turn out, we will have weathered the international storm as well as anyone could reasonably have expected.