importance. banks should be able to demonstrate the ability to isolate retail banking activities from trading activities and to wind down significant trading risk positions in a crisis situation, in a manner that does not jeopardize the bank ’ s financial health nor does significantly contribute to systemic risk. a credible recovery and resolution plan is a challenging goal to achieve, so the criteria on passing the credibility “ test ” must be set high. the european banking authority ( eba ) plays a central role as a standard setter in ensuring that the rrps and their supervisory assessments are applied uniformly across the member states. the group suggests that if a bank ’ s recovery and resolution plan, assessed by the supervisor, is not acceptable, a more comprehensive separation of activities can be required than under the proposed mandatory separation. for example, a wider separation might have to cover all trading related assets. 3. facilitating the use of bail - in instruments the group strongly promotes the proposal to use bail - in instruments to further increase the loss absorbing capability of banks. bis central bankers ’ speeches in order to limit interconnectedness within the banking system, it is preferable that the bail - in instruments should not be held by investors within the banking sector. in order to create a liquid market for the bail - in instruments, it would be essential to carefully define their contractual properties in order to reduce uncertainty and ambiguity and hence facilitate their efficient market pricing. therefore the group is of the opinion that the bail - in instruments should be applied only to particular debt instruments and to make sure that investors know the eventual treatment of the respective instruments in a crisis situation. 4. a review of capital requirements on trading assets and real estate related instruments the measurement of risks inherent in trading assets is prone to a significant “ model risk ” ; the risk that the model itself, used in the risk measurement is inaccurate. the severity of model risk stems largely from the presence of “ tail risks ” in trading assets. these are risks which cause catastrophic losses but which materialize with a very low probability. moreover, tail risks are intertwined with severe liquidity shortages which materialize in systemic crises. hence, almost by definition, tail risks are difficult to model and measure. separation of the riskiest trading activities from deposit banking is a key to limiting the impact of these risks. other measures available are robust capital requirements which do not heavily rely on models, and limits on risk concentrations and counterparty exposures. in this respect, the group acknowledges the important work in reviewing the trading

later, by more. so we raised interest rates through the second half of last year - and again in june - trying, as best we could through our tactics, to minimise any further unwanted upward pressure on sterling. but things have now clearly moved on. the outlook for the world economy deteriorated further through the summer under the impact of a series of new shocks. japan, the world ’ s second largest economy, slipped further into recession. russia - which had only weeks earlier embarked on an imf program - saw the collapse of the rouble and default on its debt. and acute nervousness spread through many of the world ’ s financial markets. although there has been some improvement in sentiment over the past month or two, and although the us and european economies continue to expand, the likelihood remains that world economic growth will be significantly slower than had been expected earlier in the summer. slower growth of world activity is bound to prolong the restraining external effect on growth and inflation in the uk, even though the exchange rate has now started to weaken. at the same time there are also now clearer signs of overall slowdown in our own economy. the evidence for this is less obvious in the backwards - looking economic and monetary data than it is in the forward - looking surveys, but even so the data suggest that we are beginning to see an easing of pressure, including an easing of pressure in the labour market. and the surveys themselves now point to a slowdown in service sector growth, including retail distribution, as well as a sharper decline in manufacturing output. this prospect is consistent with the reports which we receive directly from the bank ’ s network of regional agents and their 7000 - odd industrial and commercial contacts around the country. of course we pay very careful attention to this forward - looking evidence of developments in the economy alongside the data, and, like others, we have revised down our forecasts for output growth and inflation. and we have eased monetary policy quite sharply in the past two months, in the light of that evidence. our current best guess - published in last week ’ s inflation report is that, after the interest rate cuts, the growth of overall output next year will be around 1 %, picking up through the millennium to around trend in the second half of the year 2000. meanwhile, we expect underlying inflation to remain close to the target rate of 21 / 2 % - though perhaps a little above that rate during the course of next year. now no - one likes to see the