, require similar elements, including the independence of the relevant decision - maker – from both the political process and the markets and institutions affected by the decisions. 163 / 2009 provisions as by a complex set of variable capital ratios. what is needed is to allow banks more easily to make more forward - looking provisions when either they or the supervisor thinks they should. this is an important area of work for regulators. one should also be realistic that while using balance sheet regulation as a macro - prudential tool may have attractions, it is no panacea. of course there may be occasions when the setting of monetary policy is about right for most of the economy but there is a desire to calm down some over - exuberant borrowing behaviour in a particular sector. in such cases, some kind of temporary regulatory measure may well be useful. but as those with any recollection of australian experience of the 1960s and 1970s will know, if the fundamental problem is actually that financial conditions are just too easy – that is, interest rates are too low – balance sheet regulation won ’ t ultimately constrain credit growth. over time, private markets will find a way of doing the business outside of the regulated sector. then the authorities face the question of whether or not to expand the scope of regulation to more sectors – just as we did in the 1970s. a possible outcome is that, the harder we regulate a set of institutions as a result of the last crisis, the more likely it becomes that the next crisis occurs in the hitherto unregulated part, perhaps even among institutions that do not yet exist. if the conditions are such that people want to take risk and gear up, they will find a way. of course, that is acceptable provided the relevant private parties can be allowed to fail without bringing down the core part of the system. caveat emptor can apply outside of the regulated net if there are few spillovers. but if risk - taking activity goes on long enough, then sufficient leverage may well accumulate somewhere to make the ensuing deleveraging generally disruptive, placing policy - makers once again in a very awkward situation. too big to fail and that brings us to the most difficult of all the issues, namely that of the too - big - to - fail institution. here the term “ big ” might mean a large balance sheet, or refer to interconnectedness or complexity. or all three of the above. in some countries, the debate on this issue is now quite active

important. but even lags that are short individually can impose significant costs if they occur frequently. for example, tender times – the time needed to pay and, where relevant, receive change – are a non - trivial share of the cost of making payments ( stewart et al 2014 ). waiting time is a cost, and can affect people ’ s choices. in thinking about lags, i have found it useful to categorise them into three types, which i will discuss in turn : process lags stock – flow lags, and learning lags. 2 of 12 on lags process lags a process lag is the time taken for any readily defined production process. think of laying a brick or baking a cake. it involves a more or less predictable delay, and its outcome is unambiguous. the brick gets laid or it doesn ’ t. ( the cake might or might not turn out as you expect, but you have a cake. ) one important but underappreciated example of a process lag is the time required to make a decision. by this i mainly mean the formal processes and governance that organisations place around decision - making. some of this might involve information gathering or other analysis, to know what decision to make. but even with all the facts in front of you, there are lags involved in any formal decision process. documents must be prepared, meetings convened, review processes completed. good governance takes resources ; it also takes time. decision lags underlie an aspect of economic policymaking that is often taught to undergraduates. they account for an important difference between monetary and fiscal policies as tools for macroeconomic demand management. monetary policy changes, we were all taught, can be enacted more quickly. the decision lag was shorter. but that change might take longer to affect the economy. the ‘ long and variable lags ’ of monetary policy are those after the decision is taken and enacted. fiscal policy changes can have more immediate effect, but the decision lag is longer. parliament must vote on the government ’ s budget. other decision processes might be needed before funds are finally disbursed or spent. these can also take some time. many other decision lags can be relevant to our analysis of the economy. consider the approval processes for building projects, or for loans. most companies have formal decision processes for allocating budget to particular investment projects, based on a written business case. tender processes for awarding contracts and application processes for hiring workers