pt. com / 2013 / 02 / 12 / bank - of - england - publications - news - releases - news - release - g7statement. bis central bankers ’ speeches advanced - economy demand. which of these two effects would be greater is an empirical matter. simulations of the federal reserve board ’ s econometric models of the global economy suggest that the effects are roughly offsetting, so that accommodative monetary policies in the advanced economies do not appear, on net, to have adverse consequences for output and exports in the emerging market economies. 8 a return to solid growth among the advanced economies is ultimately in the interest of advanced and emerging market economies alike. regarding capital flows : it is true that interest rate differentials associated with differences in national monetary policies can promote cross - border capital flows as investors seek higher returns. but my reading of recent research makes me skeptical that these policy differences are the dominant force behind capital flows to emerging market economies ; differences in growth prospects across countries and swings in investor risk sentiment seem to have played a larger role. 9 moreover, the fact that some emerging market economies have policies that depress the values of their currencies may create an expectation of future appreciation that in and of itself induces speculative inflows. of course, heavy capital inflows and their volatility pose challenges to emerging market policymakers, whatever their source. policymakers do have some tools to address these concerns. in recent years, emerging market nations have implemented macroprudential measures aimed at strengthening their financial systems and reducing overheating in specific sectors, such as property markets. policymakers have also experimented with various forms of capital controls. such controls raise concerns about effectiveness, cost of implementation, and possible microeconomic distortions. nevertheless, the international monetary fund has suggested that, in carefully circumscribed circumstances, capital controls may be a useful tool. 10 in sum, the advanced industrial economies are currently pursuing appropriately expansionary policies to help support recovery and price stability in their own countries. as the modern literature on the great depression demonstrates, these policies confer net benefits on the world economy as a whole and should not be confused with zero - or negative - sum policies of trade diversion. in fact, the simultaneous use by several countries of accommodative policy can be mutually reinforcing to the benefit of all. let me end these remarks as i began, by paying tribute to mervyn king. he has been a leader

all three elements of the social contract for banking need to be reformed. better regulation and supervision, including a macroprudential element. better arrangements for liquidity insurance, which the bank has tried to introduce alongside our international peers. and, my main topic today, a new regime for resolving bank distress. in particular, banks must structure and run themselves to permit orderly wind down. and they must invest to provide the authorities with the information they need to do so. this will not be easy. and it will not be cheap. together with higher capital and liquidity requirements – lower leverage and reduced maturity transformations – over time it may well mean a lower headline return on equity for some banks. but, of course, it would also entail lower risk for bank equity and bond investors, and surely it is risk - adjusted returns that matter. and it would also deliver lower risk to society more generally, which matters hugely. to be clear, we want banks and the financial sector more generally to thrive. the institution i come from believes in a market economy, in capitalism. the financial sector has played an enormous role in the development of modern economies. but a regime in which banks can thrive standing on your own feet would be a better market – for all of us.