the twin peaks model. this model separates the two functions of financial supervision : i. supervision of financial institutions ’ risk management ( prudential supervision ) ; ii. supervision of conduct of business, covering such subjects as transparency and full disclosure by institutions, fair relations between them and their customers, and consumer protection. in the netherlands, the supervision of financial institutions ’ risk management is the responsibility of the central bank, while supervision of business conduct is performed by a separate authority. another model is the irish one, where the central bank supervises both financial institutions ’ risk management and their business conduct. in australia, in contrast, the central bank is not responsible for either supervision of risk management by financial institutions or their business conduct. if the bank of israel is given the responsibility for the supervision of financial institutions, it would be advisable to adopt the functional supervision approach, in other words, to separate the two supervisory functions – the supervision of financial institutions ’ risk management and the supervision of their business conduct. later, after some years ’ experience, the situation can be reviewed, and the question considered of whether supervision of business conduct should be transferred from the bank of israel to a new authority that would be established specifically for that purpose. to conclude : financial supervision is one of the most important issues affecting the functioning and development of the financial markets and the economy as a whole. in israel the issue assumed even greater import with the implementation of the recommendations of the bachar committee, and at this time it has come to the fore again in light of the implications of the global financial crisis. after examining the question very closely, and taking into consideration the conclusions being drawn in the major financial institutions around the world, we recommend that the supervision of banks be merged with the supervision of insurance, provident funds and pension funds, within the bank of israel. it is advisable to switch then to the functional supervision approach, i. e., to distinguish between the supervision of risk management in financial institutions and supervision of their business conduct. at a later stage, after some years, we can examine the question of whether the supervision of business conduct should be transferred from the bank of israel to another authority.

, reflecting in part efforts to stimulate domestic demand, that has been offset by a widening in the surplus of the major oil producers as increased revenues resulting from high oil prices are largely saved rather than spent. while one might expect the chinese economy to continue to rebalance towards greater reliance on domestic demand and lower savings, that process is likely to take many years to play out, so an early reversal of that factor holding down yields seems unlikely. another possibility is a shortage of high - quality safe assets, 10 with countries like china accumulating reserves particularly in the form of us treasuries. that in turn will also have increased the demand for substitutes, including the government debt of other advanced economies. but recent events in the euro area have highlighted the fact that the debt of for instance, if an employer is putting aside an additional 15 % of the wage bill to cover accumulating pension liabilities and the price of buying a given stream of future income rises by 20 %, then he would now need to put aside an additional 3 % of the wage bill to meet those obligations. see ben bernanke ( 2005 ), “ the global saving glut and the us current account deficit ”, sandridge lecture, virginia association of economics, richmond, virginia, 10 march. see ricardo caballero, emmanuel farhi and pierre - olivier gourinchas ( 2008 ), “ an equilibrium model of global imbalances and low interest rates ”, american economic review, pp. 358 – 393. bis central bankers ’ speeches some sovereigns is not as safe as market participants thought. that has led to increased demand for the debt of those sovereigns that are still regarded as safe, including that of the united kingdom. how long such a “ safe - haven discount ” persists depends not only on what happens in this country but also what happens abroad : the demand for one country ’ s bonds as a safe haven depends in part on how risky those of other countries are thought to be. since the financial crisis and subsequent recession, another factor likely to have contributed to depressing yields is the sharp decline in investment, prompted by the deterioration in the outlook and heightened uncertainty. to date the recovery has been painfully slow, with negligible growth in the united kingdom over the past year and a half. and though there is some variation in the pace of recovery across countries, in general growth has been weaker than after a normal cyclical downturn. in part that reflects the fact