on a global basis. on regulations, vigorous discussions are ongoing internationally, and the issues covered are quite wide, ranging from banks ’ capital adequacy and liquidity, leverage, remuneration, and accounting. in terms of supervision, the scope will be widened mainly to cover those which have not been taken up sufficiently in the past, such as the so - called shadow banking system. let me talk about some recent developments. for example, in terms of banks ’ capital, an internationally common new regulatory framework, namely, basel iii, has recently been agreed on. both the quality and the quantity of bank ’ s capital will be enhanced, albeit gradually, through increasing the ratios of common equities and tier i that have a high loss absorbing capacity at the time of bankruptcy. like the so - called “ volcker rule ” in the united states, there are also moves to directly regulate banks ’ high risk businesses such as proprietary trading and investment in hedge funds. through next year, the issue of moral hazard associated with systemically important financial institutions ( sifis ), namely, the “ too - big - to - fail problem, ” is expected to be discussed, including how to specify sifis and what responses will be necessary in preventing the failure of the specified sifis or in minimizing the impact once they fail. if i can offer my opinion on that issue, given the essence of the issue of avoiding moral hazard, it would be desirable to take a flexible approach. namely, in accordance with the situation in each country, appropriate responses should be chosen from various options including not only a bank capital surcharge but also a liquidity surcharge and strengthening of supervision, and establishment of a resolution framework. bis central bankers ’ speeches increase in new demand for funds second, as the contents of demand for funds financial institutions are faced with at home and abroad change, there is a possibility that new demand for funds will increase. for example, emerging economies are expected to continue to be the driving force of the global economy, and thus fund demand for improving infrastructure and for firms ’ business fixed investment as well as for asset management associated with an accumulation of personal financial assets in those economies, is expected to further increase. turning to the domestic areas, in the process of firms exploring new growth strategies and rebuilding the supply system for goods and services, there could be new fund demand for research and development as well as business relocation. moreover, as the industrial structure is expected to

use it as the basis of macroeconomic forecasts for the purpose of policy formulation because empirical research on this topic is still insufficient. while economic policy is implemented based on a critical decision that takes account of more than just economic gains and losses for various economic entities, it is difficult to obtain the consent of stakeholders based on an economic model which considers future inflation to be inevitable but cannot predict when it will occur. actual policy management cannot help being prudent because macroeconomic policy is managed under various constraints - - constraints in terms of legal, accounting, and practical affairs, as well as the need for parliamentary consent - - and because policy authorities need to be strongly conscious of these constraints. because of the limitations of the unconventional monetary policy, fiscal expansion is refocused in the political and academic worlds. my understanding is that this situation occurred because in japan's case, it has been difficult to feel the benefits of economic recovery despite powerful monetary easing measures implemented on an unprecedented scale. in europe's case, this was a reaction to the excessive rise in expectations for monetary policy after awareness about the limitations of fiscal policy grew due mainly to the sovereign debt crisis. in particular, the fact that the global financial crisis that broke out in 2008 was overcome through various unconventional measures has led to misunderstanding that monetary policy is the " only game in town. " in that respect, the recent spread of expectations for fiscal measures reminds me of this lesson : " history repeats itself. " in any case, i feel sympathy with the fact that an orthodox strategy of strengthening growth potential through structural policy while buying time by providing cyclical support for the economy through collaboration of fiscal and monetary policies has started to gain some support not only in japan but globally, because the strategy has something in common with the concept of the " three - arrows " strategy that was launched soon after the inauguration of the abe administration. under these circumstances, the central bank's role is ultimately generating the maximum effects of the fiscal and structural policies by maintaining accommodative financial conditions. within the scope of this role, the bank is conducting unprecedented monetary policy, namely, controlling the yield curve. the prerequisite for the control of the long - term interest rate is that the credibility of the jgb market is maintained through the government's efforts toward establishing a sustainable fiscal structure. if fiscal discipline weakens as a result of the bank guiding the long - term interest rate to around 0 percent, it is possible that the credibility of fiscal management will be