alignment of regulatory requirements and business conduct standards across similar classes of activities. nonetheless, much work remains. first, mas must build up its expertise in integrated supervision. boundaries between financial activities are blurring. supervision of institutions and activities on a silo basis increasingly needs to be complemented by integrated supervision. we must further harmonise rules across similar financial activities, align supervisory approaches across financial industries, and supervise financial groups on an integrated basis. this will help reduce the opportunity for regulatory arbitrage, and also shrink the gaps in the coverage of our supervisory radar. second, we need to facilitate the implementation of risk - based capital frameworks for our financial institutions. the new basel 2 capital accord will be a major priority for mas and the local banks. the new accord will allow banks to better align their capital with underlying risks, but it will require banks to put in place elaborate systems, databases, and processes to assess the riskiness of their assets. mas will continue to work closely with the local banks to effect a successful transition into basel 2. corporate governance in corporate governance, we have raised the bar for the financial sector significantly, and especially for the local banks. the local banks have set up nominating committees chaired by independent directors, to ensure that competent individuals are appointed to the board and key management positions. the local banks will rotate their auditors every 5 years. the local banking groups are also preparing to separate their financial and non - financial activities and unwind cross - shareholdings. this will help local bank managements to concentrate on their core business of banking and finance, and limit the risk of contagion from non - financial businesses to the banks ’ business. market discipline and caveat emptor our efforts to promote market discipline and a caveat emptor regime have focussed on enhancing the amount, quality and timeliness of information disclosed by institutions. we have shifted from a meritbased supervisory approach to a disclosure - based approach that emphasises market discipline to incentivise financial institutions to conduct their business in a sound, efficient, and professional manner. the local banks in particular have significantly improved their disclosure practices. we must continue to update our disclosure standards in line with industry developments and international best practice. furthermore, the mindset change is not yet complete. the public still expects to be protected from downside risks, for example when playing the stock market, but more so when depositing their money in banks. hence one major motivation for introducing deposit insurance is to

bank calculations. one should always take the opps with a healthy dose of salt. they are based on a particular characterisation of the mpc ’ s objectives. ( we ask a simple policymaking “ bot ” to stabilise inflation and output, placing four times more weight on the first than the second, and to pay some heed too to the “ smoothness ” of interest rates ). the resulting path obviously depends on the extent to which interest rates are assumed to affect demand and inflation. the higher the policy multipliers the smaller the “ optimal ” response of interest rates is likely to be. it ’ s also conditional on – and therefore highly sensitive to – the particular forecast on which it ’ s based. any observer – indeed any individual mpc member – who sees the risks differently from those in the central projection will come to a different conclusion about the most likely path of future interest rates. furthermore, as regards the comparison in chart 10, the energy price cap and the currency have not been the only pieces of news since august that might have influenced market expectations. for example, forward interest rates rose a cumulative 50bp on the ( nine ) days on which uk price and wage data were released. the market may also be wary about further changes in fiscal policy, and to take a skewed view of the risks in that respect. bank of england nevertheless, the graph does serve to illustrate quite how significant the moves in markets have been in the past couple of months or so. if bank rate really were to reach 5¼ %, given reasonable policy multipliers, the cumulative impact on gdp of the entire hiking cycle would be just under 5 % - of which only around one quarter has already come through ( chart 11 ). chart 11 : most of the impact of cumulative tightening implied by market prices yet to come percent - 1 - 1 - 2 - 2 impact of tightening on gdp - 3 - 3 - 4 - 4 - 5 dec 2021 dec 2022 dec 2023 dec 2024 - 5 dec 2025 chart shows estimated impact of policy tightening to date and as implied by forward market interest rates at close on 17 october, relative to a counterfactual in which bank rate is held constant at 0. 1 %. the exercise only considers the direct effects of tightening, and abstracts from any indirect effects via, for example, the exchange rate or incomplete pass - through. source : bank of england, ons, bloomberg finance l. p. and bank calculations