figure 2 ). this is due, of course, to the unusually low level of short - and long - term interest rates. these unusually low interest rates are the result of monetary policy actions taken by the fomc. the sole purpose of these actions has been to promote the dual mandate objectives of maximum employment and price stability in the wake of the financial crisis. the fomc has stated that it currently anticipates keeping short - term interest rates exceptionally low until late 2014 and this has contributed to the decline in long - term rates. in addition, large - scale asset purchases and the maturity extension program have pushed down longer - term interest rates by removing duration from the private market. as a result, both the u. s. government and private - sector borrowers have benefited from unusually low borrowing costs. indeed, the net interest burden data shown in figure 2 actually overstates the net cost to treasury. that is because the interest payments from the treasury to the federal reserve are included in the net interest cost shown in figure 2, but no offsetting adjustment is made for the fact that the fed remits almost all of the interest it receives from the treasury and on bis central bankers ’ speeches its other portfolio holdings right back to the treasury. the federal reserve ’ s remittances to the treasury are included in the budget separately in the miscellaneous receipts category. thus, one should deduct these receipts from the debt service numbers to properly measure the treasury ’ s net interest burden. normally, this adjustment doesn ’ t change the picture much. however, it is relevant now because federal reserve remittances are unusually high. this is because the fed ’ s balance sheet is unusually large, as a result of asset purchases undertaken to promote the dual mandate, and because the spread between the cost of the federal reserve ’ s liabilities ( mainly the 0. 25 percent rate that the fed pays on excess reserves ) and the return on its assets is unusually high. as shown in ( figure 3 ), the fed ’ s net remittances to the treasury have climbed sharply in recent years, rising to more than $ 75 billion per year over the past two years, after averaging about $ 27 billion over the 2005 – 07 period. 1 subtracting net remittances from the fed from the treasury ’ s net interest cost ( as a share of gdp ), one can see that the increase in our enlarged federal debt has not yet generated a significant rise in

jaime caruana : basel ii - the road ahead remarks by mr jaime caruana, governor of the bank of spain and chairman of the basel committee on banking supervision, at the institute of international finance annual meeting, dubai, 21 september 2003. * * * ladies and gentlemen, it is an honour and a pleasure for me to address the members of the iif. in the kind invitation to participate in this meeting, two topics were proposed to me, the first being the economic situation and spain ’ s experience in the euro area, and the second the new basel ii capital accord. i thought that basel ii would be more appropriate, given the very crucial stage we have now reached. but these two topics, the economic situation and the new accord, have suggested to me two preliminary comments. first, while policymakers have long understood the importance of price stability to the health of an economy, in recent years we have all learned much about the concurrent need to promote broader financial stability as well. a number of different episodes of economic crisis and financial disturbance have plainly illustrated the threats that weak financial systems and poorly managed banks can pose to the macroeconomy. this is why i have always stressed that banking regulation should be analyzed not only from a micro viewpoint but also from the macro perspective. creating the right incentives, consistent with good market practices and sound risk management, appears to be an important way of promoting the safety and soundness of the financial system and therefore a good way of sustaining both the stability and growth of the economy. this is not only relevant for prudential regulation ; other areas such as accounting should also be consistent with this broad perspective. this consideration underlines the importance of taking seriously certain concerns such as procyclicality. in my view basel ii goes in the right direction. i am convinced that when banking systems are adequately capitalised, well - managed and risks are correctly assessed within the appropriate time horizon and the financial system becomes more stable, less procyclical, better able to promote sustainable growth, and more resilient during periods of distress. my second reflection is that one of the most significant conclusions of the analysis of the recent economic and financial evolution of the world economy has been the resilience of banking systems in most countries. in my view, this resilience has been the result not just of the presence of sufficient capital in the system, but also of improvements in banks ’ risk management systems. i think we owe the industry a special vote of