of meagre fixed income yields. moreover, a negative duration gap means that falling interest rates raise the value of liabilities more than that of assets. this risk - shifting to households could eventually lead to greater sensitivity of household spending to changes in asset prices and interest rates, and more conservative asset allocation in aggregate ( if households seek to reduce their direct risk exposure ). this, in turn, may result in inefficient risk sharing. experience in the us has shown that when fully exposed to market risk, individuals may on average opt for pension plans or insurance policies with lower risk allocations. such products may however not offer sufficient return to ensure adequate retirement income without additional saving. second, firms may engage in more risk transfer, not just on liabilities ( securitisation, reinsurance ) but also on assets and duration gaps, leading to greater use of derivatives such as interest rate swaps. our interviews confirmed that insurance companies and sponsors of pension plans have already been placing more emphasis on alm practices in recent years. this will involve still greater use of fixed income assets and long - maturity interest rate swaps to match more closely their liabilities ’ cash flows. such a trend is relevant also for the current regulatory developments concerning the clearing of derivative contracts with a central counterparty. third, portfolio shifts may alter sectoral funding patterns. up to recently, many observers expected a shift from corporate bonds to government bonds due to differential capital charges, ldi strategies, and the need to limit duration gaps. however, current unease about sovereign risk could mitigate this trend. within corporates, the industry has been clearly reducing exposure to financial institutions, except for covered bonds. bis central bankers ’ speeches the fourth issue concerns the role of insurers and pension funds as global providers of longterm risk capital. these institutions found it difficult to play this role during the crisis, due to extreme market pressure and volatility. but steeper risk charges will also make it costlier to hold long - term risky / illiquid assets in the future. moreover, the investment horizon is being reduced by the one - year - horizon of solvency ii, shorter grace periods for pension funds to address funding shortfalls, and heightened accounting volatility. this limits the scope for taking long - term or illiquid positions without too much concern for short - term fluctuations in their value. these factors tend to encourage a shift away from long - term investing in risky assets. a partial retreat

an extraordinary lack of common rules at the global level, in particular in the field of financial stability. in this regard, a concrete outcome has been the collective acknowledgement that the financial markets need rules. and that as a result of the ever increasing globalisation of markets, national practices need to be set aside to make way for new and, to the extent possible, common rules. major steps have been taken in recent years to strengthen the financial system, both at the european and the global level, in the interests of and in order to protect savers and investors. both the g20 and the financial stability board have taken on greater importance and have proven to constitute – together with the international monetary fund – a useful mechanism for brokering agreement on the launching of an agenda for necessary reforms. allow me to mention, in particular, the work carried out by the financial stability board – the organisation over which i had the honour of presiding between 2006 and 2011 – on the regulation of the financial markets. the board has put forward proposals on how to reinforce banks ’ capital without putting their fundamental role in the real economy at risk ; on how to reduce the risk of moral hazard for systemically important financial institutions ( those that are “ too big to fail ” ) ; on how to increase transparency in financial markets ( in particular in derivatives ). even matters relating to accounting standards have not been overlooked : significant efforts have been made to increase the comparability of methods and concepts at the international level. also with regard to europe, significant progress has been made but much still remains to be done, particularly in relation to devising a new institutional structure for the euro area aimed at creating the necessary conditions for long - lasting prosperity for all countries in the area. it is clear, however, that we must move towards greater economic integration among the countries which share the euro. no union can be based on the assumption that a country can cause “ externalities ” and economic damage to other member countries by pursuing its own national economic policy priorities. within the european monetary union, progress needs to be made in three areas : budgetary policy, structural reforms and financial market regulation. with regard to budgetary policies r. emmett taylor, no royal road : luca pacioli and his times, the university of north carolina press, 1942. bis central bankers ’ speeches and those aimed at strengthening the flexibility and productivity of the weakest economies, it is vital that there be real multilateral surveillance. the necessary solidarity between economies and countries which share