border financial activities. i also see a future role for the esrb in relation to the basel iii measures that have a clear macroprudential flavour, such as the countercyclical capital buffers. issues on the g20 agenda of financial reform let me turn to my last point, namely the g20 agenda as regards financial reform. financial reform is a long and arduous process, and my main message is that we have to keep the momentum. allow me to single out a few key areas where it is essential to keep the momentum. one is the work on reducing the moral hazard posed by systemically important financial institutions. the crisis revealed that these institutions might be major contributors to systemic risk. the g20 therefore agreed that they should be subject to regulatory and supervisory requirements, commensurate with the risks they pose to the financial system and the real economy. this is a very complex issue to tackle as there are many different aspects for which tools need to be developed to mitigate the risks. first, it is essential that tools are developed which increase the shock - absorbing capacity of systemically important financial institutions and lower their contribution to systemic risk. the introduction of additional measures, for example through capital surcharges and more intrusive supervision, is presently under debate. when looking at these additional prudential requirements, it is of the utmost importance that the impact of basel iii on the banking system and the broader economy is fully taken into account. second, it is important that tools are developed which ensure that authorities have the appropriate mechanisms in place to resolve the failure of a systemically important financial institution in an orderly and prompt manner. we have to avoid recourse to taxpayers, as was too often the case in the crisis. there is no silver bullet to solve the problem of “ too big to fail ”. instead, we need to have a combination of measures, covering the full spectrum from crisis prevention to crisis management to crisis resolution. another area where much progress has been achieved, but where we must remain active, is the extension of oversight to institutions and markets not sufficiently covered by regulation. in this respect i hope that rapid progress will be made with the commission ’ s legislative proposals on short selling and otc derivatives, which address some important shortcomings of the current regulatory framework. we also need more work on credit rating agencies and hedge funds. since december 2009, credit rating agencies in the eu have been subject to mandatory registration and oversight. i very much welcome

this period, in a sense, the policy effects stemming from the ample liquidity provided by the bank, through which concern about the availability of liquidity was eased, may have been greater than those of the bank's policy commitment, namely, its commitment in terms of policy duration. since then, both the economy and the financial situation have been on an improving trend. since fiscal 2002, the year - on - year growth rate of real gdp has been positive, and the year - on - year rate of decline in consumer prices has diminished to almost zero percent. an accommodative corporate financing environment has been supporting these developments. together with an increase in financial institutions'capital adequacy ratios and an improvement in firms'financial strength and profitability, increased confidence among financial institutions and firms about the availability of funds brought about by the quantitative easing policy has produced this desirable environment. the quantitative easing policy framework provides stronger support for economic recovery, the more the economic recovery gains momentum. here, the effects stemming from the bank's commitment in terms of policy duration are gradually playing a larger role than those stemming from ample liquidity provision by the bank. interest rates usually rise with an improvement in economic activity and an increase in prices. the bank's commitment, however, keeps longer - term interest rates low by stabilizing expectations about the future level of interest rates, and this will allow firms to continue to enjoy low funding costs. while funding costs remain low, the rate of return on investment increases with economic recovery, and, accordingly net returns on investments in economic activity will improve. the quantitative easing policy has continued to contribute to the japanese economy with some changes in the way it affects the economy, as i have just described. recently, the market situation that surrounds the policy is changing significantly with the enhanced soundness of the financial system and abatement of anxiety about financial system stability. financial institutions have become more confident about raising funds in the market. furthermore, they are increasingly placing emphasis on strengthening their profitability with a view to improving their credit ratings and raising stock prices, and this may have been reducing their incentive to maintain funds in current accounts at the bank that yield no interest. as financial institutions'demand for liquidity has been declining, their demand for funds supplied through the bank's market operations has decreased. recently, as a result, undersubscription, where financial institutions'bids fall short of the bank's offers, has occurred frequently in funds -