ims which are particularly relevant in thinking about this question. the first is financial globalisation which has totally transformed the landscape over the past two decades. total financial wealth has risen sharply relative to gdp ; and investors are now able and willing to hold a higher proportion of their portfolios in external assets. the trend to larger external asset and liabilities has been particularly significant in industrial countries, whose external assets and liabilities relative to output roughly tripled between 1990 and 2003, reaching average levels of more than 200 per cent of gdp. this has two effects. first, the expansion in external balance sheets has relaxed the constraints on the financing of countries ’ savings and investment imbalances. and second, balance sheet effects can have material impacts – affecting the link between current account deficits and external debt burdens, as well as the external adjustment process itself. a corollary of financial globalisation has been the increased importance of market forces, rather than institutionalised inter government agreements, in providing incentives for policy makers within systemically important countries or regions to follow policies that are mutually consistent – notwithstanding the longevity of the bretton woods sisters ( the imf and the world bank ). the second important feature of today ’ s world is the rising economic importance of a group of asian emerging market economies who heavily manage their exchange rates. as a result, the international monetary system has mutated into a ‘ hybrid ’ system in which some systemic countries float their exchange rates while others fix or manage them. one implication is that the pressure for adjustment to any given shock can be very asymmetric relative to a floating rate world. thus, market driven exchange rate changes are likely to be concentrated on particular blocs rather than diffused across the system as a whole. as obstfeld and rogoff and others have pointed out, this is a situation which could create some difficult policy frictions. these have the potential to undermine free trade, and weaken world growth. the third feature is the continued dominance of the us dollar as both a reserve currency as well an anchor for those countries that choose to fix or manage their exchange rates. but nowadays countries have choices. they might fix against the dollar but choose to hold at least a portion of their reserves in other major currencies. since the advent of the euro, the dollar is no longer the only credible reserve currency. how do these features of the international monetary system affect the risks associated with today ’ s imbalances? financial globalisation has relaxed the constraints on

the full tests and standards, and that those failing to meet the requirements will not be approved. we have to get this right and can ’ t allow weak models to go into live. bis central bankers ’ speeches imap firms must ensure that they have contingency plans in place so that they are still able to meet the 1 / 1 / 16 implementation date in the event that their model fails to be approved. for all firms, there are important deadlines to be aware of in relation to reporting and nonimap approval permissions, which will be discussed in the sessions later today. we are implementing new it and data collection systems and will be ready to accept the submission data required under the directive from june 2015. in organising the agenda for today, we have made a conscious decision to have joint sessions for both imap and standard formula firms. this is because we recognise that some firms currently on the standard formula may wish to apply for an internal model after 1 / 1 / 16, and also because firms currently in imap that fail to obtain model approval, whether full or partial, will need to move on to the standard formula. almost 90 % of our regulated firms will be using the standard formula, and i can assure you that we will be taking a rigorous approach to ensure that the directive is being implemented as intended by standard formula firms. as an organisation we are looking at solvency ii holistically, rather than in silos, and it is important for firms to do the same. bank staff will be on hand throughout the day to answer any questions you may have ; however if you have any queries that aren ’ t answered during the sessions today, please contact your supervisor. the end of the track is now in sight on solvency ii preparation. this will likely be our last large conference in advance of transposition. we recognise that it will take time for the new regime to bed in, perhaps a number of years ; but now is the key time for firms to get in place the processes, approvals and, above all, the recognition and acceptance that solvency ii will be the new normal. solvency ii is a one - time opportunity for us to embed policyholder protection and put in place the foundations required for the uk insurance industry to remain profitable, resilient and a key part of the uk ’ s economy. bis central bankers ’ speeches