the committee is well aware that any changes to bank and supervisory practices will have costs. the potential side effects of materially narrowing down modelling choices could include a reduction in risk - sensitivity and a corresponding increase in the potential for arbitrage. if not done well, it could also reduce banks ’ incentives to invest in risk management models, especially their attempts to continuously broaden and deepen their understanding of risk. as always in regulation, we need to find the right balance : we need to reduce material practice - based differences in rwa variation, while limiting the adverse effects from doing so. resolving this issue will also take time : there is no quick fix. it will be a significant undertaking, and we need to carefully study the right mix of regulatory and supervisory responses. but given the importance of the issue, we have to move ahead because the consensus is building that the status quo cannot be maintained, as it helps neither banks nor supervisors. hence the title of my speech today : strengthening bank capital : basel iii and beyond. the basel iii reforms themselves deliver two of the four characteristics that i said were essential – higher quantity and quality of capital. they are important, but not enough on their own. it is the committee ’ s current and future work programme on implementation and consistency that will ensure that the full benefits of the regulatory reforms of bank capital can be achieved. bis central bankers ’ speeches

low, or even negative, for a couple of years it may be appropriate, in order to avoid the disadvantage with a standard inflation target that i mentioned above, to tighten the inflation target and temporarily interpret it as a target of 2 per cent for average inflation over the next five years, for example. this would mean that the central bank would then compensate for low inflation during the first years with higher inflation in the subsequent years so that the five - year average is on target. the australian central bank, the reserve bank of australia, actually formulates its target in this for a few years beginning in 1931 the riksbank had a price level target, after leaving the gold standard. to date, the riksbank is the only central bank in the world to have had an explicit price level target. see berg, claes, och jonung, lars ( 1999 ), " pioneering price level targeting : the swedish experience 1931 - 1937, " journal of monetary economics 43 ( 3 ), 525 - 551. see nessen, m. and vestin, d. ( 2005 ). ” average inflation targeting ”. journal of money, credit, and banking. v. 37, iss. 5, pp. 837 - 63. way : " [ t ] he appropriate target for monetary policy is to achieve an inflation rate of 2 - 3 per cent on average over the cycle ". 9 if the central bank by means of convincing analyses and forecasts can gain credibility for such a temporary price level target – a temporary average inflation target – the price level target's inherent stabilisation of the real economy could then be used. 10 observe inflation and price level expectations – the exchange rate as an indicator as expectations of the future inflation rate and the price level are so important to the development of the real interest rate in the event of a binding zero lower bound for the interest rate, it becomes even more important to observe and measure these expectations. there are several ways for a central bank to observe expectations of the future price level. the riksbank, for example, commissions prospera to conduct quarterly surveys about expectations for inflation one, two and five years ahead. inflation expectations can also be estimated by comparing market rates for nominal and indexed bonds. in this way, the central bank can observe whether measures taken to influence inflation expectations are having any effect. when the interest rate is zero the exchange rate becomes an interesting indicator of expectations of the future price level. according to the interest rate