convenience yield is normally inversely related to the deviation of inventories from their desired size. price of oil [ figure 4 ]. 18 more recently, since 2005, this relationship between the risk premium and the spot price of oil appears to have changed and risk premia paid by hedgers have been shrinking to become even negative between early 2005 and 2007. 19 this is clear from the evolution over time of the futures price curve [ for brent oil price ], on which the ecb oil price projections are based. the curve clearly moved from a downward slope to an upward tilt around the same time and maintained the increasing tilt at least until the middle of 2007 [ figure 5 ]. this atypical compression – and inversion – of the risk premia paid in the oil futures market has gone hand in hand with an appreciable change in the structure of these markets, with a growing involvement of non - commercial participants. the change in the composition of the market has been made evident by the emergence of a new net positive speculative position [ figure 6 ]. it seems as though the market for oil futures, traditionally dominated by hedging sellers, had at times become a “ buyers ’ market. ” how are these developments to be interpreted? what is the direction of influence between fundamental trends in the real economy and the pricing of financial risk? a fundamentalsdriven interpretation has it that increasing futures prices indeed signal a fundamental break in spot price expectations : which traditionally had been “ mean - reverting ” and might have become persistently bullish, reflecting a perceived break in the anticipated imbalances between oil demand and oil production on a global scale. but observers focusing on the change in the balance between short and long positions in the market have pointed to the possibility that futures prices – determined on a market in which buyers are increasingly motivated by a search for financial yield rather than the incentive to hedge – might have been contributing in certain market phases to movements in the spot price. have financial investors played a stabilising or a destabilizing role at a time of booming commodity prices and heightened uncertainty about their long - term fundamentals? according to a benign view, “ financial investors ” have expanded liquidity in commodity markets, and have made the market more efficient in processing information, thus improving price discovery at a time of greater uncertainty about fundamentals. new financial actors such as highly leveraged funds and institutional investors may have contributed to lowering spreads and the associated risk premia in commodity futures markets by

##hi and m. schulz, 22 june 2015. bis central bankers ’ speeches this problem is intensified by the fact that the regulation creates incentives for banks to hold government bonds. a bank neither has to put aside capital for government bonds nor is bound by an upper limit on how much it can be indebted vis - a - vis an individual sovereign debtor. on the one hand, government bonds are treated as if they were risk - free. on the other hand, banks may easily hold very many government bonds of a single issuer – and this is usually the home country. first, banks in this way increase their exposure to the financial problems of states. because government bonds are not as risk - free as the regulation assumes. the crisis has shown this. second, it becomes easier for an individual state to run a loose fiscal policy. it ’ s becoming more likely that systemic problems are emerging or intensifying : a state infects the national banking system, or vice versa, and the problems spread across borders. such systemic risks can then only be kept in check by way of a fiscal risk - sharing. in order to promote ownership and private risk - sharing, we must revise the preferential regulatory treatment of sovereign debt. one option is to introduce a risk weighting for government bonds which rises along with the concentration risk. the more government bonds held by a bank, the more capital the bank would have to hold against each of these bonds. in this way, the capital requirement and upper limit would be combined in a single rule. this would be an important step towards breaking the vicious circle between banks and sovereigns ; and it would be a further step towards reinforcing the foundations of monetary union. private risk - sharing does not have to be exclusively via the credit markets and not solely in relation to the public sector. investors can also help to share risks via the equity markets. take a german company as an example. if the german economy is hit by a shock, this company will probably be affected too. if its owners, the shareholders, are spread across many countries, the company ’ s losses will be spread likewise. the more cross - border financing companies have, the less the national economy is affected by any shock and the faster it can recover. in the united states, for instance, this kind of risk - sharing works : studies show that integrated capital markets in the united states absorb 40 % of the cyclical variations between the states. 4 this speaks in favour