management, governance, transparency and disclosure standards thereby enabling depositors, investors and counterparties to take a more informed decision. the intended consequences of the regulatory reform measures are all too well known to need repetition before this knowledgeable audience. bis central bankers ’ speeches unintended consequences of reforms 8. it is obvious that the new regulatory and supervisory framework that we are putting in place now have some unintended consequences that are likely to entail additional economic costs. an underlying tension around the trade - off between financial stability and economic growth persists despite impact assessment studies showing results to the contrary. i would like to touch upon some of these issues with a particular focus on the impact on emerging markets. i ) impact on gdp growth although, an ex - ante assessment of the economic impact of regulatory reforms is difficult ; studies conducted by various international agencies indicate different magnitudes of impact. the bcbs ( 2010 ) estimated that the basel iii capital and liquidity charges would reduce the steady state level of economic activity by 0. 6 per cent in total or 0. 08 per cent annually if spread over the eight year transition period. mag of bis in 2010 covered 17 industrialized countries to conclude that the lending spread would increase by 15 bps by 2015 in response to a 1 % increase in capital over 4 years. iif which took a view ( 2010 ) of europe, us & japan concluded that a 2 % increase by way of capital and liquidity would translate into increase in the lending spread by 132 basis points. another study ( 2012 – 19 ) by iif indicates a negative impact of 0. 40 %, 0. 30 % and 0. 10 % on the annual growth for europe, japan and the us respectively. while the differences in outcomes could be attributed to the differences in methodology, the direction of impact is nonetheless clear. the economies need to brace up to the fact that the new regulations would have an adverse impact on the economic growth. the combination of ( a ) increased capital requirements, particularly in the common equity element of tier 1 capital and capital buffers and ( b ) minimum liquidity requirements, are likely to reduce the return on equity for banks. it is unclear how different banks will address the situation but the options include : reduction of rates on retail deposits ; reduced staff compensation ; and increased margins on products. reduction in retail deposits rates can have two consequences. first, it can result in increased disintermediation. second, they can even affect the overall saving rate of

the growth of 11. 5 % recorded in 2007. to address these multiple challenges, policy instruments must be used in an effective and consistent way. effectiveness requires to choose the appropriate policy instrument that can materially contribute to the achievement of an objective in a sustained manner. consistency requires using the available instruments in a way that is mutually reinforcing. the effective and consistent use of policy instruments should produce outcomes that have a durable overall positive impact on economic performance. let me elaborate on these propositions by examining the appropriate policy responses to the global economic challenges we face in the euro area and in china, and by assessing their effects on the eu - china economic relationship. policy responses in the euro area in the euro area, although the slowdown of the economy is mainly the consequence of the impact of the significant past increases in oil and other commodity prices and of the direct and indirect effects of the ongoing financial turmoil, the growth performance of its economy over the medium and longer run will fundamentally depend on the implementation of further reforms that can raise trend productivity growth, by increasing investment in innovation and education, and raising the utilisation of labour, by enhancing the flexibility and adaptability of labour markets. such reforms will simultaneously contribute to the moderation of unit labour cost growth and to the more efficient response of both product and labour markets to the adverse shocks buffeting the european economies. as a result, the adjustment of the economy will be facilitated and its shock - absorption capacity strengthened. moreover, the international competitiveness of the euro area will increase and this will help to reduce some of the asymmetries characterising the china - eu relationship. the question that some will raise is whether such reforms should or can be implemented during a period of heightened uncertainty and reduced consumer confidence. my answer is that if they are properly designed, adequately explained and effectively introduced, such reforms can also help boost confidence in the performance and prospects of the euro area economy, particularly in some of its member states that have experienced a substantial cumulative erosion of competitiveness over the past years. fiscal policy in the euro area can play a stabilising role during the current slowdown automatically, because our tax systems incorporate stronger income - stabilising mechanisms than is the case in other advanced industrial economies. at the same time, budgetary policies for 2009 and beyond should reflect and fully respect existing policy commitments. the implementation of fiscal policies that aim at sound fiscal positions over the medium - term will contribute to containing inflationary pressures and will enhance the functioning of