jurisdictions to ensure that national authorities can exert all necessary powers. recovery and resolution plans must be developed and, finally, financial institutions may need to change their structure and operations to ensure their resolvability. looking ahead, the fsb framework will be extended from global to other sifis. in cannes, the g20 called on the fsb to deliver, by april 2012, possible ways to broaden the framework to include banks that are systemically important at national rather than international level. furthermore, there are concrete plans to include, in the medium term, other financial market players such as insurers, financial market infrastructures and non - bank financial institutions. illuminating the shadow banking system the next challenge i would like to address is the need to look beyond the banking system and to illuminate what is known as the shadow banking system. we should bear in mind that the shadow banking system is not a new, autonomous part of the financial system. most entities and activities ascribed to it are already subject to some kind of monitoring and regulation. yet the crisis has made it painfully clear that the shadow banking system can become a source of systemic risks and endanger the entire financial system. to reduce these risks, gaps and loopholes in the existing regulatory framework need to be closed. undoubtedly, we have to act fast, as the stricter rules imposed on banks via basel iii and the rules for sifis see financial stability board, key attributes of effective resolution regimes for financial institutions, october 2011. bis central bankers ’ speeches clearly pose the risk of activities being shifted to less regulated areas. we must not allow risky behaviour previously taken on by banks to be pushed into the dark. much work has already been done in this respect. in cannes, the g20 endorsed a comprehensive set of recommendations put forward by the fsb. these recommendations call for both an effective monitoring of the shadow banking system and, where necessary, regulatory measures. 2 to improve monitoring, the fsb has set out high - level principles for the relevant authorities and a stylised monitoring process. the fsb will conduct annual monitoring exercises to assess global trends and risks in the future. the results of these global assessments will be reported to the g20. getting back again to national authorities : their main task is now to implement the fsb ’ s recommendations for effective monitoring in a timely and internationally consistent manner. in order to gain a comprehensive picture of the shadow banking system and the risks it poses, authorities must put in

estimate would typically only move gradually in response to lower - than - expected wages or inflation. this very gradual adjustment of the nairu means that changes in the actual unemployment rate are generally a pretty good gauge of short - term movements in the unemployment gap. larger revisions to nairu estimates can occur over a number of years. over the past five years wages growth has been slower than would have been expected based on past behaviour. we have therefore gradually revised down the estimate of the prevailing nairu from 5¼ per cent a few years ago to 4½ per cent now. there is substantial uncertainty around our estimate of the nairu. first, there is uncertainty around the estimate of the nairu even when assuming this model of the relationship between wages, inflation and the unemployment gap is the best model. this is because even with the best choice of statistical approach, it is difficult to be precise about that relationship. the model estimates that there is a two - thirds chance that the current nairu is between 4 and 5 per cent, and a 95 per cent chance it is between 3½ and 5½ per cent ( graph 4 ). but given what we are seeing in the data, right now we feel comfortable about being a bit more specific than that. graph 4 a second source of uncertainty around our current estimate is uncertainty about whether the model has been specified correctly. the main choice here is the economic variables to be explained by the unemployment gap and the ways the unemployment gap affects those variables. for instance, the model assumes that the unemployment gap affects unit labour costs growth and inflation in a nonlinear manner. that is, the inflationary effects of an unemployment rate below the nairu are larger than the disinflationary effects when the unemployment rate is above the nairu. a third source of uncertainty, as i've already mentioned, is that one of the inputs into this exercise – inflation expectations – are also unobservable. the more uncertain our assessment of inflation expectations, the less confident we can be in our assessment of the nairu. the more sensitive we think inflation expectations are to recent inflation outcomes, the less the nairu would move. put another way, if we thought the recent period of low inflation had resulted in expectations becoming de - anchored, we would conclude that the nairu was higher than we currently think. a fourth source of uncertainty is that we are necessarily estimating the nairu on the presumption that it moves fairly slowly. as a consequence, as new data come