as we have learned the hard way, easy monetary and credit conditions are also the stuff out of which credit excesses and bubbles can form so the question many central banks face is whether the benefits of further easing are worth the potential costs : in essence, will we get enough risk - taking on the real side of the economy, before we get too much on the financial side? of course, this is not a static calculation. sound structural policy can improve the odds that monetary stimulus feeds through to the real economy. after all, firms ’ decisions to invest, hire more workers and expand their operations depend not just on the cost and availability of funds, but also on the opportunities and the uncertainties in the business environment. is enough being done on this score? from my vantage point, it is far easier to see areas in need of improvement on the structural side than to detect any clear momentum toward addressing them. in the u. s., greater clarity around policies in areas such as trade, tax reform, energy, environmental regulation, and the strategy for fiscal adjustment would help extend investment horizons, increasing the prospect that accommodative financial conditions will have their intended effect. in japan, the new government is talking about structural reform, and policymakers have identified many areas where the business climate could be improved. in fact, i suspect that japan ’ s success in durably boosting growth will hinge as much or more on progress on the structural front, as on developments in monetary or fiscal policy. robust regulation and oversight can also improve the cost - benefit calculus. here, let me say a few words about the ongoing global regulatory reform process. as you know, the scope and scale of the regulatory response to the crisis of 2008 has been quite ambitious – some would say too ambitious. nonetheless, the scale should be understandable against the backdrop of the weaknesses revealed in the crisis, and the economic and financial fallout that resulted. bis central bankers ’ speeches and the reality is that a great deal has been accomplished, both in establishing goals, and in progress toward those goals. that is not to suggest that i am equally enamored with everything that has been done, or the way in which it has been done. the reform effort has many moving parts, and further efforts are clearly needed to ensure that those parts fit together, and that the various parties work together. and these reforms are yet to be fully implemented, let alone tested over a full credit cycle. of course, building a stronger

system is not just about regulatory reform. changes in institutional governance and culture are also needed. many of the problems that surfaced during the crisis and more recently reflect a culture that emphasizes short - term gain over institutional sustainability – a culture in which regulation is viewed as an obstacle to be arbitraged or circumvented, rather than as an additional check on broadly shared objectives. that needs to change if progress is to take root. making sure that happens will require a realignment of incentives, and strong leadership from the top. all of this will take time. the question is, how much time do we have? while risk - taking has been somewhat constrained in the aftermath of the crisis and the resulting uncertainties in the macro environment, we are beginning to see signs of things heating up in some areas of the markets : e. g., record issuance of junk bonds and emerging market debt, including enthusiastic take - up for issuers from “ frontier markets ” with little to no prior presence in the capital markets ; increased leveraged buyouts ; weakening covenants ; and a rebirth of the collateralized loan obligation market. complacency at this point would not be a good thing. when i think of the risks ahead, my concern goes less to countries, institutions or particular markets, and more to the broad set of challenges associated with the eventual normalization of the policy measures which are being taken now, especially in the context of markets that may be frothier than what we see today, and in ways that may not be fully apparent given all the new incentives being created for “ innovation ” in intermediation and in the nature and location of risk taking. tightening cycles tend to bring surprises. and in the upcoming cycle, both central banks and markets will be operating in unfamiliar territory. minimizing potential fallout for markets and for the economy will require deft management, and skillful and disciplined communication on the part of policymakers. that said, at least for now, inflation risks appear contained. notwithstanding the additional liquidity, inflation in the advanced economies is running toward the low side of desired ranges – and in japan, well below. financial markets show little evidence of longer - term inflation expectations becoming less firmly tethered. and when the time comes for normalization, there are a number of powerful tools available to keep them in check. finally, on the issue of currency spillovers : this is a topic where, at least so far, the rhetoric appears to have