regulations which were over - cooked by the eu, without tackling other areas where regulations are too weak, then we are putting policyholders at risk. the interests of pensioners and other insurance policyholders can get lost in these debates, but parliament has given the pra a primary objective to protect policyholders, and it is a central part of our job to highlight risks and propose ways to deal with them. while pursuing our primary objectives of safety and soundness and policyholder protection, we also have regard to a number of important considerations, including the competitiveness of the sector and the contribution it can make to long - term economic growth. we are also mindful that as part of its review of the future regulatory framework, the government has proposed to give the pra a new secondary objective to promote long - term economic growth and international competitiveness, alongside our existing secondary competition objective. with all of those factors in mind, we think we can deal with the risks we are worried about while also supporting the government ’ s wider objectives. specifically, some in the insurance industry have the impression that we are opposed to any release of capital requirements for insurers. i want to be very clear that that is not the pra ’ s position – indeed, following a lot of work and examination of the evidence over the last year or so we think that a substantial capital release should be possible while continuing to protect policyholders adequately. this could occur as part of a reform package comprising three main components : first, a large cut to the “ risk margin ”, which is an extra liability that firms have to carry in order to make it more likely that another firm will agree to take on their insurance policies if the firm gets into trouble, to ensure policyholders are still protected in that scenario ; second, a package of measures to remove unnecessary bureaucracy from the regime and enable insurers to invest in a wider set of assets ; and third, measures to put one part of the regime ( the “ matching adjustment ” ) onto a more sustainable footing. while there are important issues to debate on the first two elements, it ’ s on the third of these that there is the main current difference of view between the pra and parts of the life insurance sector and i will focus mainly on that element in my remarks today. what is the “ matching adjustment ” and why does it matter? the main point of contention in the review is what, if anything, to change about the calibration of a part of

a fall off in business investment. only the steady downward trend in the household saving ratio – now into negative territory – is common to both periods. this shift in the composition of the pattern of us savings and investment has coincided with a change in the composition of external financing flows into the us. the private equity inflows which dominated in the earlier period fell sharply after the stock market crash, and were replaced by inflows into corporate and especially government bonds. a significant proportion of the demand for us government securities came from the official sector, notably asian central banks, whose foreign exchange reserves have more than doubled since 2001. the fact that the us current account deficit has been funded at historically low and falling real interest rates suggests that the fall in us net savings may not have been the only – or even the main – driver of global imbalances. and while there are other possible explanations for the current low levels of global interest rates, it is certainly true that high saving relative to investment in east asia has been an important counterpart of the us current account deficit. to be more specific, the rise in saving has outpaced the growth in investment in china, while domestic investment in the rest of east asia remained stagnant after the asian crises. finally, last year ’ s doubling of oil prices in response to buoyant world demand has led to a further change in the pattern of imbalances, with the combined surpluses of oil producing countries now likely to equal half the us current account deficit, on the same scale as the combined asian surplus. how much of a threat might persistent imbalances on this scale pose to the world economy? it is, of course, conceivable that these imbalances will prove to be relatively short lived. they might be driven by underlying influences that prove to be largely temporary – for example an investment overhang in east asia, which is eventually worked off, or a purely cyclical divergence in growth rates between major regions, or a short lived spike in world oil prices. but at the moment there is little sign of this – rather the reverse. it is therefore worth reflecting whether today ’ s international monetary system ( ims ) is sufficiently robust to ensure that global imbalances can be financed, contained or corrected through the normal mechanism of market forces, without crisis ; or failing that, whether institutional arrangements exist to resolve collective action problems and conflicting priorities without damage to the wider world economy. there are three key features of today ’ s