made countries reach a consensus on the selection of a reforms agenda. much of the focus of the reforms is on improving the soundness of the banking system, addressing the systemically important financial institutions ( sifis ), developing macroprudential policy tools, strengthening accounting standards, disclosure requirements and crisis resolution framework. we know that excessive leveraging by the banking sector, particularly in advanced countries was one of the key reasons that lead to the recent crisis. banks took excessive on and offbalance sheet exposures while maintaining an inferior quality of capital base with insufficient liquidity buffers. in order to avoid such situations in the future, the basel committee on banking supervision ( bcbs ) introduced fundamental reforms in the basel ii capital adequacy regime by issuing a number of reforms and enhancements of the existing the basel framework. these enhancements commonly referred to as basel iii are aimed at bis central bankers ’ speeches raising the level and quality of capital, introduction of leverage ratio, capital conservation buffer, counter cyclical capital buffer and liquidity coverage and net stable funding ratios. similarly, in order to facilitate the national supervisory authorities and small and medium sized banks and to avoid a sudden credit crunch in already fragile economies, the bcbs also set a rather relaxed timeline from 2013 to 2019 for the adoption of basel iii. it is therefore expected that increased capital requirements and further consolidation in international banking will prove to be a major step towards promoting financial stability. however since basel iii only affects banks, the regulators of other financial sectors such as insurance are expected to encourage the implementation of solvency ii for insurance companies in order to reduce the presence of shadow banking and restrict the risk to move towards less regulated entities or creating regulatory arbitrage. in recent times, an important reforms measure being pursued is to improve regulation and oversight of shadow institutions, so as to limit arbitrage opportunities, arising from the transfer of risk to relatively less regulated areas / sectors. the regulators therefore, are now focusing on minimizing the regulatory gaps in the shadow banking framework. to bridge this gap, the financial stability board ( fsb ) is working closely on the development of an effective regulatory regime for shadow banking system that would largely focus on a ) mitigating any spill - over between regular and shadow banking as banks are part of the intermediation chain of the shadow banking sector, b ) reducing buildup of leverage in shadow banking through securitization, c ) assessing systemic risk posed by shadow banking, d ) reducing pro

falls short of current forecasts ; according to our simulations, a generalised adoption of this type of contract would significantly decrease the rate of growth of wages and this would in turn be reflected in the dynamics of consumer prices. 10. very low inflation in the euro - area also depends to a large extent on the persistence of economic slack and high unemployment. in the euro area the negative correlation between unemployment and core inflation or the rate of growth of negotiated wages is very evident even from a simple descriptive analysis ( figure 2 ). supporting growth and employment is thus crucial to bringing inflation back to target. indeed, ongoing work carried out at the banca d ’ italia based on micro - data suggests that after the crisis nominal wages became more reactive to unemployment in italy, france and spain ; in italy a reduction of unemployment by 3 percentage points would result in an increase of wage inflation in a range of 0. 5 – 1. 0 percentage points. 11. but is monetary policy still capable of supporting inflation and activity? the short answer is yes. although we are not happy with the current outlook for inflation ( and we are also only moderately satisfied with the growth outlook ) there is no doubt that the counterfactual would have been much worse and could have led to a deflationary spiral with severe consequences both for the real economy and the financial sector. for a comprehensive description of the app, its impact and remarks on the evaluation of possible unintended consequences see : ignazio visco, “ global monetary system : our currency, your problem? ”, remarks to the monetary policy panel, ubs european conference, london, 11 november 2015. the indicator is based on the probability of co - movement of long - term and short - term inflation expectations. technically, it is calculated as an odds ratio over a rolling window of 250 working days and ranges from zero to infinity ; an increase indicates a closer link between sharp decreases in short - term and in long - term expectations ; low values indicate that long - term expectations are better anchored. for details on how the indicator is constructed see f. natoli and l. sigalotti, “ an indicator of inflation expectations anchoring ”, banca d ’ italia, temi di discussione ( working papers ), forthcoming. bis central bankers ’ speeches 12. constructing counterfactuals is always difficult, but estimates by banca d ’ italia staff ( which do not consider possible non - linear effects ) show that in the absence of the monetary