customer eligibility to obtain a loan in foreign currency. however, these measures do not preclude domestic customers in these countries from obtaining foreign currency loans directly from banks domiciled in other countries. it appears, therefore, that the issue of foreign currency lending requires a supranational approach – at least at the eu level. more generally, in order to make the financial system less prone to crises and ensure long - term sustainable growth, we are setting a broader policy agenda for the eu as a whole by means of basel iii and the creation of a new macroprudential supervisor in the eu. 3. basel iii and macro - prudential policy in the eu during the recent crisis several gaps in the regulatory and supervisory framework for financial institutions were revealed. it became apparent that the quality and quantity of the capital base of many financial institutions were insufficient to withstand severe shocks. in addition, the abundant liquidity that characterised the financial system in the years preceding the crisis suddenly disappeared, exposing several institutions to liquidity shortages. to avoid a complete financial meltdown, governments provided an unprecedented amount of financial support and central banks had to significantly increase their provision of liquidity during the initial stages of the crisis. these events led to many different policy responses, resulting in a major overhaul of the regulatory and supervisory framework. under the aegis of the g20, a tremendous amount of work has been done by the financial stability board and the basel committee to reform the regulatory and supervisory framework in order to address the core causes of the crisis. a major component of this reform was the revision of the basel ii framework with the aim of strengthening the capital base of banks and introducing stricter liquidity risk requirements and an absolute leverage ratio. the revision of micro prudential regulation – basel iii the recent agreement reached on the basel iii framework and its full endorsement by the group of central bank governors and heads of supervision is an important piece of work that delivers on global financial reform and constitutes a cornerstone of the new regulatory system. the five main elements of the new framework are as follows. ( iii ) restrictions on loan - to - value and payment - to - income ratios ; and ( iv ) tighter eligibility criteria for borrowers to obtain a loan in foreign currency. see, for example, luca, petrova ( 2008 ) and rosenberg, tirpak ( 2009 ). first, under the new definition of regulatory capital, both the quality and consistency of the capital base will be improved. this will help to

bank of japan ’ s september report of recent economic and financial developments1 bank of japan, communication, 18 september 2000. * * * the bank ’ s view2 japan ’ s economy is recovering gradually, with corporate profits and business fixed investment continuing to increase. with regard to exogenous demand, public investment is about to decrease since the implementation of the supplementary budget for fiscal 1999 has peaked out. net exports ( real exports minus real imports ) continue to follow a moderate upward trend due to steady developments in overseas economies. as regards domestic private demand, business fixed investment is on an increasing trend. the recovery in private consumption continues to be weak as a whole through lack of notable improvements in employment and income conditions, although there are somewhat positive signs in some indicators. housing investment is mostly unchanged. reflecting such developments in final demand, industrial production is increasing. corporate profits and sentiment continue to improve, and the number of firms that take positive action, such as increasing the amount of fixed investment, is increasing, especially in high - growth sectors. income conditions of households still remain severe but regular and overtime payments as well as new job offers continue to increase in line with the recovery in corporate activities, and compensation of employees has stopped decreasing. as for the outlook, public investment will decrease, but net exports are expected to continue increasing gradually, reflecting the expansion in overseas economies. in the corporate sector, firms still strongly feel that they have excess equipment and that they should reduce their debts to restore financial soundness. however, it is very likely that fixed investment in high - growth sectors, including those related with information technology services, will increase as corporate profits continue to recover. moreover, an improvement in corporate profits will increase household income and this in turn is expected to boost private consumption. however, the pace of recovery in household income will be modest for the time being, since firms ’ perceptions of excess employment still persist, and thus significant changes have not been observed in their efforts to reduce personnel expenses. overall, the economy is likely to recover gradually led mainly by business fixed investment, unless there are major adverse external shocks. in addition, the favorable financial environment created partly by the bank ’ s sustaining easy monetary stance is expected to continue underpinning the economy. with regard to prices, import prices are rising, reflecting an increase in international commodity prices such as crude oil prices since april. domestic wholesale prices, notwithstanding the rise in prices of petroleum products reflecting the increase in crude oil prices, are mostly unchanged mainly due to the