paid is often a matter of interpretation of the contract. there might be greater scope for debate about whether the triggering event has actually occurred or whether any associated conditions have been met - even whether payment is due. and any payment due may not be made, at least in full until negotiations on these points have been completed. the fact that well - established channels may exist to resolve any disputes - including if necessary the courts - doesn ’ t get around the fact that uncertainty regarding the timing and quantum of payment is injected into the process. bankers find it hard to reconcile these realities of the insurance world with the way they manage risk and undertake their business. clearly, this fundamental difference in approach can raise issues for those of us with an eye on financial stability. specifically, these different characteristics can give rise to cash flow and liquidity implications which, for bankers and others in the financial markets, are potentially highly disruptive. it ’ s fair to say that confidence in the banking world, which enables the system to function relies on obligations being met as they fall due. as the volume and complexity of inter - linked contracts in the system increases the need for certainty on this point also increases. higher volumes and greater complexity also increase the interest of financial authorities who have responsibility for stability of the financial system. to be more specific, a potential problem can arise if, at any point in the chain expected payments do not materialise. despite the progress which has been made there is still some caution on the part of banking regulators towards recognising the risk mitigation provided by insurance contracts. a recent example is the debate over recognition of insurance cover for operational risk under the new basel ii capital adequacy regime. that general point is illustrated by the post - enron case involving jp morgan chase and various insurance companies. whatever the rights and wrongs of the case the very fact that it became necessary illustrates the potential for uncertainty in relation to contracts at the boundary between banking and insurance. furthermore the jp morgan chase case was ultimately settled out of court. so it might not have taken us much further forward in terms of clear guidance or greater legal certainty. i ’ m sure you will be revisiting these issues tomorrow afternoon, in your session covering legal systems. so, i won ’ t labour my point much further. but there is a vulnerability here which i think we would do well to try to understand better. we ’ ve got to enhance confidence that contracts straddling the two sectors can be relied upon to

, because it is no longer sufficient to consider just the one - way spillovers by which economic policies in advanced economies influence emerging ones. the two - way spillovers, where the influences run in both directions, must be taken into account at the same time. a good case in point is our analysis of the effects of the us federal reserve ’ s second round of quantitative easing, or qe2, in which we must not simply consider the impact that the fed ’ s policy has on emerging economies in addition to its own, but also take into account how this impact on emerging economies feeds back to the us economy in turn. another major concern in the global economy these days is the growing problem of global inflation. at present, most countries other than the united states and japan are quite concerned about inflation. bis central bankers ’ speeches and for the emerging economies in particular, prices, including asset prices, have risen greatly as capital inflows to them have expanded. that being said, in the global financial markets we are presently seeing some indications of capital being pulled from emerging economies over the short - term, as a consequence of the economic recoveries in advanced economies and the emergence of geopolitical risks. the international prices of oil and other commodities have also surged, with the recent escalation of geopolitical risks in north africa and other regions, adding further to the impact of the increased demand for them generated by the global economic recovery. it follows from all of this that the normalization of monetary policy has emerged as a very pressing policy concern for most central banks, which must ensure that the ample liquidity supplied in response to the crisis will not stoke inflation. the last of my comments on the changes in financial and economic conditions relates to the g20, which has been at the center of the active post - crisis discussions on a new global economic order. the key to construction of such an order is of course to resolve the problem of global imbalances, that lay at the root of the crisis, by producing concerted and coordinated deliverables in relation to the indicative guidelines laid out in the discussions at the g20 meetings. we must not forget that at the center of any financial crisis lies a crisis of the real sector of the economy, and that correcting the conditions for sound operation of the real sector is thus of paramount importance. and needless to say, because such deliverables cannot be achieved through the efforts of a few countries alone, we must endeavor to reduce market