Challenges for financial institutions today

Notes for remarks by Malcolm Knight, General Manager of the BIS, at a European Financial Services Roundtable meeting, Zurich, 7 February 2006.

• Many observers and analysts see major macroeconomic risks present in the global economy - large and widening external current account imbalances, large structural fiscal deficits in key countries, etc.
• Yet financial markets are not reflecting such risks in prices: a strong US dollar, very low long-term nominal and real interest rates, subdued volatility, etc.
• Hence there is a disconnect between the substantial medium-term macroeconomic risks and apparently benign risk perceptions implicit in the prices established in international financial markets.
• This disconnect is a key challenge for financial firms at the present time.