This is probably ascribable to cyclical divergence more so than a divergence in assessments and response patterns. In recent years, many of our trading partners have pursued an accommodative monetary policy with the aim of preventing the downturn from becoming deeper and longer and staving off falling inflation expectations. In the euro area and the US, low interest rates have probably contributed to improving the balance sheets of banks, households and firms. Financial stability considerations have thus pulled in the same direction as inflation and employment considerations. This may change as the economic outlook changes. As the Chair of the Federal Reserve, Janet L. Yellen, put it: “There may be times when an adjustment in monetary policy may be appropriate to ameliorate emerging risk to financial stability.”6 The quote reflects to a large extent the assessments we have made in Norway in recent years. In order to illustrate this, we can construct a simple analytical framework. Chart: Framework The point of departure is a central bank with a flexible inflation targeting regime. The central bank weighs deviation from the inflation target against deviations from potential output. The future paths for inflation and output are included in the assessment. We have included a variable that captures the transmission of financial stress to the wider economy. This framework thus differs from the normal one presented in the monetary policy literature. In the stylised model, we have called this stress impulse zt. First, the size of the effect on the real economy depends on the level of financial stress.

Indeed, sometimes when I hear of democratising finance, spreading risk in capital-light originate-to-distribute models, I think I haven’t been this excited since the advent of sub-prime. FinTech could also affect the conduct of monetary policy. Unbundled banking would change the roles of bank capital and funding costs in the credit channel of monetary policy. If FinTech enhances participation in financial markets, the wealth channel of monetary policy could strengthen. More broadly, Big Data techniques could tell us about the state of the economy more accurately and promptly. Forecast performance could improve, akin to the forecast improvements that better measurement of atmospheric conditions has, over time, delivered for meteorologists. may help to lower the compliance costs which major banks say have been a factor in their decisions to withdraw from correspondent banking. And in time, FinTech may broaden the pool of non-banks able to provide individuals and companies with viable alternatives, but for now banks continue to act as gatekeepers to payment and settlement in central bank money. BIS central bankers’ speeches  3  My own forecast is that FinTech’s consequences for the Bank’s objectives will not become fully apparent for some time. Many of the technologies needed to deliver such transformations are nascent – their scalability and compatibility untested beyond Proofs of Concept. Moreover, the bar for displacing incumbent technologies is very high. Nor will the Bank of England take risks with the resilience of the core of the system. Disruption won’t come either easy or cheap. 4.