Accordingly, over the next few years, we will continue to strengthen the institutional framework for macroprudential surveillance through analysing liquidity and interest rate gaps and multicurrency foreign exchange risks, monitoring leverage of financial institutions, and enhancing credit risk assessments of the financial sector. As part of our macro prudential surveillance, a systemic risk survey is being conducted on a biannual basis to identify systemic risks to the domestic financial system. As part of a more complex monitoring system, a framework is to be developed to facilitate the identification and 21  analysis of financial cycles and business cycles. Multivariate stress tests are to be developed for LFCs. In addition, a country-wide assessment of household indebtedness is to be carried out. Over the year, the Central Bank has been actively involved in the adoption and implementation of measures that will not only strengthen the payment and settlement infrastructure but also facilitate the transition to a less-cash dependent society. During 2018, we will monitor the implementation of the National Card Scheme to facilitate introduction of low cost payment card products such as those pertaining to public transport and social benefit schemes. With the increased permeation of FinTech products, a regulatory framework is to be established detailing compliance requirements for such products and their usage. Further, as has been seen in recent times, cyber security is a threat to the stability and credibility of our financial sector.

10 These further requirements consist of an integrated approach between micro and macro components which encompass primarily four main aspects: (i) a dynamic approach that includes consideration of the bank’s reaction to the scenarios; (ii) a comprehensive two-way interaction between banks and the real economy; (iii) the assessment of contagion effects stemming from interconnectedness among financial institutions, including non-banks in the shadow banking sector; (iv) finally, the analysis of the interaction with other non-financial sectors that are relevant for banks’ risk management. Let me dwell upon these four points, which are being addressed at the ECB. Dynamic approach including the bank’s reaction to the scenario: Going beyond the static assessment of solvency of individual banks, macroprudential stress tests should account for more realistic features, in particular banks’ behavioural reaction to the stress which could come in the form of deleveraging, straight capital increases or work-out of nonperforming loans. To take that into account, the dynamic balance-sheet is implemented in  10  4  See also keynote address by V. Constâncio (2015), “The role of stress testing in supervision and macroprudential policy”, London School of Economics Conference on Stress Testing and Macroprudential Regulation: a Trans-Atlantic Assessment, 29 October: http://www.ecb.europa.eu/press/key/date/2015/ html/sp151029.en.html. BIS central bankers’ speeches  our framework by allowing banks to re-optimise their portfolio according to the risk-return optimisation criterion. 11 To account for two-way interactions of banks with the real economy we have developed Dynamic Stochastic General Equilibrium (DSGE) models which are being calibrated at the individual country level to assess these effects.