It also means that banks with the same ratios of capital to risk-weighted assets actually display different levels of resilience. Consequently, excessive risk weight variability makes banks’ capital ratios less comparable and less transparent reducing the market’s confidence in them. This is what happened during the crisis; investors lost confidence in regulatory measures of capital and started constructing their own. To accompany this speech, I include a paper co-written with Marc Hinterschweiger and Tobias Neumann that presents detailed analysis of the issue of risk sensitivity in capital regulation. 10  Here, I would like to highlight two things from this work. First, the evidence supports the hypothesis that more granular and risk-sensitive measures reduce incentives for banks to take on more risk (“risk shift”, in the jargon). In the paper, we compare mortgage lending of UK banks using internal ratings based (IRB) models to UK banks using less risk-sensitive standardised approaches after the implementation of Basel II in 2007. (Basel II was the reform that allowed banks to use their much more granular and risk-sensitive internal models to assess capital for mortgages and other credit 8  See https://www.bis.org/press/p171207.htm. See https://www.bis.org/publ/bcbs240.pdf and https://www.bis.org/publ/bcbs256.pdf. 10 Hinterschweiger, Neumann, and Saporta (2018), ‘Risk sensitivity and risk shifting in banking regulation’, Bank of England Financial Stability Paper No.44, https://www.bankofengland.co.uk/financial-stability-paper/2018/risk-sensitivity-and-risk-shifting-in-bankingregulation 9  4  All speeches are available online at www.bankofengland.co.uk/speeches  4  exposures.)

Dimitar Bogov: Economic and financial cycle spillovers – reconsidering domestic and cross border channels and policy responses Address by Mr Dimitar Bogov, Governor of the National Bank of the Republic of Macedonia, at the 5th Annual Research Conference “Economic and financial cycle spillovers – reconsidering domestic and cross border channels and policy responses”, Skopje, 7–8 April 2016. *  *  *  Dear Governors, Your Excellences, Ladies and Gentlemen, Dear guests, Let me wish you a warm welcome to our fifth Annual Research Conference that we usually host to mark the anniversary of the country’s monetary independence. This year’s Conference is a kind of a small jubilee considering the fact that for five consecutive years we have been inviting policy makers and researchers from the region and wider to discuss main policy issues and research questions, creating useful interaction and mutual knowledge increment, on which we are very proud. In addition, this year’s Conference coincides with yet another great anniversary – celebration of 70 years of central banking activities in the Republic of Macedonia and the conference is among the events that mark this immense anniversary throughout the year. As you probably noticed, this year we have chosen quite comprehensive and challenging Conference topic: Economic and Financial Cycle Spillovers: Reconsidering Domestic and Cross Border Channels and Policy Responses. Although not a new issue, it has been fully indorsed in the last global crisis and considered to be one of its main lessons that is still widely explored in the central banking and academic community.