in order to compete with the new entrants. this surge in digitalisation has also changed banking supervision. we, too, are increasingly using big data and machine learning to improve our analyses and decisions. it is important for supervisors to recognise and take into account the risks of innovation at an early stage. however, it is not the task of supervisors to recommend or even prescribe certain business models to banks. and no one here today is likely to expect this, either. after all, the search for viable innovations is nowhere better placed than in the hands of market players. at the same time, in view of the increasingly digitalised financial sector, supervisors are increasingly focusing on it ( informationstechnologie ) risks. this is because, in extreme cases, these can jeopardise the stability of the entire financial system. among these risks, cyber attacks are becoming increasingly significant, not least in the light of the ukraine war and the intensified geopolitical conflict. indeed, there has been an increase in attacks on european it ( informationstechnologie ) infrastructures since 24 february. we have been familiar with ddos ( distributed denial of service ) attacks for some time now, which are used, for example, to deliberately overload servers. what is new, however, are attacks using so - called “ wiperware ”. these are used to delete specific data or to render them useless. one of the tasks of banking regulation is to contain the potential risks of digitalisation. at the same time, however, it must not stifle innovation. getting a technology - neutral and risk - oriented approach right is often like walking a tightrope. that said, the basel committee on banking supervision and the european banking authority are well - versed in such balancing acts. the issue of proportionality has been, and still is, one such example. at the bundesbank, we have consistently marked out a suitable way forward. an important step was to give small banks an official definition and to anchor this in regulation. the “ small and non - complex institutions ” are now an integral part of the regulatory framework. and rightly so, as a small bank does not pose the same risk to the financial system as a large international bank. such a small bank should therefore be given regulatory relief, for example with regard to disclosure requirements. looking ahead, the ideal approach to regulation could be to base it more on principles and less on a detailed, comprehensive and rather rigid set

option is not available, because we produce only a handful of consumption items competitively, and most of those would become more expensive with currency depreciation, because of their import content. the caribbean policy maker has only one option for reducing spending on foreign exchange, and that is to reduce spending on everything. to stabilise these small open economies one has to cut expenditure in the aggregate. bis central bankers ’ speeches the tools available to reduce aggregate spending are all fiscal, and what is needed, in the end, is a reduction in the fiscal deficit. most of us, even those who remain wedded to conventional economic analysis, will be in sympathy with this conclusion. however, the conventional story, with its armoury of money supplies, excess liquidity, real effective exchange rates, core and headline inflation, etc, obscures the fundamental link between the fiscal deficit, external balances and foreign reserve adequacy. that linkage is what makes for the success of stabilisation policy. it may be employed to estimate the amount of fiscal adjustment needed for economic stabilisation, and equally importantly, to track the success of the fiscal adjustment measures, as they are reflected in the evolution of foreign exchange reserves. may i therefore take this opportunity to appeal for a practical approach to economics, one that 1. is based on careful measurement and observation of actual economic transactions and behaviour, even if that means we must rethink our prior notions ; 2. uses a variety of methodological approaches in the effort to understand better how our economies work ; 3. is sufficiently easy to understand and explain to economic agents whose decisions ultimately determine the success of policy ; 4. provides useable guidance about the magnitude of the policy adjustment that may be necessary. in a paper on fiscal sustainability that my colleagues anton belgrave, jason lacorbiniere, denisa applewhaite and i will present at this conference, we provide an example economic analysis which we believe is practical in this sense. in the panel discussion tomorrow i hope we can explore this question more fully. bis central bankers ’ speeches