shinichi uchida : challenges to the financial system during and after the pandemic and a way forward speech by mr shinichi uchida, deputy governor of the bank of japan, at the international association of deposit insurers ( iadi ) annual conference, tokyo, 14 november 2024. * * * introduction it is a great honor and pleasure to be invited to the iadi ( international association of deposit insurers ) annual conference. today, i would like to talk about economic and financial developments during and after the covid - 19 pandemic, with the hope of deriving some lessons for financial stability. over the past several years, the global economy and financial conditions have changed dramatically. the pandemic had a significant effect on society and the economy. governments around the world took strict and wide - ranging public health measures to prevent the spread of the virus, together with large - scale fiscal spending. central banks aggressively pursued monetary easing and provided ample liquidity domestically as well as globally through the swap line arrangements among central banks. some governments went further to assume part of credit risks. these measures contributed to maintaining the stability of financial markets and the financial system, facilitated the intermediation functions, and hence supported the real economy. there was no major bank failure during this period. thereafter, however, as the economy was returning to normal, we faced supply - side constraints due to disruptions in global supply chains and a rise in commodity prices owing to heightened geopolitical risks, which led the global economy to inflation. central banks raised their policy interest rates. then, in 2023, a few banks fell into trouble, including the failure of silicon valley bank and the acquisition of credit suisse, as they suffered from liquidity and interest rate risks. thanks to swift efforts made by the authorities, financial stability was maintained. governments and central banks paid careful attention to financial stability during the pandemic, but it was difficult to predict that these troubles would have arisen. at the time, we were worried about deflation rather than inflation. we were worried about credit risks rather than liquidity and interest rate risks. these episodes tell usthat, even if we understand the economic and financial situations and the risks associated with them, we can hardly foresee the nature of possible future shocks. but still, as our mandate is to ensure financial stability, we have to prepare for them. what we can do is to learn from the past and use the lessons for the

especially those with a large amount of fixed - rate loans and long - maturity securities. in any case, the rise in interest rates was much milder in japan than in the united states and europe, as was the impact on banking businesses and the financial system. on the whole, japan's financial system has been maintaining stability. financial institutions have sufficient capital bases and stable funding bases to withstand various types of risks, including the global rise in interest rates and gfc - type stress. financial intermediation has continued to function smoothly. iii. lessons learned and challenges ahead before i conclude, i would like to talk about the lessons learned and the challenges ahead. as i said at the outset, even if we understand the economic and financial situations and the risks associated with them, it is difficult to predict what kind of shocks will happen in the future. but this does not mean that we cannot prepare for unknowns. on the contrary, the episodes i mentioned today all highlight the importance of what we do during normal times in order to react nimbly when we face a crisis. the role of central banks prompt enhancement of the swap lines was possible based on the experience at the time of the gfc and day - to - day communication and collaboration among central banks. the market instability during the pandemic and the banking sector turmoil after the pandemic showed that, when the financial system is under stress, market conditions can deteriorate rapidly due to liquidity and funding concerns, and the risk of a negative feedback loop increases. in such a situation, it is important for central banks to maintain market confidence by fulfilling the gllr and mmlr functions. recently, we are required to respond to crises even more rapidly and on a larger scale. so, close communication among central banks during normal times is key. 4 / 6 bis - central bankers'speeches a central bank also needsto keep close communication with financial institutions and monitor risks on a daily basis to fulfill its llr function in a timely manner. allow me to talk a bit about my own experience. back in the early 2000s, when japan's financial system was still unstable, i was leading a team in charge of monitoring financial institutions and coordinating llr functions at the bank. we tried to get as detailed information on individual banks as possible, including the expected daily inflow and outflow of deposits in the near future, eligible collaterals, and so on. as you know well, every bank is different. whether we decide