tail risks. this is a typical moral hazard problem. it is difficult to set concrete criteria with regard to how much the private sector should shoulder the burden and to what extent the authorities should intervene as a last resort. in any case, to address tail risks, it is very important to properly design and put in place a society - wide risk management framework. resilient payment systems in this regard, i would like to highlight the importance of building resilient payment systems with the cooperation of private financial institutions and central banks. major payment systems should be designed to have sufficient resiliency against tail events including natural disasters. taking the example of the boj - net, the large - value settlement system for funds and government bonds, the main computer center is proud of its strong resistance to earthquakes and a backup center is located in osaka. at the same time, on the operational side, in order to lessen payment risk at a time of crisis, major payment systems need to adopt safe settlement features such as real time gross settlement, delivery - versuspayment, and payment - versus - payment. financial regulation and supervision second, financial regulation and supervision is an important component of a society - wide risk management framework. in the wake of the lehman shock and with the aim of preventing another financial crisis, an agreement was reached on the basel iii framework, which includes a higher capital requirement, a strengthening of liquidity regulation, and the bis central bankers ’ speeches introduction of regulation on leveraging. the new framework requires the internalization of tail risks by financial institutions and provides the institutions with more incentives to lessen risks. in this context, there are discussions about the issue of “ too big to fail. ” these cover additional loss absorption capacity to reduce the likelihood of the failure of global sifis, or systemically important financial institutions, and measures to remove obstacles to the resolvability of global sifis, which would enable orderly restructuring and resolution. these measures aim at controlling the negative externality of global sifis. when designing the overall framework, it is important to choose a balance between those measures to promote the internalization of risks, such as additional loss absorption capacity, and those measures to lessen the externality itself, such as improving resolvability. appropriately conducting monetary policy third, i would like to discuss the appropriate conduct of monetary policy. before the lehman shock, the prevailing view among academics and the authorities was that aggressive easing after the bursting of bubbles could prevent a

from a macro perspective is very important. someone has to present analysis from such a perspective, which i call a macroprudential perspective. in this regard, central banks use their unique institutional culture of looking at the system as a whole when analyzing the economy and financial markets through the conduct of monetary policy and various operations. in fact, many central banks including de nederlandsche bank and the bank of japan have made their macroprudential assessment public and have devoted significant bis central bankers ’ speeches resources to assessment of the risk within the financial system as a whole. i am aware that such analysis alone cannot effect the internalization of tail risks. but i expect that it could help many economic entities to recognize tail risks. lender of last resort fifth, i would like to touch upon the lender of last resort function of a central bank, which is related to ex - post measures to address tail risks. once tail risks materialize, it is extremely important to secure stability in the financial system in order to avoid systemic risk. in this regard, central banks are required to act properly as a lender of last resort through fund provisioning and market operations. this is exactly what the bank of japan did after the earthquake. effective communication sixth, as an ex - post measure, effective communication is essential. as we experienced after the recent earthquake, groundless rumors often spread at the time of tail events. to make matters worse, in the absence of accurate information, economic entities tend to become too cautious. therefore, it is essential for the government and the central bank to provide effective communication so that the public understands what is happening as well as the basic principles of the authorities ’ response to the ongoing events. v. concluding remarks today i have shared with you my own thinking on the challenging topic of addressing tail risks, drawing lessons from the lehman shock and the great east japan earthquake. specific causes of tail events have differed according to country and timing. in that sense, we should always be humble by recognizing that our knowledge with regard to tail risks is limited. it is not my intention, however, to finish my remarks on tail risks in a pessimistic tone. the materialization of tail risks itself is unfortunate but people are learning from such events. currently, various discussions are taking place to review financial regulation and supervision, monetary policy conduct, and macroprudential measures. these efforts will certainly bear fruit in the future. such a learning process is ongoing not only in terms of policy making but