similar comments regarding the paper of professor kashyap et. al. at the symposium sponsored last year by the federal reserve bank of kansas city. fiscal outlays if an insured event occurs. 16 in addition, government ’ s involvement would prevent private premiums from becoming too high in the face of phenomena that carry large uncertainties. 17 private sector expertise must be marshaled in order for any such insurance program to be effective. therefore, one option that is quite possible is to create a public - private partnership in which efficient private sector institutions originate capital insurance that is, for all purposes, " re - insured " by the government. that is the form that japan uses to provide " earthquake insurance. " a public - private partnership for capital insurance enables the system to draw upon the expertise of the private sector to achieve greater efficiency than would be seen if capital insurance were provided by public institutions only. to have a well - functioning capital insurance, we need not only its public nature, but also an element of mandatory enrollment. more specifically, financial institutions with the potential to trigger systemic risk must be required to enroll in an insurance program. this solves the freerider problem. it might also allow financial institutions to opt out of the insurance program. however, in such cases, the financial institution would be required to scale back its business and demonstrate that it will not trigger systemic risk. even still, it is no easy matter to come up with objective criteria that can be used to identify " financial institutions with the potential to trigger systemic risk. " there is also a question of whether only banks need be covered by the insurance. it is impossible to foresee which business models will be the source of future instability in the financial system. therefore, regulators must constantly review the definition of a " financial institution with the potential to trigger systemic risk " as their financial sectors develop and evolve. the remaining issue is that of pricing the insurance. the involvement of public institutions in the provision of insurance means that the burdens ultimately revert to the public. it goes without saying that it is only fair for the public to bear some of the cost because they enjoy the benefits of a stable financial system. an important issue in this will be convincing the public of the appropriateness of insurance pricing. this will require a bit of creativity in the mechanisms used to set premiums. as a rather simple example, consider a mechanism by which premiums are based on a measurement of the institution's systemic risk, defined in

off of the recovery and minimizing the impact from potential bumps. • measured : policy decision will be calibrated taking into account economic conditions and circumstances prevailing at the time. if a pause is required, we will pause. if 50 bps is necessary to meet our policy objective, we will raise 50 bps. but with the current circumstances, aggressive rate hikes or too early withdrawal of financial measures can jeopardize the economic recovery given pockets of vulnerabilities and the uneven impacts on different groups. c. we have taken first steps towards this at the financial institutions policy committee ( fipc ) meeting on june 30th and the monetary policy committee ( mpc ) meeting on august 10th. • the fipc decided to withdraw some of the blanket - type measures including fidf fee cut and bank dividend payment restrictions. • the mpc voted 6 to 1 to raise the policy rate by 25 bps. part 3 : what is our rationale for monetary policy normalization? [ 3. 1 mpc decision : 10 august ] two weeks ago, the mpc has delivered the first policy rate hike after having held the policy rate at its historically low level for more than two years. after a thorough assessment of all the trade - offs, the mpc judged that policy normalization was warranted as the balance of risk has changed : the recovery is intact and resilient, financial stability remains sound overall, but inflation risk has increased. 1. the recovery is intact and resilient a. economic recovery gaining traction supported by a strong recovery of tourism and domestic demand given improved labor market, household income and economic activities. although q2 gdp headline is lower than expected, we reaffirm the growth trajectory and economic recovery underpinned by strong domestic demand growth. consumption has recovered well with not just pent - up demand but supported by real improvements in income. recovery of the tourism sector is key to ensuring a smooth and sustained income recovery as the sector accounts for 12 % of gdp and employs over 20 % of total employment. • gdp growth = 1. 5 % in 21, ~ 3 % in 22, ~ 4 % in 23 ; 2. 3 % / 2. 5 % for q1 / q2 this year • consumption growth = 3. 5 % / 6. 9 % for q1 / q2 this year vs. 3. 3 % pre - covid • non - farm income grew 10. 4 % / 13. 5 % in q