creditors, and default losses are absorbed by a large number of investors. second, the emergence of powerful non - bank players to whom risk is transferred contributes to greater risk dispersion and market efficiency. one example is hedge funds, which have become large risk absorbers on credit markets. their share in derivative trading is estimated at up to 25 %. hedge funds trade mainly on the riskiest segments and often buy equity tranches of cdos, previously the preserve of banks. another example is institutional investors ( mutual funds and pension funds, insurance companies, etc. ), which have increased their exposure to risk transfer instruments, even though their investment policies remain fairly conservative. third, banks themselves may, via credit derivatives, improve their risk management. they diversify their risk profiles by gaining exposure to companies or sectors in which they do not have customer relationships and by hedging risks while retaining customer relationships. credit risk transfer mechanisms are also used by banks to deal with single - name concentration risk. consequently, major improvements in risk measurement have been made. from a prudential viewpoint, the basel ii framework takes better account of risk mitigation techniques employed by banks, including the use of credit risk derivatives, and applies specific treatment to securitisation. 2. but this evolution should make us more – not less – vigilant regarding the assessment and tracking of risks. the wider benefits that crt can bring should not give rise to a false sense of security. risks do not disappear as a consequence of their transfer. banks need to pay attention both to " residual risks " ( e. g. tail or extreme event risks ) and all of the risks ( e. g. operational risk, documentation and settlement risk, legal risk ) arising from the use of crt. furthermore, the growing complexity and volume of crt transactions call for enhanced monitoring. actually, understanding where risk ultimately lies and how risky exposures can build up is an essential prerequisite for safeguarding financial stability. the argument is fourfold : first, historically low interest rates and abundant liquidity have prompted an intense search for yield. lower interest rates have encouraged risk - taking and higher leverage as investors have wanted to secure high rates of return. a case in point is insurance companies, which have to service guaranteed rates of return, and pension funds that have agreed to specific benefits. as the return on risk free bonds has declined, investors have been increasingly led to search for yield and increase the share of risky assets, including

, collectively looking ahead and, in this regard, there are several aspects of mandates and operations of the bank that require modernisation and upgrading in order to remain relevant and contribute to national development aspirations and objectives. indeed, monetary policy and the various instruments, including communication, can only be effective if undertaken alongside improvements in other operations of the bank and policy transmission channels. aliow me to highlight four relevant areas in this regard. modernisation and adaptation of the bank ’ s functions first, there is a need to adapt to changing domestic and global conditions and, also, to ensure that the bank of botswana is appropriately positioned to adequately address new developments and related challenges. some of these include fintechs, digital currencies and similar innovations as well as adopt best practice, to sustain national development. in this regard, there is ongoing review of the bank of botswana act, the banking act and proposals to promulgate a national payments law. the intention is to enhance operational capability, predictability and integrity of policy and regulatory frameworks, as well as to clarify institutional relationships and promote accountability and transparency. furthermore, one of the key lessons from the 2008 / 9 global financial crisis is the need for joint, speedy and coordinated response, by all relevant stakeholders, to any substantial systemic risks emanating from any parts of the financial sector. as part of the broader financial development architecture, there is a need to re - configure institutional arrangements for the financial sector oversight to achieve greater focus on macro - prudential dimensions of financial stability policy and financial safety nets. the recent establishment of the financial stability council is a significant step towards protecting the viability, integrity and sustainability of relationships and cross - holding of exposures within the financial sector and with other economic sectors. as i mentioned, this enables coordinated and decisive response when needed ; ultimately safety of savings and investments and prospects for attracting more. also, one of the key tenets, in this respect, include the need for legislation for the establishment of a deposit protection scheme, to further encourage patronage of the domestic financial system, in particular broader financial inclusion. monetary policy framework distinguished guests, the second area of continuing improvement that i want to highlight relates to the role of the monetary policy framework in facilitating a conducive environment for private businesses to thrive. broadly, an appropriate policy framework should encompass definition and clarity of objectives and instruments, understanding and calibration of transmission channels and, therefore, predictability and, in turn, accountability. it is