admit to being a fan and proponent of diversity in terms of bank size and business model, as this makes our banking system more stable. supervisors are not supposed to be making structural policy ; rather, they ought to be actively working towards proportionality in regulation. this is precisely why banking regulation and banking supervision are already designed with a large degree of proportionality. however, the ambitious reforms following the financial crisis have made the rulebook more complex, particularly because the rules were oriented to the epicentre of the financial crisis : large and medium - sized institutions with risky business models. 1 this new regime has made compliance a much more difficult and time - consuming affair. this overhead is high for each and every institution - regardless of its size. however, small banks and savings banks, owing to their smaller staff sizes, are far less able to spread the costs of compliance across their employees and have to either hire additional staff or enlist external aid. this leads to comparatively higher burdens. for that reason - and because smaller institutions pose less of a threat to financial stability than medium - sized to large institutions - i think that offering relief to small banks and savings banks is the right thing to do. one thing that is of paramount importance to me, however, is this : any relief measures being discussed here have to solve the actual problem - which is not, first and foremost, the minimum capital requirements, but primarily the operational burdens imposed by the need to comply with complex rules. what this means specifically is that any relief for smaller banks and savings banks must be about removing operational burdens - and of this i am firmly convinced. on the other hand, there cannot and must not be any easing of capital and liquidity requirements. 2 / 4 bis central bankers'speeches moreover, no relief should be permitted to jeopardise financial stability. medium - sized, highly systemically interconnected institutions - those referred to as " too interconnected to fail " - and those institutions with risky business models should not be provided any relief. the recent financial crisis, during which many insolvent institutions had to be bailed out, is still fresh in all of our minds. we also need to be careful not to create any loopholes that end up being used by so many small institutions that a situation of general distress results. i am therefore firmly convinced that institutions need to be regulated with a sense of proportionality without diluting the new regulatory regime. i am committed to ensuring that the debate on greater proportionality is

reflecting an increase in credit risk premia. while early 2019 has seen a partial retracement of these moves, both equity and credit risk premia remain higher than a year ago. graph 3 this rise in equity and credit risk premia follows an extended period where they had been unusually low, and even uncomfortably low, particularly in the united states. some adjustment to these was inevitable, and welcome from the perspective of financial stability. while these premia remain a bit higher than a year ago, they are still not that high by historical standards. at the same time that markets became more concerned about downside risks to economic activity, they became less concerned about upside risks to inflation. part of that reflected the revisions to the outlook for growth. but lower oil prices have had a significant effect on the nearterm outlook for inflation, and breakeven inflation expectations have shifted down accordingly. the combination of all of these changes – reduced expectations for growth and inflation, 4 / 11 bis central bankers'speeches increased concerns about downside risks, and higher corporate risk premiums – has seen market participants revise down their expectations for the paths of monetary policy rates. longerterm sovereign yields have also declined noticeably ( graph 4 ). graph 4 the change in expectations for monetary policy has been most pronounced in the united states ( graph 5 ). as recently as december, market pricing implied an expectation that the us federal reserve would increase interest rates in 2019. indeed, this was supported by the so - called ‘ dots ’, which show the median of individual federal open market committee ( fomc ) members'projections of the most likely outcome. currently, market pricing implies no increases in 2019 and even some chance of a reduction in the fed funds rate in 2020. once again, the repricing appears to reflect concern over what could happen, as much as what is considered most likely to happen. one way to illustrate this is by examining the survey - based expectations of primary dealers in the us money market. these data show that primary dealers are increasingly concerned about the ‘ tail risk ’ that the fed funds rate will return to zero in the next few years. nevertheless, their most likely forecast remains for further rate increases. 3 graph 5 5 / 11 bis central bankers'speeches central bank policy expectations have shifted elsewhere as well, although generally by less than in the united states ( graph 6 ). that difference is likely to have contributed to a depreciation of the us dollar after its trend appreciation last year