##tech trends : teaming up, new threats, and trials by central banks i have three observations from the perspective of central bankers related to fintech trends. i position these as ‘ the 3 ts ’ : teaming up among authorities, the new threats arising from fintech, and lastly trials by central banks. page 2 of 9 teaming up first, the fintech phenomenon has brought central banking and the larger regulatory community closer in working together on analysing and appraising new innovations. we have a long history of working together. this collaboration is strengthened as a result of the nature of the technology - inspired innovations not bound by physical topographies. this is the age of platforms. these can be centralised, as in the case of online peer - to - peer lending or some mobile payment platforms. platforms can also be decentralised and distributed, as in the case of crypto - assets and initial coin offerings. they can scale with ease using technology such as cloud - computing, and adoption across geographies can happen rapidly. some can on - board customers due to their digital on - boarding in a matter of minutes. download an app, upload your payment details, and you could be hailing a taxi anywhere in the world. collaborating and working together to understand the impact of innovations that can scale services across borders is important to ensure that there are harmonised approaches and that a regulatory ‘ race to the bottom ’ is prevented. this collaboration by central bankers through bodies such as the bank for international settlements ( bis ), the financial stability board, the international monetary fund ( imf ) and the world bank has produced significant analysis in the fields of crypto - tokens, central - bank - issued digital currencies ( cbdcs ), artificial intelligence and distributed ledger technologies, to name a few. there have also been contributions on fintech more broadly, raising awareness of the fact that fintech is not just crypto - assets. such work has also drawn out both the monetary policy and the financial stability implications of fintech innovation and the issues that merit regulatory attention. so, as central banks, we have not been sitting idle in the face of these technological advancements. whereas in the past regulators often played catch - up, this time around it is noticeable that regulators have adopted a far more collaborative and proactive approach. we see partnerships like project stella between the bank of japan and the european central bank exploring the impact of distributed ledgers. just recently, the bank of

recent years, sovereign debt can indeed be risky even if, in good times, it appears to be perfectly safe. in addition, i believe you can make a case that risk weights for securitization exposures understated the risks and losses that were actually incurred in these exposures. in fairness, see r. alton gilbert, andrew p. meyer, and james w. fuchs ( 2013 ), “ the future of community banks : lessons from banks that thrived during the recent financial crisis ( pdf ), ” federal reserve bank of st. louis review ( march / april ), pp. 115 – 144 note that the number of risk weight buckets would increase under the basel iii notices of proposed rulemaking ( 77 fed. reg. 52791 and 77 fed. reg. 52887 ), but would still remain relatively small. bis central bankers ’ speeches losses during the financial crisis far exceeded prior historical losses on securitization exposures. but that ’ s just the point : the risk profile of a particular financial instrument can change significantly over time, which can be very difficult to capture in a regulatory capital regime based on crude risk buckets that do not evolve over time. accordingly, the amount of capital held can be inappropriate relative to the actual risk. one problem this can lead to is that it can create incentives that skew lending decisions and credit allocation more broadly. to be clear, i don ’ t want to give the impression that banks ’ lending decisions are driven solely, or even primarily, by regulatory capital requirements. bank lending is influenced by a variety of factors – capital requirements are just one. but at the margin, we shouldn ’ t be surprised to see banks in aggregate making lending and investment decisions that have favorable risk - based capital treatment or that generate higher returns on a given amount of regulatory capital. so, for example, in europe a number of banks had significant sovereign holdings going into the financial crisis, not only because capital requirements were so low, but also because high credit spreads made these particularly attractive investments. likewise, here in the united states, banks piled into mortgage lending in the early - to mid - 2000s not only because it offered generous returns, but also because regulatory capital requirements did not adequately capture the risks in this lending, particularly for subprime exposures. leverage ratio one of the ways that supervisors, particularly here in the united states, have addressed shortcomings in the risk - based capital regime has been to also impose