of our monetary policy tightening. and we have yet to see their full effect. so the current situation is one in which our monetary policy is killing two birds with one stone : it is addressing medium - term risks to price stability, while the direction of monetary policy - in principle - aids in addressing longer - term financial stability concerns. you would think this is a comfortable position for policy makers. nonetheless – a word of caution is in order here too. while medium - term inflation and longer - term financial stability policies are now more aligned, a short - term financial stability risk looms around the corner. an abrupt change in monetary policy requires a massive adjustment in the financial system, which could also trigger some of the vulnerabilities that have accumulated in the past. as we know from theory, higher interest rates can be beneficial for financial institutions. they underpin their profitability and solvability. but do we also see this practice? i have borrowed this graph from the ecb ’ s most recent financial stability review. the panel on the right depicts the annual changes in operating profits and their drivers. the dark blue part shows that in 2022 the operating profit of european banks ballooned due to net interest income. this can be attributed to the relatively sluggish interest rates on saving deposits. it is expected that such passthrough will increase further this year. but moving from theory to practice, things have a tendency to become a bit more unruly. testimony to this is the recent banking turmoil in the united states, where sharp increases in interest rates were inadequately accounted for. and this ultimately led to a series of bank failures. against the backdrop of much tighter management and supervision of this so - called interest rate risk in the banking book on this side of the atlantic, similar banking failures have not manifested itself in the euro area. at the same time, i regard debt sustainability, in the broad sense, as one of the major financial stability risks on either side of the atlantic. and rising interest rates have brought this vulnerability to the surface. there is no linear correlation between the two – here at the esm i do not have to belabour the point made by dornbusch and others that markets can regard debts as sustainable for quite some period of time, before they no longer do. such potential non - linearities call for additional caution. households are experiencing a real income squeeze, which compromises their debt servicing capacity. though some can benefit from having fixed their borrowing

nout wellink : no globalisation without innovation speech by dr nout wellink, president of the netherlands bank and chairman of the basel committee on banking supervision, at the 2007 money and banking conference " monetary policy under uncertainty ", hosted by the central bank of argentina, buenos aires, 4 june 2007. * * * introduction i grew up in a small dutch village. although it was not in a polder, to me the world seemed flat. it took several years before i saw mountains for the first time and realised that the world is not flat. the generation of my grandchildren misses this kind of experience. flying long - distance at early age is no longer exceptional in the more prosperous parts of the world. the world has changed dramatically in the course of decades. information technology has brought us many new opportunities, in particular mobility of people, goods and ideas. i ’ ll discuss technological progress, and what it means for the macro economy in general, and for monetary policy in particular. globalisation is driven by technological change there are at least four manifestations of technological change that have dramatically reshaped the world over the past decades : • what we see in major cities are people from all over the world. what lies behind this is cheap and fast air traffic. competition is a driving force. so is technology, which makes air transportation more efficient, and management skills that allow for splitting up the market in high yielding business - class tickets and low cost fares. • what we see are cheap imports from china everywhere in the western world. what lies behind this are low transportation costs thanks to the cargo container. the cargo container can move non - fragile goods for about 1 % of retail value to anywhere in the world. in the precontainer era, shipping costs used to be between 10 and 20 % of retail value. 1 apart from low transportation costs, additional factors are needed to explain the surge in asian products in western markets. in particular the catch - up of asian economies is creating new trading opportunities. • what we see is offshoring of labour - intensive production to low - wage countries. what lies behind this is that new technologies allow the production process to be unbundled. production sites are located far from target markets, both in manufacturing and in the service industry. the share of offshored inputs in gdp can reach up to12 %, as in canada and the netherlands. 2 • what we see is low - skilled labour in the west feeling a cold wind of competition from