positive trends. however, currently almost every central banker in this globalised world keeps wondering whether the night ahead will continue the dream run and if so, when will it run out of steam. the concerns of central bankers today arise out of what has been described as stable disequilibrium with every day adding to potential disequilibrium while continuing to be stable. the perceived risks arise mainly out of global imbalances and outlook for oil prices, particularly in the light of emerging geo - political situation. most market participants seem to sense these risks but this sentiment does not appear to be reflected in the pricing of risks. risks do not disappear but they get transferred to another part of the system. the macro policies in emerging markets in particular have to factor in these risks while continuously balancing financial sector reform and stability considerations. more important, for the regulators, monitoring where the risk lies has become very difficult due to emergence of large conglomerates, sophisticated market instruments such as derivatives and presence of players like hedge funds. the good news is that there is international cooperation among central bankers to mitigate the impact of such risks. the actuaries can certainly help the process of analysing the risks in insurance sectors that do affect a large segment of population that in fact seeks to minimize such risks through insurance. let me conclude by thanking the organisers for provoking me to think aloud and share my thoughts on a subject of common interest to all of us assembled here. i wish the conference fruitful deliberations, well balanced by pleasant stay and memories.

of rules. yet, even then, regulation will – to some extent – still reflect the complexity of the financial system. at the same time, we should not forget that regulation and supervision strengthen confidence in the banking system and, in particular, in regulated institutions. this gives them an edge, not least over unregulated competitors. ladies and gentlemen, i mentioned digitalisation as the first major challenge for banks. the second is climate change. this harbours risks for banks, too. first, those that arise from climate change itself ; think of natural disasters and their effects on the economy – of course, this also impacts on banks indirectly. second, we are on the way to a more sustainable economy. and this structural change, too, will affect banks ; think of banks that finance coal - fired power plants. ensuring that these risks are properly incorporated into banks ’ risk management is a task for us as banking supervisors. as a result, this year the bundesbank is conducting a climate risk stress test for the german banking system, which addresses two questions. first, what effect would an abrupt rise in carbon prices have on an institution ’ s borrowers? and second, how badly would it hurt the lending institution ; in other words, just how high are the climate risks in the institution ’ s credit exposure? we are carrying out the test ourselves, using data that we already have. one particularly important aspect of this process is reflecting on the results with the institutions themselves. learning how to better assess these rather new risks is essential on both sides of the table. challenge number three – the profitability of banks – is an issue that we have been talking about ever since we found ourselves in a low interest rate environment following the financial and sovereign debt crisis. the associated decline in net interest income, by far the most important source of income for german banks, has considerably squeezed their margins. however, we are now witnessing a significant rise in interest rates almost worldwide. i am convinced that the era of negative key interest rates is drawing to a close. this is due to a sharp increase in both inflation rates as well as inflation forecasts, which have been raised perceptibly over the medium term. high inflation is a cause for concern for people around the world. the onus is now on central banks to adapt their monetary policy. and many governments are taking measures to ease the burden on those groups in society that are hardest hit. we exchange views on how best to proceed at an international level