##ent behaviour. concern about this has been expressed in connection with our new omt programme, under which we could purchase potentially unlimited amounts of sovereign bonds. by easing market pressure on governments, it is argued, ecb interventions could lead to a weakening of fiscal consolidation and reform efforts. the focus of my remarks tonight is this trade - off between insurance and incentives. i am going to start from the general principle of committing to provide partial insurance, which arises from the literature on microeconomics. i will then illustrate how our omt programme and also the parallel plans for a banking union can be interpreted in the light of this principle. 1. the basic principle : how to commit to partial insurance? the trade - off between insurance and incentives, or equivalently, between ex post efficiency and ex ante efficiency is a recurrent theme in microeconomics. i will argue that this trade - off is a useful framework for thinking about the challenges we face in the euro area. it is a widely studied topic, so we have been able to draw on and adapt existing insights when addressing those challenges. why is there a trade - off? why is ex post efficiency not the same as ex ante efficiency? the reason is that we all react to the circumstances in which we operate. if circumstances change, so does our behaviour. thus, policies that ensure ex post efficiency are not necessarily efficient ex ante, because people react to those policies by altering their own behaviour. ex post and ex ante efficiency generally do not overlap. as so often in economics, the theme can be traced back all the way to adam smith ’ s “ the wealth of nations ” in 1776. he describes how tenants underinvest in the land they do not own. around the same time, in 1740, a version of the free - rider problem ( a closely related incentive problem ) appears in david hume ’ s “ treatise of human nature ” ( see j. - j. laffont and d. martimort, “ the theory of incentives ”, princeton university press, 2002 ). bis central bankers ’ speeches allow me for a moment to be somewhat schoolmasterly and use the example of car insurance to illustrate the basic trade - off. car insurance is obviously desirable ex post, since it is not optimal for people to bear the consequences of a car accident by themselves. we are all more or less risk averse and feel much better when we have such car insurance. without it, some of us would

when the bsp issued the electronic money regulation. fast forward to 2017, during the time when most institutions were hesitant and unsure of the cloud services, the approach was again used to further explore the new technology, resulting in the first cloud deployment for core banking services under a pilot implementation. in line with the objectives of the nsfi, he bsp now seeks to formalize the existing test and learn 1 / 3 bis central bankers'speeches approach into a comprehensive and structured regulatory sandbox framework. under the proposed framework, the bsp shall ( 1 ) evaluate sandbox applications as to completeness and eligibility based on standards ; ( 2 ) determine the viability of the proposed solution by evaluating the test plan ; ( 3 ) monitor the implementation of the approved test plan ; and ( 4 ) assess whether the sandbox activity should be terminated or approved for full commercial roll - out. this framework will help direct bsp ’ s approach to encourage greater participation in our regulatory sandbox, especially for promising businesses that may be hesitant to raise groundbreaking ideas to existing regulators. the bsp has also implemented fintech - related policies and digitally driven initiatives to complement the test and learn approach and regulatory sandbox. first, on digital banking … the bsp has approved six digital banking licenses which we expect will drive greater efficiency in the delivery of financial products and services, especially for the unserved and underserved. second, on open finance … in january this year, the open finance framework was formally launched, along with the threeyear open finance roadmap 2021 – 2024. the roadmap outlines priority actions, including the adoption of industry - accepted standards, capacity - building for regulation, and cooperative oversight, which are all fundamental to establishing an open finance ecosystem. lastly, r & d of frontier technologies … the bsp also conducts research and development activities on frontier technologies, such as central bank digital currency ( cbdc ). moving forward, the bsp plans to roll out project cbdcph, which is the bsp ’ s pilot project to build organizational capacity and hands - on knowledge of cbdc design, architecture, technology, and policy implications. to promote the adoption and frequent use of digital financial services, trust in the system must be present. the success of digitalization initiatives rests upon ensuring that consumers are protected online and that they have adequate financial and digital literacy. accordingly, the bsp has actively supported the proposed financial consumer protection act ( fcpa ). the bill is now awaiting