and makes the bank weaker. to correct this shortcoming in our system, we should craft policies that either incent or require weak and vulnerable firms to cut dividends quickly in order to conserve capital. this would introduce a dampening mechanism into our system. another example of a reinforcing mechanism is a situation in which firms have incentives to structure activities to minimize regulatory capital or other requirements without transferring risk. creation of off - balance sheet funding vehicles, structured products and complex corporate structures to minimize regulatory requirements and tax obligations reduces transparency, introduces new risks and limits the effectiveness of resolution regimes. other examples of reinforcing mechanisms in our system are : • collateral tied to credit ratings. credit downgrades lead to increased collateral calls, which drain liquidity, forcing asset sales, further weakening the firm subject to the collateral calls. • collateral and haircuts. when volatility rises and that leads to increased haircuts, the result can be a vicious cycle of forced asset sales, higher volatility and still higher haircuts. • compensation tied to short - term revenue generation, rather than long - term profitability over the cycle. this causes risk - takers to take on too much risk because they are compensated on the upside. this risk - taking extends the boom, setting the stage for a bigger bust. although some of these practices might appear sensible from the narrow perspective of an individual firm or market, this crisis has shown us that when all firms or market participants simultaneously take an action that appears to be in their immediate, narrow interest, the collective impact on the system as a whole can be disastrous. we need to find ways to weaken or eliminate these reinforcing mechanisms and we need to introduce new dampening mechanisms into the financial system. incentives some of the pro - cyclical dynamics embedded in our financial system occur because market participants do not always have the incentive to behave in ways that will be good for the system as a whole. this occurs, in part, because market participants often do not have to bear the full costs of their actions. for example, the incentive to take on more risk without regard for the broader implications of those actions arises from a number of factors, including poorly constructed compensation schemes, ineffective risk management and gaps in regulatory oversight and risk capture. one problem evident during the crisis has been the reluctance of banking organizations to raise sufficient capital to be able to credibly have the resources to withstand particularly adverse economic conditions. this reluctance stemmed, in part, from

within this review, we will be able to carry out an extensive discussion of how the society perceives the policy pursued and its results. in the course of the review, representatives of the bank of russia will hold meetings with business associations, representatives of small, medium - sized and large enterprises, government authorities, the academic and expert community, including professional financial market participants, and citizens from various social and demographic groups. some of these meetings will take place at the bank of russia ’ s regional branches. such analysis is conducted by many central banks, in the first place by those having a long experience of inflation targeting. some central banks carry out such reviews on a regular basis ( canada, sweden, norway ). the us fed accomplished its review not so long ago. the ecb completed a similar project in july 2021. as to the bank of russia, this is our first experience of such a profound and comprehensive analysis of the achievements of our monetary policy, but we will definitely continue this practice. in the future, the bank of russia plans to make 1 / 3 bis central bankers'speeches such reviews regularly, every five years. the range of topics to be reviewed by our analytical units includes six work streams. work stream 1. inflation target format. this topic is obviously drawing the greatest attention. within this work stream, we will consider once again what format of the target would ensure the highest confidence in it and what inflation rate could be the best measure of price stability. furthermore, we will analyse whether the russian economy has formed the conditions for reducing the inflation target. work stream 2. the operational procedure of monetary policy. the main issue of this block is how effectively the monetary policy pursued achieves its operational objective, which is to keep money market rates close to the key rate. we will also consider whether we need to adjust our operational procedure given the evolution of the russian financial market. work stream 3. retrospective assessment of the effectiveness of the monetary policy pursued. this block of topics is probably the most challenging one technically. within this work stream, we will try to estimate, relying on our model - based approaches, what results we could have achieved through our monetary policy if we had known what we know now when making our earlier decisions. i would like to stress straight away that we will not assess our actual decisions as they were made when we had less information than today. nevertheless, this is a very useful practice to analyse the robustness of the monetary policy pursued, which will provide helpful insights for