as the share of non - bank financial intermediation increases this fragility may expose the financial system to a risk of systemic disruption in case the run event results in contagion. hence we cannot afford complacency and we need to monitor financial innovation. this is one of the key lessons to be drawn from the previous crisis. financial innovation now takes new forms, and part of it is true technological progress. in evaluating the usefulness of digitalization in the provision of finance we need to consider the benefits against the potential risks. benefits include having a more diverse set of finance providers, more efficient use of algorithms and data bases with which credit decisions are made, and the improved access to finance for entities that would not have had the access otherwise. the potential risks stem from the possible flaws in these new lending algorithms and lack of experience with how they fare through the credit cycle. this is particularly relevant at this time as the new innovations are developed amid low interest rates. but we should not be naive either : part of financial innovation may still be motivated by evasion of regulation and taxes. new types of links between banks and shadow banks may form. to stay on top of things, we will need in - depth analysis, building of risk scenarios and counterfactuals, and out - of - box thinking. non - bank financial intermediation also has the potential to move quickly between jurisdictions, and the new low - cost business models make this fairly easy. hence, there is a need for international cooperation when it comes to regulation and macroprudential actions towards these entities. [ slide 13 ] let me also consider the question whether regulatory reforms have been excessive in the sense that they would be increasingly driving activity to the unregulated segments of the financial system. looking back, bank regulation before the global financial crisis was rather light, too light, at least in terms of banks ’ true loss absorbance capacity. yet, certain forms of shadow banking grew rapidly, motivated precisely by opportunities to increase banks ’ leverage to even 4 / 5 bis central bankers'speeches higher levels. hence, there is a certain irony in the current concerns that increased regulations, like higher capital requirements, are pushing activity to the shadow banking sector. the lesson of the past fifteen years is that there always seems to be this tendency, no matter how high or low the starting level of regulation is. against this backdrop, i would put in perspective the current concerns of excessive regulation. 4. conclusions i would

the 1970s better than other countries. this was attributed to the consistent anti - inflationary economic policy of the bundesbank. this was of great relevance to the monetary policy of other countries, in general, and to the future structure of european monetary union, in particular. hence, in the aftermath of the 1970s inflation, maintenance of confidence in the value of money, in other words stabilisation of inflation expectations at a low level, surfaced as the key function of monetary policy. this is commonly referred to as the “ anchoring ” of inflation expectations. it was appreciated that this is the very objective that defines the role of the central bank in the division of economic policy responsibilities. in the 1980s and 1990s, more and more countries modelled their monetary policy institutions and practices upon this approach. the new central bank doctrine has perhaps best been recapitulated by stanley fischer in his famous paper “ modern central banking ”, delivered in london in 1994 at the tercentenary symposium of the bank of england. the then professor at mit later served as first deputy managing director of the imf and governor of the bank of israel. fischer outlines the following principles of modern central banking. central banks must have a clearly defined mandate, which is to maintain price stability, and they must make a public commitment to honouring this objective. central banks must enjoy operational independence in the deployment of monetary policy instruments, such as interest rates, to achieve their objective. independence also requires that central banks must not be obliged to finance the government fiscal deficit. as a counter - balance to central bank independence, fischer underscored the accountability of central banks, ie their responsibility to achieve their objective. while these principles were gaining ground in monetary policy, the advanced economies entered a highly favourable period of economic development, now referred to as the great moderation. this period of low inflation and stable economic growth persisted for more than ten years, until the emergence of the financial crisis. bis central bankers ’ speeches the seemingly favourable developments, nevertheless, masked mounting risks, such as global economic imbalances, as well as the huge expansion of banks ’ balance sheets and risks, which was partly facilitated by the weaknesses in the regulatory framework for banks. the emergence of the international financial crisis in 2007 and its escalation in 2008 revealed the fragility of the world economy and the credit system as never before. it may come as a surprise that, despite its gravity, the economic crisis of recent years has not undermined the foundations of monetary policy.