nasdaq ) reached all - time highs around the middle of august. european stock exchanges have recouped the losses suffered as a result of the brexit vote ( figures 8, 9 ). however, recent developments surrounding the banking system, clearly add to uncertainties making equity markets outlook rather foggy! taking into account the recent deutsche bank ’ s troubles, i just wanted to mention that it is among the systemically most important banks in the world and the imf concluded in its june financial stability assessment that it made the largest net contribution to global systemic risk. however, there are some reassuring factors. the global financial system is now much better capitalised and able to withstand shocks than it was in 2008. even if the worse came to worst, it seems likely that the german government would provide a bailout. and the german government could easily afford a bail - out without raising concerns about its own finances. 6 / 15 bis central bankers'speeches • bonds finally, on fixed income, core bond yields continued to probe historical lows after brexit. more precisely, german 10 - year bond yields hover in the area of – 0. 07 % and the peripheral bonds have been the main beneficiaries of the hunt - for - yield environment along with the benign risk environment as reflected in declining volatilities across asset classes. also, the us government bond yields declined further near 1. 50 %, mainly due to the fed ’ s delay in raising rates ( figure 10 ). thus, markets went through the brexit vote with little or no disruption to functioning with ample liquidity. 7 / 15 bis central bankers'speeches 2. implications of brexit for central banks a. less monetary policy divergence the brexit vote triggered a broad - based reassessment of the future path of monetary policy globally. with improving headline growth still perceived as fragile in most advanced economies, and inflation still persistently low, the distinct response from major central banks to the brexit uncertainty can be described as dovish : policy rates would stay “ low for longer ”. bank of england the bank of england cut the policy rate by 25 basis points ( it is now 0. 25 % ), and expanded the government bond purchase scheme by £60 billion, bringing the total to £435 billion. it also established a new corporate bond purchase program of £10 billion, and launched a new term funding scheme that will provide funding for banks at rates close to the

- determined rate ( price ). it is true that the package of measures allows a lot of flexibility for the bank of japan to determine long - term rates ( in addition to short - term base rates ), but also raises many questions. for one thing, the bank of japan is now attempting to control both prices and quantities, which is simply not feasible! on the other hand, fixing 10 - year rates at 0 % may require to buy whatever quantity of bonds necessary to deliver rate stability, which may mean buying more or less than its target pace of ¥80 trillion per year. in other words, the bank of japan could reduce the pace of qe purchases in the future if it thinks it can achieve its yield target with fewer bond purchases, for 9 / 15 bis central bankers'speeches example in a scenario where markets perceive the bank of japan ’ s yield target as credible or yields turn negative! any potential reduction in bond purchases would be equivalent to tapering. it is exactly this built - in tapering mechanism that explains the asterisk i mentioned above. in other words, it is conceivable in the future that the bank of japan could be forced to sell jgbs if markets challenge the central bank by pushing the 10 - year jgb yield well below its 0 % target. this selling would be equivalent to a reversal of qe, it could be self - defeating in the case where inflation is still too low. ecb at its latest gc meeting, the european central bank ( ecb ) announced that it will extend its qe programme beyond march 2017 if needed. looking forward, markets expect the eurozone economy to need more stimulus from the ecb as the gap between current headline inflation ( 0. 2 % year - to - date average ), the ecb ’ s inflation forecasts ( 1. 2 % in 2017, 1. 6 % in 2018 ) and its higher target justify further policy easing ( figure 12 ). so far, there is some encouraging evidence from the ecb ’ s ongoing qe programme. in more detail : banking credit channel loan growth continued to recover gradually as the annual growth rate of the monetary financial institutions ( mfis ) loans to the private sector ( adjusted for loan sales, securitisation and notional cash pooling ) is expected to increase further in the second quarter of 2016 and in july ( see figure 13 ), particularly for private companies ( non - financial corporations or nfcs in ecb jar