. the real constraint on the ability of central banks to set negative interest rates ). central banks can, in effect, safely reduce their policy rates in the amount of storage and insurance costs of money holdings without triggering widespread switching to cash in the economy. but once policy rates fall too far into the negative zone, i. e. below the costs of holding cash, people will start bis central bankers ’ speeches to hoard money instead of holding the negative yielding deposits. at this point, cash will be held by people merely as a store of value, indistinguishable from bonds, banks will be left with less deposits and the economy with fewer loans. 1. 4 potential risks from negative rates policy there are, however, a number of concerns associated with the use of negative interest rates, each of which is considered in turn. i. erosion of bank profitability : as negative deposit rates impose a cost on banks with excess reserves, there is a higher probability that the banks ’ net interest margins ( the gap between commercial banks ’ lending and deposit rates ) will shrink, since banks may be unwilling to pass negative deposit rates onto their customers to avoid an erosion of their customer base and subsequent reduced profitability. the extent of the decline in profitability will depend on the degree to which banks ’ funding costs also fall. the central bank could reduce concerns about bank profitability by raising the threshold at which the negative central bank deposit rate applies, as the bank of japan recently introduced a three - tier system, a different way from the ecb ’ s negative interest rate policy. doing so, however, it could reduce the transmission of negative deposit rates to market rates, namely the power of negative interest rate policy transmission through the credit and portfolio rebalancing channel. moreover, compressed long - term interest rates also reduce profit margins on the standard banking maturity transformation of short - term borrowing and lending at a somewhat longer term. so far, lenders have been reluctant to pass on the costs of negative rates to customers and have taken almost all of the burden. but, as recent research by the bis shows, the impact on profitability becomes more drastic over time, as short - term benefits such as lower rates of loan defaults diminish. ii. negative effects on financial markets : money market funds make conservative investments in cash - equivalent assets, such as highly - rated short - term corporate or government debt, to provide liquidity to investors and help them preserve capital by paying a modest positive return

sector. our expectation is that this should extend to other economic sectors as well. lessons can thus be drawn from the work that the bank of zambia has done and can be applied to the other sectors. mr. chairman, the prevalence of fraud in institutions all over the world has culminated with regulatory authorities in several jurisdictions instituting jail terms and fines against the scourge. the famous sarbanes - oxley is one such response. our own corporate governance guidelines have a strong linkage to the banking and financial services act which when not adhered to may result, upon conviction, to a fine or to imprisonment for a term not exceeding two years or to both. mr. chairman, the international work that is being done in respect of money laundering and corruption payments or terrorist financing is such that trade and service companies, like banks, are now being held accountable for what they deal in and whom they trade with – as suppliers as well as buyers. the implications of anti - money laundering ( aml ) are such that they extend to all forms of finance, industry and business. it is thus critical that the principles of integrity and professionalisms are applied in all spheres of institutional activities. mr chairman ladies and gentlemen i thank you for your attention.