transferred. 9. however, the shortcomings of the originate - to - distribute model have also become painfully clear and have everything to do with incentives. some examples : • obviously, a bank that sells its risks to other parties has less interest to vet the original borrower, nor to continue monitoring these risks as closely as before. • unbalanced remuneration incentives are another source of excessive risk taking. employees who receive massive bonuses when earnings are high but are hardly hit when losses are made, are probably less prudent than would be in the interest of their employer. this not to say that bonus systems are by definition wrong, but they should be designed in such a way that curbs exist on inappropriate behaviour. perhaps, one way to improve this is to ensure that an employee ’ s time horizon is aligned with that of more general interest, for instance by making bonus payments dependent on broad performance indicators over a longer period. • incentives are also affected by insufficient risk awareness. for complex financial instruments such as structured products, it is difficult to assess their value and underlying risks. this, and a lack of experience how these instruments are performing under stress, has complicated the determination of adequate credit ratings for structured products. in addition, rating agencies are confronted with conflicts of interest between debt issuers, who pay for the ratings, and investors who rely on them. • wrong incentives are also due to slow implementation of new regulation which, i am afraid, is a fact of life. already in the 1990s it had become clear that the old basle accord was becoming outdated and needed to be replaced with a new framework. basle ii is more risk - oriented and provides better checks and balances. it should have been implemented earlier ; and, if it had, the recent developments would probably have been less turbulent. indeed, under the old accord, banks could circumvent regulatory requirements by transferring risks to special off - balance entities such as structures investment vehicles ( sivs ) and conduits. 10. let me revisit the interaction between micro and macro perspectives, which has become increasingly relevant in today ’ s market - oriented financial system. wrong incentives at the micro level have resulted in excessive risk taking, such as the supply of subprime mortgages to households that cannot afford them. at the macro level, the size and distribution of risks is blurred by complex instruments and risk transfer mechanisms. it has also become more difficult to interpret macroeconomic data on money and credit growth,

speech klaas knot - “ spreading our wings. how monetary and fiscal policy can fight inflation ” 23 september 2022 algemeen “ the job for central bankers is clear. like on the painting, we will rise up, fiercely spread our wings, and protect our eggs from the menacing mongrel of inflation, ” said klaas knot, referring to " the threatened swan " at the informal dinner of the economic and financial committee at the rijksmuseum. " for many of us here tonight, the dog in the water is inflation. for others, it is the energy crisis. the refugee crisis. the climate crisis. the pandemic. an atrocious war on european soil. " klaas knot president, de nederlandsche bank datum : 23 september 2022 spreker : klaas knot locatie : rijksmuseum, amsterdam good evening, distinguished members of the economic and financial committee. from me too : welcome to the rijksmuseum. the most famous painting in this impressive museum is probably the one right behind me. the night watch. but right here in this beautiful gallery, you will also find the very first painting the rijksmuseum ever acquired. it is called “ the threatened swan ”. you should find a small reproduction of this painting on your menu. if you look at it, you see a swan with its wings spread wide, defending its eggs against a dog that is sneaking up through the water. this painting is seen as an allegory for what happened to us in 1672. the year that in dutch history books is marked as “ the disaster year ”. “ the disaster year ” because in that year, the dutch “ republic of the 7 provinces ” was under fierce attack. simultaneously from the english in the west, the french in the south, and y g,, german armies in the north. the allegory that is represented by “ the threatened swan ” also goes beyond 1672. essentially, it is a painting about hard times, about being under threat, and about how you respond. also today, 350 years later, we find ourselves facing hard times, experiencing several threats, and asking ourselves how to respond to them. one of these threats is an inflation rate that we have not seen in decades. inflation that is now expected to stay well above our target for an extended period of time. inflation that is jeopardising the livelihood of many millions throughout europe