and emerging risks may develop in the future? at the bundesbank, we have identified some potentially risky fintech activities that may warrant different regulation at a later stage. for example, various business models have not yet been tested in a downturn. and we cannot predict which of these start - ups is going to evolve into a major player that may end up even becoming too big to fail or too interconnected to fail some time. but rules that target a mere theoretical risk might result in overregulation. on the other hand : if we wait too long for financial innovations to settle, risks could increase and adjustments to the 1 / 2 bis central bankers'speeches existing regime will be more difficult, as vested interests become increasingly powerful. to strike the right balance, a general approach could be to initially concentrate on two aspects : one, setting the right incentives through regulation and two, monitoring fintech evolution closely. uncertainty about regulation is surely a common ground for all of us. exchanging knowledge and experiences should be to our mutual benefit. some may raise the different circumstances in our countries as an obstacle. it is true that digitisation has not spread with the same speed across the globe. also, regulations differ. my response is that we need this exchange precisely because of our divergent experiences. given that digital innovations may be “ black boxes ", learning from each other might help to contain threats from the outset. that way, regulation will not lag one step behind financial innovation. best practices could be a valuable output. 2 / 2 bis central bankers'speeches

to a more capital - market based financial system is expected to enhance financial stability. one prominent reason for this effect is that the efficiency, depth and liquidity of markets can be assumed to improve with their growth. in addition, the diversity in types and sizes of institutional investors should increase. finally, it is likely that institutional investors will process information available to the general public more efficiently than private investors. at this point, however, let me utter two words of warning. they are necessary as the growing importance of institutionalised forms of saving does not necessarily lead to increased stability. firstly, the rising number of institutional investors could potentially be accompanied by a greater risk of herding behaviour which, in turn, might increase volatility in financial markets. this is just one example why financial stability issues are at the top of central banks ’ agendas. the second word of warning also applies to financial stability issues. the transition from pay - as - yougo schemes to funded pension schemes certainly supports fiscal sustainability – but introduces a new reason for concern : a decline in the financial strength of suppliers. this risk became apparent in 200002 when – due to falling equity prices – pension funds and also some life insurance companies became significantly underfunded. the episode prompted policy changes in areas such as asset liability management and financial accounting. however, the resultant need to match long - term liabilities with suitable assets might now trigger shifts in the asset allocation of pension funds and life insurers. two questions evolve out of that : will there be a shift from equity to bond markets? indeed, such a shift – or other investors ’ ( eg hedge funds ) anticipation of it – is commonly cited as a “ special factor ” explaining what appear to be excessively low levels of global longterm interest rates. but even if such a shift is plausible in countries where equity allocation in the investment portfolios predominates ( for example, in the us, the uk or canada ) empirical evidence of such a closing of the duration gap is neither clear nor uniform across countries. 5 is there a scarcity of financial instruments that enable pension funds and life insurers to manage duration, inflation and longevity risks? this is the reasoning underlying the occasional call for the government to act as a catalyst for private issuance of inflation and longevity hedges. i do not object to authorities issuing ultra - long fixed and inflation - indexed bonds at market prices. but governments should refrain from issuing longevity bonds. not only do governments lack a suitable hedge