to rise to the challenge, and to act as check - and - balance on public policy. in closing, we are at an important turning point where we face paradigm shift. this is one of the realignment of relationship between the market, regulators, and society. in crisis countries, the balance of the relationship between the financial industry and the society shifts because the cost of financial crisis is born by the society. in emerging asia, public policy including financial regulation comes under pressure from social demand for financial access as well as consumer protection. these naturally accompany the take - off in growth as a result of economic and financial liberalization. both banks and regulators need a proactive strategy to deal with social and political environment that will shift banking environment and regulatory paradigm. thus, the strategy for banks going forward must also include proactive governance and accountability framework that seeks to restore trust in market mechanism, and improve the social and political environment in which they operate. failing to recognize the powerful social forces will result in less than optimal regulations. similarly, the strategy for successful global regulatory reform is to assure an inclusive process, to garner commitment and credibility for the reform. in concluding, the key strategy for dealing with this paradigm shift of known - unknown is based on 3 cs. coordination to deal with our interconnected financial stability. commitment forged by inclusive global reform process. and, communal responsibility, or governance, that can regain trust of society in market mechanism, so that we can rebuild market discipline as a key governance and pillar of the financial system. these are our best bis central bankers ’ speeches hope for striking the right balance between risk and return, growth and stability, and regulation and market discipline at a time of known - unknown. thank you for your attention. bis central bankers ’ speeches

normalization strategy does matter, similar to the analysis of spillovers from see brainard ( 2015a ). a number of recent studies have considered financial spillovers to emes, including rey ( 2014 ) and bowman, londono, and sapriza ( 2015 ). the analysis of hofmann, shim, and shin ( 2016 ) suggests that emes may be hurt more if their banks or nonfinancial corporations have relatively large dollar liabilities, as the larger dollar appreciation associated with the policy rate tool would precipitate greater eme balance sheet deterioration in this case. in this simple example, in which the two countries are hit by identical shocks, the offset in spillovers between the two economies will be complete. if one country faces a larger aggregate demand shock than the other, then the situation becomes more like the one - country case we examined before, the policy adjustments lead to spillovers of different magnitudes, and the offset will be partial. - 9the single core country, presumably magnified by the larger combined global weight of the two economies. now let ’ s turn to the case in which the two central banks choose to rely on different policy tools. 10 in this case, one country responds to the positive shock by hiking its policy rate to reduce output to its initial level, while the second country responds by shrinking its balance sheet. the country that relies on the policy rate to make the adjustment experiences an appreciation in the exchange rate, a deterioration in net exports and some expansion of domestic demand, while the country that chooses to rely solely on the balance sheet for tightening experiences a depreciation of its exchange rate and an increase in net exports. thus, while both countries achieve their domestic stabilization objectives, whether the requisite policy tightening occurs through increases in policy rates or reductions in the balance sheet matters for the composition of demand, the external balance, and the exchange rate. i highlighted at the outset the commitment adopted by many leading nations to set monetary policy to achieve domestic objectives such that the exchange rate would not be a primary consideration in the setting of monetary policy. in the case that balancesheet and conventional monetary policies have equivalent effects on both domestic spending and the exchange rate, this common principle is straightforward. but if the cross - border spillovers of reductions in the balance sheet and increases in the policy rate are not equivalent, the sequencing of policy rate and balance sheet normalization could have important implications for the exchange rate and external balance. this simulation is shown in