it is possible to draw some broad conclusions. 24. the key point is, i think, for banks to realize that, even if they are stateowned, they are ultimately responsible for their own destiny. the commercial banking law of the people ’ s republic of china sums up the point well in its article 4. to quote an english translation : “ a commercial bank operates independently, takes up responsibility for all risks that it may encounter and for its own profits and losses it may bear, and exercises self - regulating mechanisms on the management principle of economic efficiency, safety and liquidity. ” 25. what this means is that the board of directors and senior management of banks have the main responsibility to ensure that effective systems of internal governance are in place to plan for the future, to identify and manage the risks to which they are exposed and to control the operations of the bank on a day - to - day basis. i believe that this point is appreciated around the region - from our contacts with fellow supervisors, we know that in many banking systems there is a heightened awareness of the importance of sound risk management. but the difficulty is in turning this into actual changes in behaviour, which requires great efforts to be devoted to the training of staff, for example in credit skills, as well as more fundamental changes in culture in some banks. 26. this change in culture may require some banks to wean themselves off property lending which is sometimes seen as an easy option, given that it is based on collateral and on expectations of ever - rising property values. this can prove to be a fallacy, as the japanese example shows only too well. banks need therefore to develop a broadly - based lending business where the borrower ’ s ability to repay is the first consideration and collateral is there as the second line of defence. more generally, it will usually be sensible for banks to try to diversify their business into areas which offer the ability to earn fee income and thus reduce their dependence on the interest - rate cycle. i hasten to add, however, that this should only be done if the necessary systems and controls are in place. 27. in some cases, the changes required by banks to meet the challenges of a more competitive environment may be too great for them to meet on their own. mergers may be required to produce fewer and stronger banks, and i am aware that in some countries this process is being given official encouragement. 28. this points to the fact that the regulators also have their part to play in

in many decades, inflation was low and financial systems were stable ( graph 1 ). these are positive outcomes. we should not lose sight of this. graph 1 1 / 13 bis central bankers'speeches there was, though, a change in momentum in the global economy late in the year. this change was particularly evident in europe and it was also evident in china. it has been widely reported in the media, but it is important to keep things in perspective. some slowing in global growth was expected, given that labour markets are fairly tight and the policy tightening in the united states was aimed at achieving a more sustainable growth rate. so, i have been a little surprised at some of the reaction to the lowering of forecasts for global growth, which has been quite negative. we need to remember that the imf's central forecast is still for the global economy to expand by 3. 5 per cent in 2019 and by 3. 6 per cent in 2020 ( graph 2 ). if achieved, these would be reasonable outcomes and not too different from the recent past. graph 2 2 / 13 bis central bankers'speeches what is of more concern, though, is the accumulation of downside risks. many of these risks are related to political developments : the trade tensions between the united states and china ; the brexit issue ; the rise of populism globally ; and the reduced support from the united states for the liberal order that has supported the international system and contributed to a broad - based rise in living standards. one could add to this list the adjustments in china as the authorities rein in shadow financing. the origins of these diverse issues are complex, but there is a common economic element to some of them : that is, the extended period of little or no growth in real incomes for many people. in a number of countries, growth in real wages has been weak or negative for years. advances in technology and greater competition as a result of globalisation also mean that many people worry about their own future and that of their children. politicians, understandably, are responding to these concerns. time will tell, though, whether the various responses help or not. i suspect that some of them will not. over recent months, the accumulation of downside risks has been evident in business and consumer surveys. it was also evident in increased volatility in financial markets around the turn of the year, with declines in equity prices and an increase in credit spreads ( graph 3 ). since then, though, markets