are making profits so that this can be used to absorb losses in case of downturn. a discussion paper on introduction of dynamic loan loss provisioning framework for banks in india has been put on the rbi website on march 30, 2012. a comprehensive forward looking provisioning framework based on data collected from select banks in respect of certain segments and system – wide data is being developed. the new approach would smoothen the impact of incurred losses on the profit and loss account through the cycle and thereby facilitate continued lending by banks during downturns. xiii. the reserve bank has from time to time also issued regulatory guidelines on other areas such as corporate governance, fit & proper, know your customer / anti money laundering, credit information sharing, customer services in addition to specific guidance on credit, market and operational risk management etc., to strengthen the over - all risk management culture in indian banks. recent risk management in banks 14. a survey on banking risk management, conducted under the aegis of the institute of international finance, sees a renewed focus on risk culture. it reports that risk culture is now at centre stage and banks have made significant progress toward changing their risk governance frameworks in the wake of the financial crisis. board risk committees are nearly universal, and members have received appropriate training in risk management. the role of the chief risk officer has broadened, while its seniority and status have been enhanced. they now report either to the chief executive officer or jointly to the ceo and risk committee. however, the survey laments that the industry continues to wrestle with the process of embedding risk culture beyond the boardroom and into business units while ensuring adequate risk transparency. 15. many respondents cited the balance between a sales - driven front - office culture and a risk - focused culture at higher levels as their top organizational challenge ; they also note lack of systems and data. they believe their organizations need to do more to instill a strong risk culture, underscoring the need for a sustained effort over a long period of time. 16. risk appetite continues to be an essential part of risk governance, but the industry continues to be challenged to embed risk appetite into business decisions. the financial services industry recognized during the financial crisis that boards needed to change focus from share price and profitability to the risks entailed in their strategies. also, chief risk officers needed to be empowered to create cultural change within their organizations. 17. with these shifts well underway, senior risk executives are focused on moving reputation and operational

interest rate will actually fall further in the future ; see auclert et al. ( 2021 ). several of the world ’ s large economies are now in a period of slower labour force growth, making it less profitable for companies to undertake major investments. even if savings are falling, companies ’ incentives to invest are declining even further. the prediction is therefore that the global real interest rate will fall for a long time to come. 6 when the inflation target was introduced at the beginning of the 1990s, the riksbank had support from the then prevailing economic crisis, in the sense that inflation was pushed down to a level close to the target, making the task then ‘ only ’ to try to keep inflation at this level. 4 way that companies set their prices and the wage demands that households put forward. the inflation that results from the inflationary price - setting and wage formation confirms expectations and in turn affects the new expectations of future inflation. this gives a new round of effects on price - setting and wage formation, and the high inflation thus becomes a self - generating process. one reason why the high inflation was built into expectations among households and companies was that it was not sufficiently counteracted by the overall economic policy. instead, this policy became systematically too expansionary. at that time, sweden had a fixed exchange rate. the idea was that this would have a disciplinary effect on price - setting and wage formation : if swedish prices and wages increased faster than prices and wages abroad, our competitiveness would weaken, exports would decline and unemployment would increase. however, the domestic inflation trend was nevertheless too strong. when prices and wages in sweden rose faster than those abroad, it created expectations among economic agents that the resulting cost crises and unemployment would be mitigated by writing down the value of the krona, that is, through devaluation. the recurring devaluations then fulfilled the high inflation expectations. in addition, wage formation in itself was not functioning well because of shortcomings in coordination between the social partners. as the aim was to hold a fixed exchange rate, there was no real possibility to dampen the inflation trend through interest rate increases. monetary policy needed to be focused on maintaining the chosen exchange rate relationship. nor was fiscal policy sufficiently tight. this economic environment was a good breeding ground for lastingly high inflation. while the inflation trend in the united states, for example, was broken in the early 1980s in connection with a reorientation of monetary policy under the then head of