looking at the foreign currency denominated balance sheets of major japanese banks, for approximately six months preceding last october, they actually increased their assets, including an increase of 33 billion u. s. dollars in overseas loans. 4 on the liabilities side of the balance sheet, there was a decrease of 62 billion dollars in cp and cd issues, which was more than compensated for by an increase of 67 billion dollars in client - related deposits, reflecting banks'efforts to build up stable funding sources, and an increase of 26 billion dollars in repo funding. these major banks were thus able to avoid increasing their reliance on relatively expensive funding through the fx swap market. bank debt and safe assets one interesting question here is why major japanese banks were able to pull off such a significant change in their balance sheets in such short order. let me reflect on this from the viewpoint of balancing supply and demand of u. s. dollar - denominated financial assets at the macro level. the key phrase is " safe assets. " financial intermediaries perform an important function of investing in risky assets while issuing safe debt. debt issued by private financial institutions, along with securities issued by governments, constitutes safe assets that are provided to the economy. a prime example of such a function is the bank deposit. through the results of recent research on safe assets, we are now aware of two empirical regularities over long periods. 5 the first point is that the share of safe assets in the whole universe of financial assets including equities is more or less constant. in other words, the demand for safe debt has been relatively constant as a fraction of the total assets in the economy. the second point is that safe debt issued by the government and safe debt issued by private financial intermediaries are substitutes. these two regularities indicate that fluctuations in the stock or price of government debt crowd in or crowd out safe debt issued by financial intermediaries so that the share of safe assets as a whole may be kept constant. when we attempt to assess the market conditions regarding safe assets in the u. s. financial system, the rise and fall of the " yield spread, " which is the difference between the stock yield and long - term given that foreign currency - denominated balance sheets of japanese banks are predominantly based on u. s. dollars, chart 7 essentially shows the features of u. s. dollar - denominated balance sheets. see gorton, g., s. lewellen, and a.

the real economy and financial sector, they used a variety of tools, including monetary policy, fx interventions, macroprudential measures ( mpms ) and capital flow management measures ( cfms ). ‘ how etfs amplify the global financial cycle in emerging markets ’, n. converse et al. ( 2020 ), fed international finance discussion papers. iosco research report on financial technologies ( fintech ), february 2017. ‘ capital flows during the pandemic : lessons for a more resilient international financial architecture ’, c. maurini, a, moro, v. nispi landi, a. schiavone et al. ( 2020 ). banca d ’ italia, occasional paper no. 589. f. eguren martin, m. joy, c. maurini, a. moro et al. ( 2020 ), ‘ capital flows during the pandemic : lessons for a more resilient international financial architecture ’, banca d ’ italia, occasional paper no. 589 in the early stages of the covid crisis, eme central banks intervened heavily in fx markets, trying to stem currency depreciation. interventions were later scaled down, as market tensions and exchange rate pressures receded. interestingly, a few eme authorities used both conventional and, i believe mostly for the first time, unconventional monetary policy instruments. as regards macro - prudential measures, several emes relaxed their overall prudential stance, mainly by easing capital and liquidity buffers counter - cyclically. again, i believe this was the first time emes had extensively resorted to mpms to stabilise the economy, proving that these instruments have become part of their policy toolkit. by contrast, capital flow measures played a minor role in the recent episode. many emes relaxed cfms on inflows, mostly to reduce banks ’ fx needs stemming from prudential requirements, and in some cases to increase liquidity in domestic bond markets. unlike in previous crises, only a few countries tightened cfms to curb outflows. policymakers ’ response to the sudden stop in march 2020 highlighted the complementarity of different policy tools when a severe external shock hits an open economy, and will offer ample material for reflection and research. tobias adrian will give us glimpse of the fund ’ s efforts to develop an integrated policy framework ( ipf ) that would jointly consider monetary policy, fx intervention, mp