yves mersch : central bank risk management in times of monetary policy normalisation speech by mr yves mersch, member of the executive board of the european central bank, at the international risk management conference, paris, 8 june 2018. * * * risk management has come a long way since edward altman introduced the z - score to measure the likelihood of bankruptcy in 1968, and the financial crisis has brought about significant changes in risk management for commercial banks and central banks alike. but as we now emerge from the crisis, we would do well to reflect on what should persist from that period, and what the “ new normal ” for risk management should be. so today i would like to discuss what risk management has meant for the ecb in recent times, and what changes we can expect as we approach a phase of monetary policy normalisation. but before i elaborate on this, i should note that we have entered the quiet period before the next monetary policy meeting of the ecb governing council, and therefore my remarks should be understood as high - level reflections and not be interpreted as containing any commitments or comments on upcoming monetary policy decisions. parallels between risk management at commercial and central banks risk management has gained in importance in recent years for both commercial and central banks. the regulations that emerged following the crisis have led commercial banks to bolster their risk functions in a number of ways. they are now subject to more detailed and demanding capital requirements, higher standards for risk reporting and, in particular, more detailed rules for the building of internal models. more recently, the targeted review of internal models ( trim ) was launched to assess banks ’ compliance with these requirements and thereby reduce inconsistencies and unwarranted variability in the outputs of their internal models. the ecb ’ s involvement in risk management is perhaps most familiar in this context : as a banking supervisor. but the management and measurement of risks has also been of great significance for the monetary policy side of our operations. the ecb, like other central banks, has expanded its balance sheet substantially in recent years, resulting in several changes in our risk management framework. for example, we have expanded the range of eligible collateral for our lending operations and begun purchasing financial assets outright, including a wide array of private sector assets. while there are many parallels in the way that we and the commercial banks have managed risks, there are also important differences due to our public mission as laid down in our mandate. first, we conduct a single monetary policy for the euro area as

leave behind things whose time has passed. this will enable us to rely on a framework that is transparent and robust, but also flexible enough to deal with the challenges of the future. 1 ecb ( 2015 ), “ the financial risk management of the eurosystem ’ s monetary policy operations ”. 2 in 2010, the governing council approved a set of “ principles of the risk control framework for the eurosystem ’ s credit operations ”. 3 the ecb ’ s governing council also decided in december 2011 to enable national central banks to accept as collateral performing additional credit claims ( accs ) that satisfy specific eligibility criteria. such assets do not belong to the single list and they are also subject to a separate ecb guideline : guideline of the ecb of 9 july 2014 on additional temporary measures relating to eurosystem refinancing operations and eligibility of collateral and amending guideline ecb / 2007 / 9 ( recast ) ( ecb / 2014 / 31 ). 4 this expansion included certain short - term debt instruments and derogations for own - use of government - guaranteed bank bonds. non - euro denominated eligible assets included those denominated in pound sterling, us dollars or yen. 4 / 4 bis central bankers'speeches