marja nykanen : black swans and grey rhinos - lessons of crises on macroprudential policy opening remarks by ms marja nykanen, deputy governor of the bank of finland, at the conference on systemic risk analytics, helsinki, 5 may 2022. * * * good morning, ladies and gentlemen. i am happy to see so many of you here in helsinki. i also warmly welcome all of you participating online. dear audience, in late january i gave a speech in a seminar, whose topic was black swans in financial markets. as you well know, black swans are unforeseen events with extreme consequences. at the time of the seminar in january, the black swan everyone had in mind was of course the covid - 19 pandemic. in my speech back then, i discussed how the covid - 19 and another black swan – the global financial crisis that started less than 15 years ago – have shaped our thinking of financial regulation, crisis response and macroprudential policies. i also talked about another concept from the natural world, the grey rhinos. a grey rhino can be defined as a well - known and slowmoving risk that can cause or amplify financial or other crises, if it´s ignored long enough. for example, high household indebtedness and climate change can become grey rhinos if we don´t act decisively to slow them. since black swans are, by definition, unforeseeable, neither i nor other participants of the seminar could foresee that the next black swan was about to emerge only one month later. russia´s brutal assault on ukraine has shocked the world, caused immeasurable human suffering, and is changing the way we see geopolitical risks, cyber security, national security and transition to green energy, among other things. in these opening remarks, i will return to the topic of my speech three months ago : what are the lessons of financial crises on economic policies, especially on macroprudential policy? i will also provide my first thoughts on the potential impacts of the war in ukraine on financial stability. crisis will happen, but we can prepare for them the global financial crises reminded us that the financial system can create systemic risks that can lead to systemic financial crisis. policymakers also recognized that monetary policy and financial supervision and regulation are not always sufficient to prevent and manage financial crises. new analytical tools were needed to identify the emerging systemic risks as early as possible. and new policy tools

in the 1997 to 2003 period, the credit interest rate, on average for all maturities, equaled 18. 6 %, and 10. 8 % in the last seven years ( 2004 – 2010 ). presently, the average interest rate on new credits equals 8. 1 % ( for denar credits ), which is a decrease of more than twice. bis central bankers ’ speeches back in 2004, we started analyzing the financial system stability, six years before it became our second objective, defined by the new nbrm law. this is the fifth subsequent year that we develop and publish an annual financial stability report. we significantly advanced the bank ’ s institutional capacity. we adopted new models, methodologies, analytical techniques, econometric analyses. the number of training courses for the staff, especially abroad, increases year after year. we dramatically improved the staff educational structure. in 2004, 44 % of the total staff number were university graduates. today, this percentage is 63 %, which is by 81 persons more, with the total staff number being increased by roughly twenty, and the workload being significantly enhanced. in 2004, there were only 20 masters of science and one philosophy doctor, and presently, there are 46 masters of science and 7 philosophy doctors. distinguished, when you summarize a stage which is over, you either ask yourself or other ask you what were the most exciting or most critical moments? first, the economy is a permanent intrigue, a constant unknown variable in an open equation for which you constantly seek for a solution. from this viewpoint, each single day and year is a real excitement for the professional analysts and a field that you never stop plowing. however, on this occasion, i would highlight three moments : the first one happened at the beginning of my term. stories were told about the devaluation of denar, the abandonment of the stable exchange rate policy, on the usefulness of higher inflation. professors were making statements that inflation ranging from 8 to 10 % would be useful. even, in the macedonian academy of science and arts ( manu ) there was a debate on this issue, making points that very high percentages of inflation would, allegedly, be very useful. the trade deficit was high as usual, the current account deficit was also high. we intervened with foreign reserves to calm down the market, and consequently, their level went down. the imf ’ s chief of mission at that time asked me to meet “ in six eyes ” :