will have to work to ensure consistency in our policy communication with the public. 4 / 8 we should pay special attention this year to the stability of our financial and foreign exchange markets. in particular, in conditions where the negative policy rate gap between korea and the us has widened, any increase in risk aversion among global investors, due for example to the ongoing monetary policy normalization by the federal reserve, could cause greater capital flow volatility. in view of this, we will need to closely monitor how the changes in external risks affect our financial market variables and capital flows. starting from this year the bank will disclose the details of the market stabilization measures it takes, so that we can elevate the transparency of korea ’ s fx policy to bring it to global standards. we believe that this will improve the credibility of our policy, and contribute to stabilizing the fx market in the medium and long term. however, given the possibility of unexpected side effects developing under highly volatile market conditions, we will need to strengthen our monitoring. we should in addition devote continuous efforts to faithfully fulfilling our roles in international organizations and cooperative bodies, as befits the heightened global standing of korea and the bank, and to strengthening our cooperation channels as well. given the changes in our financial and economic environment, we will have to stand up to the new challenges posed to monetary policy operation. with the neutral 5 / 8 interest rate level having fallen worldwide since the global financial crisis, many are concerned that monetary policy might not have sufficient room for maneuver when the global economic cycle enters its next downturn. based on this recognition, the us federal reserve and others have already embarked on active discussions to review their monetary policy operating systems and instruments. in the same vein, our bank also needs to give deep thought to a policy operating system and instruments of our own suitable to the changes in conditions. with the rapid spread of the fintech innovation lately, the payment and settlement environment is changing greatly, as new payment methods are emerging and the participation of non - financial companies is expanding. we will need to support the vitalization of diverse payment services, in order to improve financial consumers ’ convenience and reduce the settlement fees. we must also redouble our efforts to identify in advance and prevent the risks that accompany these changes. moreover, considering the huge impacts on our economy overall that could result from any failure in our payment and settlement system, due to a natural disaster for example, we will need to devote our utmost efforts

to preserve the local operations. the fourth impediment is the need to preserve global payment operations. the cash management, cash payments, securities settlement and custodial services that some firms offer to wholesale and retail clients are essential to the functioning of clients, the economy and the financial system, but such services have high switching costs for customers. these services often represent core business lines with stable profitability and thus valuable assets for financial firms, but they are also often entwined with other businesses in the firm. the fundamental nature of these activities and their importance to the financial and real economies make them of special interest to the financial authorities reviewing recovery plans and developing resolution plans. the four impediments are all related to institutional complexity. a financial firm organized as a single legal entity would certainly face many complexities, but far fewer than organizations today. this clearly raises the issue of whether the extraordinary organizational complexity of financial firms today imposes social costs that are too burdensome, especially in resolution, relative to its benefits. the economists dick herring and jacopo carmassi earlier this year documented the reasons for the vast number of subsidiaries at large financial firms, reasons such as regulatory requirements, regulatory arbitrage and tax avoidance. if such organizational complexity imposes a high social cost by impeding recovery plans and resolution, providing incentives to reduce complexity may be warranted. for example, collateralization or capital requirements on intragroup exposures or parent guarantees could internalize for the firm some of those social costs. alternatively, more direct supervisory requirements may be necessary for addressing the improvement of information systems or the separability and preservation of critical payment systems. but such measures have costs and i would argue increase the relative benefit of efforts to identify the no doubt very difficult changes necessary in both the private and the public sectors to reduce organizational complexity in financial firms. i note that the cbrg report not only has recommendations largely addressing the four impediments to recovery i described, but also a recommendation to simplify financial firm organizational structures. a final benefit of recovery planning is that it is a prod to concrete action in the near term, when the institution is healthy and provides a ready - made menu of options when the firm is distressed. moreover, the impediments to recovery are also impediments to resolution. if the recovery plan does not succeed in averting failure, but the firm has acted on the plan, it will enter resolution with better information systems, a reduced risk profile and