klaas knot : to improve is to change speech by mr klaas knot, president of the netherlands bank, at the international banking summit, brussels, 1 june 2023. * * * " many forms of financial systems have been tried, and will be tried in this world of sin and woe. no one pretends that the current financial system is perfect or all - wise. indeed, it has been said that this system is the worst, except for all those other systems that have been tried from time to time - " yes, this sounds familiar : it sounds like that famous winston churchill quote about democracy. but i am sure this is what he could have said – and would have said – had he been a banker - he would have been a formidable one. i can almost see him sitting there in the front row, puffing on a fat cigar. grumbling about novelties like bitcoin and timecoin. reminding us again and again never to waste a crisis and never to give inif he had said this about our financial system, he would have been right. because i am convinced that our financial system, warts and all, is better than many alternatives. it has been tried and tested. by inflation and recession, by bank runs and financial crises, by innovation and incompetence. and we never gave in. because we learned, we know, that as money makes the world go round, the system that regulates and oversees that movement cannot stand still, but has to stay in constant motion. it has to change with the times, adapting to new demands from the public and changing political tides. as churchill really did say : " to improve is to change, to perfect is to change often. " our financial system has to be able to absorb change, to withstand shocks and address vulnerabilities. in other words : the global financial system has to be resilient. and to be resilient, financial institutions have to be well capitalised – because they too must be able to handle shocks. to achieve that resilience, financial regulators focus on vulnerabilities rather than on risks. we identify those vulnerabilities through rigorous monitoring, but they can also be exposed by certain events. events of all shapes and sizes. each event, each change, each shock gives us new insights – we learn lessons that help strengthen the stability of the financial system. to improve is to changethe changes we implemented during and after the

years : for instance, the'dash for cash'episode during the onset of the pandemic, the strains in commodity markets last year, and more recently the challenges faced by uk pension funds. thankfully, these strains have proved temporary, but only after massive official sector interventions were deployed. these examples therefore serve as a warning to remain vigilant on the recurring themes of leverage, including hidden leverage, liquidity mismatches, and data gaps. the fsb's nbfi work programme and policy proposals aim to address these vulnerabilities. in 2023, we will continue to focus on some key vulnerabilities within the sector. apart from monitoring systemic risk in nbfi, we will review the effectiveness of our money market funds policy proposals from 2021 ; revise our recommendations from 2017 on liquidity mismatches in open - ended funds ; and conduct follow - up work on margining practices and hidden leverage in nbfi. a second structural shift we have witnessed, is the digitalisation of finance. this comes in many shapes and forms, but i will focus on the rapidly developing crypto - asset ecosystem. crypto - asset markets and activities bear a multitude of risks and vulnerabilities. while the technology behind crypto - assets is often being promoted as game - changing, the vulnerabilities associated with them are in fact quite similar to those we know from traditional finance. liquidity mismatches, hidden leverage, and counterparty credit risk are all examples of well - known financial risks that have also materialised in crypto - asset markets in the past year. national regulatory authorities have recognized that these activities are in essence financial activities and have begun regulating them. this is challenging for national authorities, however, because crypto - asset markets are inherently global in reach. so, in the presence of structural vulnerabilities and in the absence of globally consistent regulation, the fsb is concerned crypto - asset markets may soon pose a challenge to global financial stability. 4 / 6 bis - central bankers'speeches the fsb therefore concluded that crypto - asset activities and markets must be subject to effective regulation and oversight commensurate to the risks they pose, both at the domestic and international levels. to this end, the fsb proposed a comprehensive global framework for the effective regulation of crypto - asset activities, including stablecoins, in october last year. this framework embeds the principle of'same activity, same