but challenges to policymaking will remain as no two crises or upturns are the same. an upturn will presumably follow as the economic consequences of the covid - 19 pandemic fade. from the council's perspective, the next upturn will differ from its predecessor as the arsenal of macroprudential policies is better understood and a macrofinancial surveillance framework has already been established. moreover, as this upturn approaches, the council will also have compiled experience over a whole cycle, which will serve as a good basis for identifying and addressing potential shortcomings in its work streams. yet, the next upturn will also differ in other respects. the economic landscape will be different and new risks will become apparent. this will most probably call for a different macroprudential stance. deciding on this stance and timing its implementation appropriately will be a difficult task. in addition, actors in the financial sector will also have adapted their expectations and actions based on previous macroprudential policies during the next upturn. handling such expectation biases will present a new while the financial business act stipulates that the council should not act in relation to crisis management, it is within the council's mandate to discuss and recommend macroprudential policy initiatives that can limit the spill - over effects from the financial economy to the real economy during episodes of stress. page 22 of 23 challenge to the council when it comes to convincing the sector of the need to employ different macroprudential policies. regardless of these new challenges, the council should continue working towards building resilience in the financial sector. this will be important irrespective of where the next shock originates from. the covid - 19 crisis has once again shown that shocks to the economy and the financial system are extremely hard to predict in advance, and therefore building resilience in good times is key. to summarise, the council is still maturing and it will continue to do so in the years to come. the first experience with conducting macroprudential policy in denmark has proven very informative, but also emphasised that there is still much more to be learned. it has taken decades for the frontiers of monetary and microprudential policy to become as advanced as they are today. the same will be the case for macroprudential policy. hence, the full potential of both the council and macroprudential policy is yet to be seen. page 23 of 23 danmarks nationalbank macro

of 2015, the council issued socalled observations entitled " low interest rates and build - up of systemic risks ". 13 an observation is one of the three forms of statements the council can issue apart from the press release. an observation implies that according to the council's assessment there is a risk that systemic financial risks may be building up ; however, no - one is required to comply with an observation. in the first observation, the council outlines the potential transmission channels through which the very low interest rates could give rise to a number of systemic financial risks. the first channel is the search for yield, with investors seeking higher risk in expectation of higher yields, resulting in low risk premia and rising asset prices. the second channel is the expectation that central banks will always come to the rescue if developments in the financial markets are contrary to expectations. that pattern of monetary policy was actually so widely practised by the fed under chairman greenspan that it was called the " greenspan put " – referring to the protection of a put option on asset prices. 14 the pattern of providing ample liquidity to markets every time there are signs of unrest is now even more widely used – by more central banks and with more monetary policy tools such as direct asset purchase programmes. however, the short term stabilisation of markets comes at a price – misaligned incentives leading to further risk - taking behaviour. all in all, a prolonged period of low risk premia, low volatility and rising asset prices may result in inherent expectations of these developments continuing for a long time. this may lead to underestimation of risk – or risk illusion – on the part of both financial institutions and their customers. unfortunately, governments and authorities are not immune to risk illusion either – over time they may also be led to believe in an everlasting boom of the economy. in its statement, the council finds that at that point in time " no considerable systemic risks have built up in the danish financial system as a result of the level of interest rates ". 15 however, the council also points out a number of areas where systemic risks might potentially develop and require extra caution, such as credit growth and credit standards, house price the two observations can be found on www. systemicriskcouncil. dk or the following link. binder, alan s., ricardo reis ( 2005 ), understanding the greenspan standard, proceedings, federal reserve bank of kansas city, august. the danish systemic risk council