inevitably deviate from what could be inferred from models, theories, and past patterns of market prices. lessons of the crisis for central banks so, what are the lessons of the crisis with respect to our approach to markets? it may be strange to say this after a lengthy description of faults in processing market information, but developments in the financial markets will continue to be some of the most important sources of information from the perspective of central banks, as they conduct their monetary and financial stability policies. financial markets mirror what is happening in the broader economy. even if central banks were not completely free of the prevailing attitude toward the market that led to the crisis, there were forceful voices within the community that warned against the buildup of risks based on market observations. central banks should continue to make every effort to extract information from the markets. as alan blinder once remarked, broad, deep, fluid markets are indeed repositories of enormous power and wisdom. 2 having said this, the first lesson is that central banks should not look away from market reactions of which they may disapprove. for example, during the 1990s and early 2000s, after the bubble burst in japan, in spite of repeated assurances by the japanese government blinder, alan, central banking in theory and practice, the mit press, 1998. bis central bankers ’ speeches and the bank of japan, markets questioned the viability of the japanese banking system. there was dissatisfaction with this tyranny of the markets. because of the self - fulfilling nature of problems in the banking sector, the situation could easily have gotten out of hand. similar developments were observed in the recent crisis as well. nevertheless, looking back, there was some measure of reason in the reactions of markets. one should never stop talking to the mirror, even if it says that the prettiest of them all is somewhere else. the second lesson is that, central banks should never forget the ephemeral nature of information that could be extracted from market prices. as i explained earlier, these are prone to overshooting. central banks can calculate all sorts of implied information, but the informational content of such numbers is heavily influenced by the models adopted. sometimes, market prices may only be reflecting the positions and actions of the central banks themselves. accordingly, while market prices allow central banks to come up with the best estimates, central banks must not lose sight of what they are trying to estimate. the third lesson is the importance of the diversity of market participants

##tech firms become more prevalent, the banks might face the greater risk that they will be a mere provider of deposit accounts and thus lose a close relationship with customers and merchants. if banks want to access customers'payment information and merchants'sales information, banks need to provide payment services to customers at the front end. this is the reason why banks have an incentive to participate in cashless payment platforms operated by the banking industry. in some sense, the payment services provided by banks and those provided by fintech firms could be viewed as substitutes, like coffee and tea. these two strategies are rational choices for each individual bank in terms of competition with other banks and with fintech firms respectively. however, if many banks follow the same strategies, the " fallacy of composition " could arise, and the combined effects of the two strategies may be lower than expected, namely, one plus one being less than two ( 1 + 1 < 2 ). while banks support fintech firms'payment services by providing them with real - time account transfer service, they act as acquirers themselves and seek out merchants who will join payment platforms operated by the banking industries. however, since fintech firm and bank payment platforms lack interoperability, none of these platforms is likely to grow significantly, making it difficult for banks to recoup their investments. collaboration among payment service providers when multiple payment platforms exist but lack interoperability, payment service providers, both fintech firms and banks, have a strong incentive to lock in customers in order to beat the competition. this may lead to fragmentation of payment services, undermining network effects and user convenience. as a result, banks and fintech firms would end up wearing themselves out in the process. especially in japan, where there exist very efficient cash services supported by geographically dense networks of cd / atms with a high - level of interoperability, payment service providers must devote a significant amount of resources to expanding the market for cashless payment services. however, the expansion is unlikely to be achieved if fintech firms and banks act separately in pursuing their own cashless payment services. in such a situation, a desirable option is that payment service providers collaborate with each other – that is, make their services interoperable – in order to maximize the network effects of digital yen. collaboration among payment service providers can take various forms : between banks, between fintech firms, and between banks and fintech firms. at first glance, interoperability may seem like giving away the benefit