7 in the same vein, we might ask ourselves how the interrelationship between increased private savings and the role of banks is going to develop. as this interrelationship is crucial to the transmission of monetary impulses, the following questions are worth answering. will the importance of bank deposits shrink, and what would be the implications? to what extent will bank and bond market financing be substitutes? and how readily will banks be able to adapt to their ever - changing environment? i hope that these issues might capture researchers ’ curiosity. they are of particular interest in the euro area, where bank - dominated financial systems still prevail. to sum it up, the eurosystem will increasingly need to monitor demographically - induced changes in the financial system. based on these insights, the eurosystem will provide a stable, non - inflationary macroeconomic environment – which is the best contribution to economic growth it can and does make. 4. concluding remarks to stimulate our panel discussions, i have highlighted some examples of how ageing, low growth and financial systems interrelate. to be sure, there are still more questions than answers. however, that should be the ideal starting point for such a conference. moreover, conferences like this will sharpen political awareness of the demographic burden. in this respect, i wish you a lively discussion and a productive conference. thank you for your attention. see c bean ( 2004 ), global demographic change : some implications for central banks, overview panel, frb kansas city annual symposium, jackson hole, wyoming. see d miles and a cerny ( 2006 ), risk, return and portfolio allocation under alternative pension systems with incomplete and imperfect financial markets, in : the economic journal, april 2006.

to a more capital - market based financial system is expected to enhance financial stability. one prominent reason for this effect is that the efficiency, depth and liquidity of markets can be assumed to improve with their growth. in addition, the diversity in types and sizes of institutional investors should increase. finally, it is likely that institutional investors will process information available to the general public more efficiently than private investors. at this point, however, let me utter two words of warning. they are necessary as the growing importance of institutionalised forms of saving does not necessarily lead to increased stability. firstly, the rising number of institutional investors could potentially be accompanied by a greater risk of herding behaviour which, in turn, might increase volatility in financial markets. this is just one example why financial stability issues are at the top of central banks ’ agendas. the second word of warning also applies to financial stability issues. the transition from pay - as - yougo schemes to funded pension schemes certainly supports fiscal sustainability – but introduces a new reason for concern : a decline in the financial strength of suppliers. this risk became apparent in 200002 when – due to falling equity prices – pension funds and also some life insurance companies became significantly underfunded. the episode prompted policy changes in areas such as asset liability management and financial accounting. however, the resultant need to match long - term liabilities with suitable assets might now trigger shifts in the asset allocation of pension funds and life insurers. two questions evolve out of that : will there be a shift from equity to bond markets? indeed, such a shift – or other investors ’ ( eg hedge funds ) anticipation of it – is commonly cited as a “ special factor ” explaining what appear to be excessively low levels of global longterm interest rates. but even if such a shift is plausible in countries where equity allocation in the investment portfolios predominates ( for example, in the us, the uk or canada ) empirical evidence of such a closing of the duration gap is neither clear nor uniform across countries. 5 is there a scarcity of financial instruments that enable pension funds and life insurers to manage duration, inflation and longevity risks? this is the reasoning underlying the occasional call for the government to act as a catalyst for private issuance of inflation and longevity hedges. i do not object to authorities issuing ultra - long fixed and inflation - indexed bonds at market prices. but governments should refrain from issuing longevity bonds. not only do governments lack a suitable hedge