fritzi kohler - geib : efficiency, resilience and digital horizons perspectives and challenges for the public sector keynote statement by dr fritzi kohler - geib, member of the executive board of the deutsche bundesbank, at the digital excellence forum, berchtesgaden, 31 january 2025. * * * check against delivery 1 introduction against the backdrop of a changing geopolitical environment, the relevance of digital advances and innovations has further increased. i have just returned from a discussion among policy makers and researchers in washington d. c., and many of the exchanges touched on the economic outlook in a potentially more fragmented world economy. for both reasons, i am delighted to be part of this conference about digital excellence here in berchtesgaden. representing the bundesbank on this panel, i would like to contribute three considerations from a public sector perspective. while there is a lot of discussion about digitalisation in germany and the need to catch up in particular in the public sector, there are encouraging examples. the bundesbank is at the forefront of public sector digitalisation : it is using artificial intelligence in multiple ways and is among the first public institutions to move seriously into the public cloud. international financial architecture, markets and instruments are changing due to ongoing economic fragmentation and technological advances. working on the digital euro is a way for the european central bank system to prepare for those changes and to take an active role. given the geopolitical environment and growing cyber risks, the bundesbank is investing in its cyber resilience, including the setting up of a new governance model for it security. allow me to expand on that. 2 innovation the bundesbank is breaking new ground by proactively using the public cloud. this is a significant step forward for a public sector institution. as a first step, our innovative, highperformance and secure ebusiness portal for our currently over 180, 000 customers – next – went " live " in the cloud. customers are banks, insurances, corporates or other public sector institutions. 1 / 3 bis - central bankers'speeches at the same time, we built up a bundesbank - owned private cloud in our computer centres for particularly sensitive data. through our hybrid cloud strategy and investments in technological trends like artificial intelligence, we are ensuring our readiness for the challenges of today and tomorrow. artificial intelligence will help us to expand our economic analyses and improve our understanding of the effects of various policy measures on inflation,

– can breed complacency among financial market participants as risk taking adapts to the perceived new equilibrium. 6 indeed, risk appears to be at its greatest when measures of it are at their lowest. low variability of inflation and output ( reduces current financial var and ) encourages greater risk taking ( on a forward var basis ). investors stretch from liquid to less - liquid markets. in parallel, low and stable interest rates promote larger asset - liability mismatches across credit and currency markets. these tendencies are particularly marked if there is a perceived certainty about the stability of low interest rates. 7 many of these positions are funded on a collateralized basis. such asset - based financing creates intensely procyclical liquidity cycles. in these cycles, rising asset prices increase funding liquidity, which finances further purchases and prompts additional price increases. over time, haircuts are relaxed, further intensifying the cycle. 8, 9 it is important to recognize that expectations about monetary policy can feed these dynamics. it would appear that the so - called “ clean ” doctrine reinforces the risk - taking behaviour of agents. this is a strategy that advocates using monetary policy to “ clean up, ” or respond to, the consequences of a burst asset bubble rather than “ leaning into the wind, ” other factors include where the economy is in the cycle and the state of household and corporate balance sheets. they do so within a perceived risk budget. the actual risk budget has, of course, grown. either perceptions of risk or risk preferences could change. in the former case, complacency about actual risks can mean taking greater risks within the same risk budget. see diamond and rajan ( 2005 ). see gorton and metrick ( 2009 ), fisher ( 2008 ), and adrian and shin ( 2008 ) for comprehensive descriptions of these dynamics. ways to limit such procyclicality include enforcing through - the - cycle margins in repo markets and limiting rehypothecation margins in securities lending to 100 per cent. which would limit the progression of excess credit creation. 10 the combination of the central bank ’ s silence over the existence of a possible bubble, the certainty that it would not respond to emerging financial pressures unless they affect price dynamics over the monetary policy horizon, and the expectation that it would mop up if the bubble bursts all conspire to sow the seeds of the next crisis. 11 though they are far from the whole story, such dynamics are central to the