at home draws investors ’ attention by means of drastic deregulation, or when new markets or goods and services are cultivated through firms ’ innovative efforts. as firms ’ efforts bear fruit, the public ’ s expectation for rising corporate profits and household income strengthens, and this will eventually lead to higher demand for the funds. in this way, accommodative financial conditions will be able to fulfill their original purpose of stimulating aggregate demand to the maximum extent. once such a virtuous cycle manifests itself, the aggregate supply and demand balance improves, and it is likely that the inflation rate will start to rise. while keeping such a mechanism in mind, on a number of occasions, i have please see masaaki shirakawa, “ the bank of japan ’ s efforts toward overcoming deflation ” ( speech at the japan national press club in tokyo ), february 17, 2012. http : / / www. boj. or. jp / en / announcements / press / koen _ 2012 / data / ko120217a1. pdf bis central bankers ’ speeches been emphasizing that in order for japan ’ s economy to overcome deflation and return to a sustainable growth path with price stability, we need two things : first, having a wide range of economic agents exert efforts to strengthen the economy ’ s growth potential ; and second, support from the financial side. in strengthening the growth potential, firms play a pivotal role. at the same time, it is important to provide the grounds for letting them meet the challenge to cultivate new markets. based on such recognition, the bank has embarked on a highly extraordinary measure for a central bank since june 2010 : that is, the establishment of the “ fundprovisioning measure to support strengthening the foundations for economic growth ” ( chart 23 ). under this measure, the bank provides long - term funds at low rates to financial institutions carrying out lending or investment in support of strengthening the foundations for japan ’ s economic growth. the bank strongly believes that such a measure plays a catalytic role in allowing financial institutions to proceed with their voluntary efforts. in june 2011, the bank introduced a special scheme, as part of its overall support measures, that established a new line of credit for equity investments and asset - based lending ( abl ), which, unlike traditional lending, uses assets that are closely tied to firms ’ businesses – such as their inventories, equipment, and machines, as well as accounts receivables – as collateral.

important rationalisation has taken place in the icelandic financial system. until a few years ago, two of the main commercial banks were fully government owned and so were a host of so - called investment credit funds. the funds were unified in a single institution, which was subsequently privatised. the government has also reduced its stake in the commercial banks over the most recent years and intends to have them largely or fully privatised by the end of the current electoral term next year. the privatisation process creates opportunities for continued rationalisation in the financial system creating ample opportunities in the period ahead, including closer ties with foreign financial institutions. it is tempting to put recent economic developments in iceland into the context of developments in some of the other nordic countries about a decade ago. liberalisation of the icelandic financial markets was more or less completed in the mid 1990´s when the last restrictions on the movement of capital between iceland and other countries were removed. our liberalisation came a few years later than in the other nordic countries. you will recall that in some of the other nordic countries, liberalisation was followed by a boom period in the economy, partly or largely fuelled by a rapid growth of credit and in some cases large fiscal deficits. at the same time, these countries were pursuing a fixed exchange rate policy vis - a - vis the ecu. developments in the domestic economies were such that the fixed exchange rate policy was gradually undermined, the rapid credit growth of banks resulted in weakening loan portfolios when asset prices fell, the exchange rate fixety gave way to floating, the currencies depreciated and inflation rose. the current account of the balance of payments also deteriorated. developments in iceland from the latter half of 1990´s until the present time resemble in many ways the experience of some of the other nordic countries a decade earlier but differ also in important respects. soon after liberalisation, domestic demand picked up, fuelled by rapidly rising credit in the wake of intensified competition in the financial sector and a sharp increase in credit availability. at that time, iceland was pursuing a fixed exchange rate policy but not as rigidly fixed as the other nordic countries had done a decade earlier. the expansion in the economy at the end of last decade led to a very rapid rise in the current account deficit, climaxing in year 2000. through the effects of a tightening monetary policy, the exchange rate of the krona gradually appreciated. in the spring of the year 2000, expectations in the market shifted for a