a range of new and 1 / 5 bis - central bankers'speeches unconventional measures – like large - scale asset purchases and targeted lending programmes. these new measures provided central banks with policy options to pursue their price stability objective, at a time when interest rates were at their lower bound. but these new tools – as has become apparent – have a flipside. they come with a price tag in terms of increased risks that may lead to substantial losses. while quantitative easing did help to stave off deflation risk, it also reshaped central bank balance sheets. because, essentially, qe locked in low returns on a significant portion of central banks'assets – the so - called'buy high'strategy. in the final phase of qe in particular, we bought vast quantities of bonds at relatively high prices, with very low and often negative yields. as rates on our liabilities could eventually go up, this strategy would then generate some losses. what materialised, though, was the worst case scenario. namely, a sudden and massive spike in inflation leading to an increase in policy rates. leading to the current huge losses. and so, as the profitability of these new, riskier, and by now conventional monetary policy tools has proved to be lower than the profitability of traditional instruments, central banks should critically asses their capital levels. they should be forward - looking and build up their capital accordingly. in short, more risk means more capital. especially since central banks are not expected to return to their lean balance sheets of the pre - qe era any time soon – which means that they will face heightened financial risks for quite some time to come. so, as we shift from a decade dominated by unconventional monetary policy to a phase of normalisation, it is imperative to consider a few key factors that influence central bank capital. first, with its recent review of the operational framework, the eurosystem aims to maintain structural liquidity in the financial system. besides weekly refinancing operations, part of this liquidity provisioning will be established through long term refinancing operations as well as a structural portfolio of securities. in implementing these operations, it is crucial for the eurosystem to consider its capital position in relation to these structural operations. second, in its strategy review, the ecb categorised qe as a monetary policy instrument near the effective lower bound. this necessitates proactive risk assessment for potential future use of qe ( note 1

s event because it shares the sense of urgency that is felt across industries and territories. bis central bankers ’ speeches global population growth, climate change and dwindling natural resources are threatening the wellbeing and welfare of every person on this planet over a period of many decades. furthermore, the financial crisis has awoken us to the fact that many existing approaches to business and finance are unsustainable. economic development cannot be considered durable when : – natural resources are being depleted ; – growth rates do not fully reflect potential long - run costs to society ; – - and short - term gains of a small group are achieved at the expense of the long - term health and stability of the system as a whole. now, originally, sustainability was driven by the climate debate and its many passionate stakeholders. as a result of the recent crisis, however, the financial industry has become fully aware that sustainability is its responsibility, too. after all, climate change, economic growth, financial stability and social wellbeing are inextricably and systemically linked. the unep ’ s inquiry comes to a similar conclusion. as simon zadek will discuss later, central banks and regulators are considered key to achieving a financial system that contributes to sustainable development. this potential is unfulfilled, however, in spite of many encouraging efforts by peers from around the world. the bank of england is one of them. in a recent address, governor mark carney spoke about the profound and long - term effects of climate change on issues such as property, migration, political stability and food and water security. in spite of the threat this poses to our financial resilience and long - term prosperity, little is done to mitigate it. this is because of short planning horizons related to short business cycles, short political cycles and the mandate of central banks. carney called this the tragedy of the horizon and he argued it could be broken by combining data, technology and expert judgment. this, he said, can help us achieve : – a better understanding of risks ; – better pricing for investors ; – better decisions by policymakers, – - and a smoother transition to a lower - carbon economy. these and other concerns are being shared by the financial stability board, of which i am member and which carney chairs. in april, g20 finance ministers asked the financial stability board to consider how the financial sector could take account of the risks climate change poses to our financial system. in response, the fsb initiated the