foreign exchange, liquidity, operational and reputational risks. these risks are highly interdependent and events ( whether expected or unanticipated ) that affect one area of risk can have ramifications on other risk categories. in the context of deregulation of interest rates in india, market risk has now emerged as an area requiring immediate attention on the asset side of the balance sheet. in recognition of this, the rbi has issued to the banks draft guidelines ( with the final guidelines becoming operational from 1 april 1999 ) for a broad framework for asset - liability management, taking into account the variance in the business profile of banks in the public sector and private sector as well as the data / information base available to banks in india. transparency and disclosure standards another area where the rbi has moved ahead is to impart greater transparency to the balance sheets of banks. this was a logical step after the adoption of prudential norms, with the banks in india coming under greater international scrutiny. during the last couple of years, the range and extent of disclosures has been gradually increasing so as to provide a clearer picture to informed readers of balance sheets. the banks are now required to disclose the break - up of the provisions made towards npas, depreciation of investments and other purposes besides, the capital adequacy ratio and the level of net non - performing assets. with effect from 1997 - 98, banks are required to disclose accounting ratios relating to income heads like operating profit, return on assets, business per employee and profit per employee. from the year ending 31 march 2000, the following information, among others, should also be disclosed by the banks operating in india in the published accounts : • maturity pattern of loans and advances, investment securities, deposits & borrowings, • foreign currency assets and liabilities, • movements in npas & provisions, • lending to sensitive sectors as defined by the rbi from time to time. – 5 – the primary objective of any supervisory regime has to be prudential, viz., to protect the safety and soundness of domestic banking systems. its application can at the same time provide an incentive for other countries to improve the quality of their prudential supervision. if banks want to operate in other markets where these core principles are strictly applied, they will have to convince the authorities in the host countries that the quality of supervision in their home country is adequate. this can create powerful new incentives for improvements in supervision. recently, i had the privilege

and this takes me back to the point that to support an exchange - rate peg, monetary policy must mirror that of the anchor country – in our case the monetary policy of the ecb. page 5 of 9 in normal times, matching the monetary policy moves of the ecb is simple. to offset the impact that an interest - rate change by the ecb has on the krone - euro exchange rate, we simply adjust our interest rate by the same magnitude. but how do we match the monetary - policy stance of the ecb when it provides monetary stimulus by engaging in large scale asset purchases? as the ecb purchases bonds issued by euro area sovereigns, the supply of such bonds available to private investors is reduced. in such a situation danish sovereign bonds stand out as an obvious alternative to for example german bonds. the strong commitment to the peg implies that there is no exchange - rate risk for euro area investors associated with investing in kronedenominated assets. moreover, the strong focus on fiscal sustainability that has been exercised by successive danish governments implies that the risk of default is very low. and furthermore, danish sovereign bonds are in general highly liquid. [ chart 6 : danish and german 10 - year government bond rates ] so it should come as no surprise that changes in danish sovereign bond yields tend to track changes in german yields very closely. this was also the case in late 2014. mounting expectations of an ecb qe programme led to substantial declines in sovereign bond yields across euro area countries. and it continued to be the case after the launch of the ecb's public sector purchase program ( pspp ), although the suspension of government bond issuances caused some fluctuations in danish yields. in a forthcoming paper we will provide more details on the way market participants'expectations of the ecb's asset purchases have affected danish financial markets. in particular, we assess the impact on danish sovereign bond yields. we find that the reaction of danish sovereign bonds has been very much in line with how german bonds have reacted. and clearly more so than the bonds issued by a number of countries which are in the euro area. [ chart 7 : decline in 10 - year yields due to ecb communication ] this chart shows how long - term sovereign yields in a number of countries have reacted to selected pieces of ecb communication in the six months leading up to start of qe. page 6 of 9 in the study, we look at the reaction of sovereign bond yields in the two days following