to embed this preferred habitat mechanism in their macro - economic models so as to explicitly incorporate this transmission channel of qe. 5 franco modigliani and richard sutch, “ innovations in interest rate policy, ” american economic review, vol. 56, pp. 178 – 197, 1966. gauti eggertsson and michael woodford, “ the zero bound on interest rates and optimal monetary policy, ” brookings papers on economic activity, no. 1, pp. 139 – 235, 2003. there are a number of empirical studies that attempt to decompose long - term government yields into the expected path of short - term interest rate and premium components. for japanese government bonds, see kei imakubo and jouchi nakajima, “ estimating inflation risk premia from nominal and real yield curves using a shadow - rate model, ” bank of japan working paper, no. 15 - e - 1, 2015. james tobin, “ a general equilibrium approach to monetary theory, ” journal of money, credit and banking, vol. 1, pp. 15 – 29, 1969. han chen, vasco curdia, and andrea ferrero, “ the macroeconomic effects of large - scale asset purchase programmes, ” the economic journal, vol. 122, pp. f289 - f315, 2012. bis central bankers ’ speeches second, forward guidance, which is another element of unconventional monetary policy, is generally supported both in theory and in practice. in theory, forward guidance could pin down the future expected path of policy rates by clarifying the central bank ’ s policy reaction function and thereby reducing the volatility of financial markets. in fact, forward guidance, together with a strong commitment to policy objectives, has been used effectively in various policy settings across jurisdictions. third, let me discuss the “ quantitative ” aspect of quantitative easing. does the size of the central bank ’ s balance sheet matter in itself and, if so, why? some theoretical economists argue that qe is effective from the viewpoint of monetary financing of the government budget. however, this is the opposite case of ben bernanke ’ s quote : it works well in theory but cannot be applied in practice. monetary finance is widely understood to run the risk of eroding the credibility of the central bank and thereby potentially increasing risk premiums rather than reducing them. furthermore, recent experience in the united states and the united kingdom has demonstrated that an unconventional monetary policy works even in the midst

spectrum of activities and risks, based on an approach tailored to the degree of sophistication of financial market participants, both in the g10 and beyond. from a prudential standpoint, the ratio will capitalise on the progress already made in improving risk supervision and control, while making it easier to compare methods at the international level. accordingly, it is clearly important that credit institutions should actively pursue the work they have done so far. in this respect, i think it is safe to say that french banks operating in the international arena are making every effort to ready themselves for 2006. 3. 3 new accounting standards should foster international harmonisation and promote greater financial transparency the introduction of new accounting standards is a major undertaking for companies in general and for credit institutions in particular. the aim of this project is highly ambitious, namely to arrive at worldwide standards that can improve financial security and accounting transparency. this is necessary to restore confidence in financial markets. at the internal level, credit institutions must quickly adapt their information systems to these new requirements. however, there are in - depth discussions at present about the draft standards applicable to financial instruments. we have taken part in these discussions and advocated caution, in particular, in view of the strong temptation to give precedence to the markto - market and mark - to - model approaches, which are more sensitive to calculation parameters than to the actual situation of the reporting entity, with the result that earnings and equity likely to become abnormally volatile. i hope that the outcome of these discussions will lead to accounting procedures that take into consideration the realities of credit institutions ’ operations and business practices. as you are aware, the quality of the accounting rules applicable by banks is of fundamental importance for supervisors. moreover, the appendixes to this annual report include a study of the prudential consequences of the international accounting standards that will apply in europe from 2005 onwards. * in sum, french credit institutions in 2002 amply displayed their ability to withstand cyclical contingencies. improvements can still be made in terms of risk spreading and surveillance. this is one of the factors to which the commission bancaire will play close attention as banks prepare and phase in information systems ahead of the introduction of basel 2 and new accounting standards. in addition to the two studies i have already mentioned, the appendices of the annual report include a review of risk management in financial conglomerates. let me also mention that a summary of the commission bancaire ’ s judicial decisions is being published at the same