in core processes – in areas that are of high regulatory importance – we notice that it is used in parallel to already existing models. in the sense that both the old and the new run next to each other. this shows that, currently, there is not yet enough confidence in the new technology to replace the older technology – the risk of regulatory mistakes is still deemed too high. the financial sector as a whole is, indeed, on an ai odyssey – a long and eventful journey towards its destination. a journey with setbacks and progress. a journey with an unclear and uncertain path forward. but also, i hope, a journey that is fuelled by the very idea of becoming a financial sector that has embraced ai to its fullest potential – 1 / 4 bis - central bankers'speeches and that does so with respect for the values that underly our society, like fairness, freedom and security. rules and regulations reflect these values. they are instrumental in protecting them. and as our society changes and certain values come under pressure, rules and regulations need to change accordingly. dnb is currently supervising ai within its prudential and aml / cft mandate. with this mandate, we ensure the stability of the financial system, and the solidity and integrity of financial institutions. the european ai act, which came into effect earlier this year, broadens our mandate. in our ai supervision, we will now also take account of fundamental rights, like privacy and non - discrimination. these changes also affect the financial sector, of course. they create uncertainty. at de nederlandsche bank, however, we are committed to creating regulatory certainty around ai supervision in the financial sector, for instance in our contributions to the european supervisory authorities, and the bank of international settlements. we won't stop encouraging financial institutions to explore and experiment. at the same time, we want them to be confident in discussing their progress with us. because we believe this is part and parcel of a successful odyssey. as a supervisor, we are fully aware that ai is here to stay. already in our 2022 report'from recovery to balance ', we called for the use of machine learning in transaction monitoring and kyc risk profiling. we did this because we are convinced that it will help build better predictive models – models that will benefit financial institutions, because they can conduct more targeted and efficient due diligence. models that also benefit society as a whole. precisely because ai is capable of raising more targeted red flags

. financial markets first, international financial markets. since the unrest of march 2020, risky behaviour among investors has increased sharply again. spurred on by low interest rates, investors are sailing close to the wind and the appetite for risk is high. this is reflected in high price - to - earnings ratios on equity markets, ever - lower risk premiums on risky bonds, and historically high issuance levels of risky corporate debt, which is often also highly leveraged. this risky behaviour is only sustainable at low inflation and interest rates. increasing inflation is making financial markets jittery, fuelled by fears of a tightening in monetary policy and rising 1 / 2 bis central bankers'speeches inflation. and that is precisely what we have been seeing on the stock markets in the past few weeks : sentiment is less exuberant, as inflation is again back on investors ’ radar. i also still expect that the inflation shock we are currently witnessing is largely temporary. nonetheless, from the perspective of healthy risk management, it is also important to take other scenarios into consideration. also because the 1970s taught us that we do not have an unlimited capacity for envisaging how temporary inflation is. if financial markets fail to take sufficient account of scenarios involving persistently high inflation and its accompanying interest rate environment, it could lead to shock price falls in the future. housing market on to the dutch housing market. it won ’ t have escaped anyone ’ s attention that house prices have risen even more steeply this year. over the past five years house prices have on average risen by 8 per cent annually, but we have recently seen nationwide annual rises of over 15 per cent. house prices are also rising faster in the netherlands than elsewhere in europe, so this cannot be ascribed solely to low interest rates. there is a persistent shortage on the supply side of the housing market, and additional housing construction efforts are certainly required. however, housing shortages have always existed and will probably never completely disappear in a densely populated and neatly organised country like the netherlands. the exuberant rise in house prices has more to do with dutch households ’ borrowing capacity. there is quite simply too much money and too few houses. buyers are stretching the boundaries to place the winning bid, displaying increasingly risky lending behaviour. particularly first - time home buyers are more often borrowing at the limit relative to their income. it is still possible to finance the full value of a property with a mortgage. interest - only mortgages are again becoming popular. the many tax advantages available serve to drive