own risk models to assess risks as a basis for their capital requirements. these banks might underestimate the risks which might arise if economic activity unexpectedly worsens. this might, in turn, also lead to an underestimation of how much capital is needed to provide sufficient buffers against losses. there are, in fact, scenarios which could hit the financial system hard. one risk scenario is a faster - than - expected upturn in interest rates. for instance, risk premiums in international financial markets might increase unexpectedly. a rapid increase in interest rates would drive up short - term funding costs and hit particularly those financial institutions that have invested into low rate, fixed term assets. in germany, for instance, 44 % of housing loans are fixed - rate mortgages with a maturity of more than ten years, this number being up from 26 % at the beginning of 2010. 3 an abrupt increase in interest rates would put pressure on banks – their funding costs would go up, and their interest income would, initially, rise at a slower pace. an abrupt rise in interest rates would also send valuations down from their current high levels and thus cause losses. a second risk scenario is that of persistently low interest rates which would incentivize a search for yield. empirical results for the us show that risk - taking by banks intensifies if interest rates are low for long ( buch, eickmeier, and prieto 2014 ; dell ’ ariccia, laeven, and suarez 2017 ). also, life insurers and pension institutions would find it increasingly difficult to generate sufficient income to cover the returns that some of them have promised to pay. 2. resilience should be assessed against the ability of the financial system to deal with unexpected events the resilience of a financial system has two key components – buffers against risks and the risks themselves. notwithstanding difficulties with the definition of capital and liquidity buffers, these can be measured with a reasonable degree of certainty. on average, banks ’ capital ratios have increased since the crisis. within the euro area, the tier 1 capital ratio, which is measured in relation to banks ’ risk - weighted assets, increased from 8. 8 % in the year 2008 to 14. 7 % in 2016 ( cgfs 2018 ). 4 this raise has been achieved by a decline in total assets, a decrease in average risk - weights, and by a strengthening of banks ’ capital positions. measured relative to banks ’ total

range of 2 percent or lower, centering around 1 percent ”. the bank calls the expression “ understanding of medium - to long - term price stability ”. the central bank of the united states newly introduced last week a “ longer - run goal ” with respect to the inflation rate and drew attention from the market. as is the case with the bank of japan, it also aimed at numerically clarifying the meaning of medium - to longterm price stability. third, the bank established the “ asset purchase program ”, and purchases government bonds and other various financial assets. it is a measure to facilitate monetary easing to steadily spread to firms ’ funding costs through encouraging a decline in longer term market interest rates. the total size of the program is about 55 trillion yen, which corresponds to more than 10 percent of japan ’ s gdp. bis central bankers ’ speeches tap external and domestic demand by utilizing extremely accommodative financial conditions with such pursuit of powerful monetary easing, at present, ample liquidity is provided to japan ’ s financial markets and firms ’ funding conditions are quite accommodative. it is quite a contrast to international financial markets which are under enormous stain due to the european debt problem. if such domestic accommodative financial conditions are utilized aggressively for tapping external and domestic demand, i believe japan ’ s economy can emerge from deflation. in that regard, the bank itself has been implementing a measure to supply long - term and low interest rate funds to financial institutions that made lending or investment which contributed to strengthening foundations for economic growth. through the measure, the bank has been supporting firms and financial institutions efforts to utilize the accommodative financial conditions. constantly review monetary policy conduct and prepare a system for a rainy day toward overcoming deflation and strengthen medium - to long - term growth potential, the bank will consistently make utmost contributions as a central bank as well as strive to continue to take appropriate policy responses with due recognition that there is a high degree of uncertainty for the time being, including the effects of a slowdown in overseas economies and the appreciation of the yen. the bank believes it is important to review its conduct of monetary policy constantly with composure and in an objective manner, including how communication with the market should be. besides, as for the european debt problem, i have said that, while the possibility might be extremely low, we also need to prepare for a rainy day when financial markets become chaotic. in that regard, the bank will continue to firmly