stress that the intelligence work should be properly followed by the establishment of new statistics about shadow banking. various approaches of market intelligence let me explain the efforts of the bank of japan in this respect. the bank monitors shadow banking entities and activities through various channels. the nature and scope of the bank ’ s monitoring are depicted in chart 8. amongst these channels, direct monitoring of major shadow banking entities is of course the most significant. thus, the bank has increased the number of staff directly monitoring major securities companies. however, it is practically impossible to conduct dialogues with all financial institutions of a shadow banking nature, and moreover, shadow banking activities tend to change rapidly with developments in financial markets. it should be noted that shadow banking entities are deeply involved in funding and investment with various financial institutions. so indirect monitoring through banks, monitoring through the payments and settlements system, and market intelligence through market participants all become important. the bank also closely watches shadow banking activities in securitization, securities lending and repos. for instance, we have started direct monitoring of hedge funds and investment trusts as well using market intelligence through market participants much more than before. furthermore, although we do not directly monitor finance companies, since large finance companies are owned by banks, we monitor them by monitoring the banks. it is then crucial to cross - check the information gathered. chart 9 illustrates the point. in this regard, it is important to monitor banks as counterparties of shadow banking entities. this is because bank activities are interconnected with shadow banking activities. market information in the financial markets is also particularly valuable. central banks are especially well - positioned to collect valuable information on the activities of participants in financial markets, since they not only gather information relevant to monetary policy, but they also operate payment and settlement systems. information on market practices and financial innovations can often provide early warning of risks, and hence are especially important among the various kinds of market intelligence. bis central bankers ’ speeches the case in point is found in the subprime mortgage crisis in the united states. securitized products were originated with financial engineering and distributed without appropriate risk assessment. this was partly due to an overly optimistic assessment of risk diversification. however, this risk became increasingly visible in the market as the market evolved into a new phase. feedback of market intelligence another important role of market intelligence is to feed information back to the market, and thus to find potential information gaps to be filled. for example, based on market intelligence, the bank of japan designs and compile

, access to capital for more risky firms, especially start - ups with little business history, is likely to be more restricted and more expensive. there are, of course, also factors working in the other direction. as the workforce ages, the incentive to find new labour - saving techniques is likely to increase. and the rising pressure on public finances from the ageing of the population should increase the incentive for governments to find more efficient ways of delivering goods and services. so it is not yet possible to know what the net effect of ageing will be on our attitude to risk and innovation. but, if ageing societies do become inherently more risk averse and less supportive of innovation – as i suspect they might – then we are likely to face a greater challenge than we have to date in generating productivity growth. this means there is likely to be more of a premium on getting policies right in some key areas related to innovation. i would like to mention five of these, although they are by no means exclusive : 9 the way in which we finance innovation, including the access to start - up capital for new businesses. the financial sector inquiry will no doubt look at this issue. the incentives for innovation that we establish through the tax system. the way we support human capital accumulation and research. our business culture and the way we promote and support entrepreneurship. the way in which we promote competition in our markets, for it is often competition, or the threat of it, that is the driver of innovation. these are all challenging areas to get right and they should all be on our collective radar screen if we are to maintain and strengthen the culture of innovation in an ageing society. i would also like to briefly return to the two other demographic factors that i mentioned earlier, because i think there is a more positive story here. in particular, a reasonable case can be made that both of these demographic factors – that is fairly fast population growth and the increasing diversity of our population – can actually promote innovation. if the population is growing quickly, then the overall size of the market is getting bigger every year. this dynamism creates new opportunities and can increase the pay - off from taking a risk. and the increasing diversity of our population means that we have a constant influx of people coming to our shores, bringing with them new perspectives, new skills and new ideas. while high population growth and high levels of immigration can create challenges of their p davidsson ( 2009 ), “ psed ii and the comprehensive australian study of