we and our sister agencies are always working to move in a manner that facilitates and fosters innovation. we are in a dynamic system that requires not just us but our colleagues around the world to adjust as well. today ’ s financial products and rapidly changing structures of finance mean the old - fashioned, 19th and 20th century presumption that a month - old balance sheet is telling us all we need to know about an institution ’ s current condition is long since gone. inevitably, therefore, we as supervisors are recognizing this reality and have been placing greater emphasis on how well internal risk models are functioning and whether the risk thus measured is being appropriately managed and offset with reasonable hedges. we are also scrutinizing how well an institution is able to tie its risk exposures to internal capital needs. we have a long way to go, but this is where competitive pressures and the underlying economic forces are pushing both financial intermediaries and the supervisory system. there is a broader and more difficult problem of risk management that central bankers confront every day, whether we explicitly acknowledge it or not : how much of the underlying risk in a financial system should be shouldered by banks and other financial institutions. clearly, were we to require that bank risk - management systems, for example, provide capital to address all conceivable risks that could bring failure, the rates of return on capital would fall, and the degree of financial intermediation and leverage, as a consequence, would inevitably decline. the degree of leverage in financial systems is obviously tied to the degree of risk at the margin of lending. before the creation of the federal reserve and, later, deposit insurance, banks were forced by the marketplace to hold 20 percent and more of their assets as capital if they wanted to sell their liabilities at minimum interest costs. by its actions in the marketplace and its chosen governmental structure, society reveals its preference for trading off leverage with its underlying risks and economic growth. few, i presume, would argue that zero leverage is optimum. fewer would argue that zero leverage is consistent with maximum growth. yet the dangers of too much leverage are all too evident. in this context, how do we central bankers and other supervisors read our very amorphous directive to maintain financial stability and economic growth? we have all chosen implicitly, if not in a more overt fashion, to set our capital and other reserve standards for banks to guard against outcomes that exclude those once or twice in a century crises that threaten the stability of our domestic

have been achieved in conditions of significantly higher government capital expenditure, as well as increased outlays for wages and pensions, which contribute to economic growth while causing no major inflationary pressures. general government deficit planned for this year is 0. 5 % of gdp, which is also a medium - term target that will keep the public debt - to - gdp ratio on a downward path. no less importantly, the currency and refinancing risks are also reduced, supported by the last week ’ s successful reissue of the ten - year eurobond in the international financial market. the bond was sold at the lowest rate of return so far – 1. 25 %, which are the terms enjoyed by countries with investment grade rating. the funds raised are intended exclusively for the repayment of the earlier expensive dollar debt, which means that this issue does not increase public debt, while it does cut down interest expenses. chart 8 public debt * chart 7 general government fiscal and primary budget balance ( in rsd bn ) ( in eur bn ) ( in % of gdp ) 66. 2 budget balance primary balance 52. 9 56. 0 70. 0 67. 8 57. 9 53. 7 52. 0 39. 5 - 50 42. 8 30. 9 26. 8 - 100 - 150 - 200 - 250 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 sept. - 300 2010 2011 2012 2013 2014 2015 2016 2017 2018 source : ministry of finance. i – ix source : ministry of finance. * central government. internal dinar debt ( lhs ) internal fx debt ( lhs ) external debt ( lhs ) public debt ( rhs ) by lowering the policy rate, we have provided further support to credit and economic activity. additionally weakened inflationary pressures, reduced internal and external imbalances and the consequently strengthened resilience of our economy to potential negative impacts from the international environment, as well as the favourable macroeconomic outlook, have created room for further monetary policy easing. in november, the key policy rate was again cut by 25 basis points, to 2. 25 %. apart from domestic factors, this decision was also motivated by the monetary policy accommodation of leading central banks, against the background of a slowdown in global trade and economic growth. we expect that the nbs ’ s monetary policy easing will, as so far, lead to a fall in interest rates in the money and credit markets. chart 10 interest rates in the primary market of dinar chart 9 interest