years. but one challenge is that, as for the authorities, it is hard for individual firms to gauge the likely “ systemic impact ” of particular shocks, which takes into account macro and financial system interactions and feedback effects. indeed, in practice, banks often model the effect of even severe macroeconomic shocks as if they were occurring to the bank in isolation. they thus may assume that they have freedom to readjust their balance sheets and lending practices in the event of an adverse shock, without considering whether other banks may be trying to do the same thing and the effect that these behavioural responses may have cumulatively on market liquidity and on the economy as a whole. an important implication is that many firm - level stress tests may consequently underestimate the possible impact of adverse shocks. as i have highlighted, some of the potentially missing effects should be captured in the proposed suite of models. but the proposed enhanced “ top - down ” approach outlined above may still benefit from additional insights gained from closer dialogue and interaction with major financial firms on their likely reaction to episodes of stress. i consequently think there is merit in more formal comparison of “ top - down ” and “ bottom - up ” stress testing exercises, and of seeking ways of integrating the two into more formal “ systemic ” stress tests, where the authorities present an initial scenario to firms and then modify the scenario in the light of feedback on the potential response by firms in an iterative loop. this approach has recently been pioneered by the dutch central bank. 6 it potentially offers a useful way of improving knowledge of key system - wide interactions, and thus could provide a valuable supplement both to improved “ top - down ” approaches and to “ bottom - up ” stress tests which are naturally targeted more closely at the major risks facing individual firms given their balance sheets and positions. 16 to conclude, there is a major programme of inherently difficult and challenging modelling work ahead for the public authorities and for financial firms. but this is very important. development of a more coherent and consistent framework for the analysis of financial stability is a major prize. ultimately this should improve the understanding and pricing of risk and support better targeting of public policy, focused more closely on containing systemic risk and on the maintenance of the public good of systemic financial stability. de nederlandsche bank ( 2006 ), financial stability : is the dutch financial sector stress - resistant? quarterly bulletin, december.

how such trading strategies influence price formation, market volatility and liquidity, since they may have important implications in terms of market stability and the transmission mechanisms of monetary policy. also in this context, the new role of central banks as " market makers of last resort " moves into the spotlight. ( ii ) impacts on real economy and prices second, we should try to understand the impacts of it innovation as well as it - oriented new business activities, such as e - commerce and the sharing economy, on the real economy and price developments. such issues are deep - rooted and wide - ranging, and not limited to the issue of statistics, such as the difficulty in measuring the growth of e - commerce and the overall retail sales due to the limited coverage of existing statistics. let me raise one of the fundamental challenges. nowadays data - giant companies provide various free services because they use these services also for collecting data and utilize those data for their business. from the users'viewpoint, they actually give their own data to those companies in exchange for using these services, instead of paying fees. it is becoming more and more difficult to grasp such new economic activities by traditional analytical tools, such as demand and supply curves on price - quantity dimension. ( iii ) importance of cyber security and data protection third, in accordance with it innovation, cyber - security and data - protection are becoming more important for maintaining financial stability. recently, data - giant companies have entered into financial services, and the utilization of big data has become more pronounced in financial businesses. in addition, various new instruments, including the internet and smartphones, are used for access to financial services. all of these developments emphasize the importance of cyber - security and data - protection. ( iv ) impacts on currency, payments and settlements lastly, we should carefully examine the impacts of it innovation on currency, payments and settlements. " crypto - currencies " and " central bank digital currencies " are now gathering great attention all over the world. moreover, these issues also stimulate global discussions on to what extent central banks should provide their payment and settlement infrastructures to society. i would like to elaborate on these issues further. innovation and currency system looking back in history, many central banks, including the bank of japan, were established to overcome the turmoil caused by the issuance of multiple payment instruments in a disorderly manner, so as to restore stability of the monetary system. in order to fulfill such a mission, central banks were exclusively assigned the role of