would not capture many of insurers ’ liability risks, such as from natural catastrophes. nor would any existing insurance capital rule appropriately assess the risks of a bank. so rather than trying to create a single capital framework that would work for all types of financial institutions, we decided to propose an aggregation approach that incorporates approaches developed specifically for each type of institution and its risks. the bba uses the existing and time - tested frameworks that have been tailored specifically to measure appropriately particular risks. it assesses insurance risks using an insurance capital framework and banking risks using our banking capital framework. the suitability of such an aggregation approach for regulating the capital of a large, internationally active insurance group is being debated currently at the iais, as i will discuss in a moment. while there are disagreements at the margins, there are also many areas of agreement on the appropriate uses of an aggregation approach. the iais ’ s insurance capital standard ( ics ) for internationally active insurance groups itself uses an aggregation approach to incorporate noninsurance risks. and at the other extreme, there is also agreement that it would not be appropriate to calculate the capital position of a large bank holding company that is not engaged in insurance by aggregating the capital positions of certain subsidiary banks and legal entities. a key issue in the international debate about the ics is whether products, capital markets, and laws vary so much by country or region that a single, unified methodology cannot measure risk accurately. are the differences in international insurance markets more like the significant differences between banking and insurance or like the less fundamental differences in the banking business models internationally? if the differences are large enough, a one - size - fits - all methodology could produce unintended consequences, send false signals to regulators or capital markets, and ultimately be destabilizing. the insurance policy advisory committee, or ipac, is currently studying this issue by looking at the impact of a hypothetical adoption of the iais ’ insurance capital standard on the u. s. industry, markets, and consumers. the ipac is a 21 - member advisory committee that was established by congress in 2018 to advise the board on international insurance capital standards and other insurance issues. the group is currently performing research on the potential impact of the insurance capital standard — specifically on u. s. life and retirement products — and hopes to complete a review on this in the coming months. and i ’ m looking forward to seeing the result. for those that would like to contribute as a member of

price stability is a precondition for economic stability and that the independence of the central bank is necessary for price stability, became gradually but firmly established in the 1990s. at the same time, the granting of independence naturally called for the strengthening of accountability. an easily identifiable benchmark was desired. the framework which best fulfilled such needs was inflation targeting. however, under an inflation targeting regime, the debate tends to center on the relationship between the target inflation rate and the actual or expected inflation rate. as a result, the cost of justifying adjustments in monetary policy becomes quite high in the eyes of central bankers, when such adjustments are aimed to deal with imbalances which appear in forms other than price indices. economists focused their attention to the linkage between the output gap and the inflation rate, while awareness toward financial imbalances was limited. factors which could not be captured through movements in the price of goods and services fell through the cracks. institutional changes to transfer the responsibility for financial regulation and supervision away from the central bank also accelerated this trend. third, the meaning of the danger of slipping into deflation was not necessarily correctly understood in a well balanced manner. in this context, japan ’ s so - called “ lost decade ”, the experience after the collapse of the bubble, was often cited as an evident example, emphasizing the harmful effects of the continuous decline in the price of goods and services 4. however, the serious difficulties that japan faced were overwhelmingly caused by the fall in asset prices rather than the drop in the general rate of inflation. in the japanese case, real estate prices in major metropolitan areas dropped by 70 to 80 percent from their peaks, while the cumulative fall in cpi was three percentage points between 1997 and 2004. nonetheless, the japanese experience was misinterpreted. the prevalent mood at that time can be easily noted in documents such as the imf ’ s world economic outlook released in april 2003 5 and the transcripts of the 2003 jackson hole economic symposium hosted by the federal reserve bank of kansas city 6. when the federal reserve reduced the target for the federal fund rates in june 2003, the aim to avoid “ an unwelcome substantial fall in inflation ” was provided as the reason for its action. looking back, during this period, while the risks of deflation were highlighted quite strongly, the subtle role of interest rates to dynamically allocate resources tended to be disregarded. and it was exactly during this period that the seeds of the crisis were sown