olli rehn : data - driven financial stability - challenges and opportunities opening remarks by mr olli rehn, governor of the bank of finland, at the “ data - driven financial stability ” conference, helsinki, 28 november 2019. * * * ladies and gentlemen, dear friends, it is my great pleasure to welcome you all to our conference entitled data driven financial stability here at the finlandia hall. we have recently had quite busy “ tech weeks ” in helsinki. just a few weeks ago helsinki hosted one of the leading startup and tech events in the world – slush. the programme of this year ’ s slush was particularly topical, as it focused on the ethics and regulation of technology. likewise, we at the central banking community consider ethics and regulation vital. hence, we are working hard to form a solid understanding of all the potential consequences that the widespread use of e. g. artificial intelligence and mass volume data may have on finance. from this angle, i will address three issues regarding the role of advanced technologies in finance. first, i will ask how advancements in technology could be used to provide new digital products and services. second, i will turn to risks related to the widespread use of new technologies that may hamper the proper functioning of markets. third, i will finish by looking at how the potential impact of new technologies on competition and diversity do call for greater domestic and international policy coordination. let me start with a question : what do we mean when talking about artificial intelligence and big data? in the absence of a generally agreed definition, artificial intelligence can mean anything from a simple script to a very complex combination of automated processes and machine learning models. what comes to massive or big data, there are no universally accepted criteria on how large of a volume of data counts as ‘ big ’. yet, while emerging technologies have some novel features, they are still largely based on the same technologies and statistical methods that we ’ ve been using for years. hal varian recently described artificial intelligence and big data as “ just doing the same sort of thing we did before, but at a much larger scale ”. from where do the potential benefits then stem? firstly, with the help of new technologies, companies improve their existing processes and create new products, services and distribution channels. the low marginal cost of software solutions allow digital products to be customized, and thus to satisfy the unique preferences of each individual client. secondly, the digital footprints that customers generate allow companies to better understand when and where digital

during the crisis of the 1990s. despite this, i believe that there are two reasons for questioning the low risk weights for mortgages. the first reason relates to a possible reason why loan losses in sweden have historically been low ; namely that in times of difficulty the public sector has helped maintain the household sector ’ s debt - servicing ability through the swedish social insurance system. in practice, this means that when the household sector ’ s debt - servicing ability is shaken, it affects firstly the individual, secondly public finances and only thirdly the lenders. this could mean that the banks lack an incentive to fully take into account the risks entailed in excessive credit - granting and high loan - to - value ratios. to put it another way, the risk weights we currently have for mortgages may be “ correct ” from the banks ’ business point of view, but they are potentially too low in society ’ s broader perspective. the second reason for questioning the risk weights is that they are backward - looking. and as we all know, history doesn ’ t always repeat itself. this is one reason why i am concerned, despite the riksbank ’ s own stress tests showing that the swedish banks would not suffer particularly large loan losses, even if the situation in the mortgage market worsened significantly. one can ’ t help wondering whether it is reasonable that sweden ’ s risk weights are among the lowest in europe, while our households are among the most indebted. and their debts are increasing. i don ’ t think it is reasonable. and consequently i think that from the authorities ’ point of view we need to discuss whether the level of the risk weights is reasonable or whether it needs to be raised – perhaps by establishing a floor for the risk weights the banks use when calculating their capital adequacy. the third priority concerns ensuring that public authorities stand ready to use the tools we currently have at our disposal to cool down the mortgage market. finansinspektionen has already taken a stand by introducing a cap on the loan - to - value ratio. on our part it would involve using our possibility to require that the banks hold reserves with the riksbank. by linking the size of the minimum reserve requirement to lending to the housing market, lending to mortgage customers would become relatively more expensive than lending to other the risk weight of a loan is the risk that the borrower will not be able to meet his or her obligations. minimum capital ratios are set in relation to the total loan multiplied by