culture – including the tacit knowledge formed through tradition and the interactions of members – is most important. there are four aspects that i wish to note. firstly, a central bank is a bank. accordingly, the day - to - day banking operations are very important. monetary policy, including the asset purchases that i have explained, is dependent on banking operations such as settlement services, management of haircuts, etc. these banking operations are not simple and mechanical affairs. it is often said that “ the devil is in the details ”, and the knowledge and feel for banking operations is essential to understanding subtle financial developments. this is all the more so in times of crises. secondly, in a point related to the importance of the banking operations that i have just mentioned, the management of policies – both monetary and financial system stability policies – must fully mobilize the information and intuition obtained from all corners of the broad central banking functions. unfortunately, the importance of the wide - ranging functions bis central bankers ’ speeches of the central bank is not widely recognized. in fact, media attention on the bank is concentrated on monetary policy. while monetary policy is indeed important, this is only one piece of the many functions performed by the central bank for the purpose of maintaining the stability of the economy and the financial system. looking at the allocation of time in my day - to - day schedule as governor, and also at the headcount for various functions, i feel that these functions as a whole are contributing to maintaining the stability of the economy and the financial system. with the increasing emphasis placed on macroprudential policy following the global financial crisis, many central banks are vested with macroprudential policy by themselves or with other institutions. this reflects not only the fact that the central bank is connected to various aspects related to finance, including the macroeconomy, financial markets, financial institutions, and payments and settlements infrastructure, but also the fact that the bank is sensitive to information that is obtained from those connections. thirdly, the central bank must stick to a constant learning process in the broadest sense. looking at what happened over the course of the last 25 years, including the formation and bursting of the bubble, financial crisis, deflation, and rapid aging, few economies had initially correctly realized the significance of these developments. nevertheless, it eventually became evident that such changes in the environment had profound effects on the economy. in this regard, the central bank must always be sensitive to the changes in the economy

banks, and other financial services providers, fully perform their respective functions, such as evaluating and taking on credit risks. hereafter, i use the term “ credit risk ” to represent the value and risk of credit. in what follows, i will elaborate on the three credit risk - related functions : the appropriate assessment of risks ; the unbundling and repackaging of risks ; and the effective reallocation of risks. d. appropriate assessment of credit risks first, credit risks should be assessed appropriately. to facilitate the smooth provision of credit, information regarding borrowers ’ profitability and their financial condition should be analyzed thoroughly and the results of the analysis should be reported to potential lenders accurately. financial data on borrowers are useful for this purpose, but the information publicly available on small or newly established firms is limited compared to that on large firms that have access to the capital market and disclose data on their financial condition. banks, with their broad in - house networks of branches and sales staff, have an advantage over other financial services providers in originating credits through their ability to obtain and analyze information on borrowers. having said this, however, banks ’ available capital is limited, as mentioned earlier, and this can be a constraint on their ability to not only originate credit but also bear credit risks on their own balance sheets. banks must therefore use their capital efficiently by extending credit only when it matches their strategies and reallocating the remaining credit risk to other investors. such a reallocation of risks should be beneficial to both banks and investors. to this end, banks are expected to enhance their ability to assess borrowers ’ creditworthiness appropriately and to reflect these assessments in their pricing of credit. thanks to recent progress in financial engineering, various new methods to measure and control risks have been made available. these include quantitative evaluation of credit risks based on such data as credit ratings and bankruptcy ratios, as well as the portfolio approach that makes use of the law of large numbers. new financial products utilizing these methods have also been developed. examples include loans with a non - recourse arrangement, standardized loans to small firms requiring no collateral and making use of scoring models, as well as consumer loans that require only simple loan screening procedures. banks should be able to further expand the practical use of such methods throughout their in - house networks to expand their business activities. for smoother reallocation of credit risks, the crucial factor is that the credit originator assesses the initial risk appropriately and sets the interest