The first is that although cross-border bank flows have plateaued, in many other ways the global financial system is as interconnected as ever, and that we need to be mindful of spillovers from elsewhere when setting policy. The second is that by acting in their domestic best interest, policymakers can often improve the global outcome. In short, we need to think globally, act locally. The need to think globally Let me start with some context. Evidence of a ‘global financial cycle’, which drives co-movements in asset prices, and pro-cyclical gross capital flows, has been well documented, for example by Helene Rey (2013) and by my colleague Kristin Forbes (2016). Global financial markets have become more correlated and common shocks play an important role. According to the IMF, around three-quarters of equity and foreign exchange returns in both advanced and emerging market economies are now attributable to international 3  factors. We have also observed an increase in the co-movement of domestic credit growth across countries over the last two decades (Chart 2). Elevated domestic credit growth has been found to be the best single predictor of banking crises (Drehmann et al (2011), Schularick and Taylor, 2012). However, banking crises come “in waves” (Reinhart and Rogoff, 2009; Laeven and Valencia, 2013), which, together with signs of greater correlation of credit growth across countries, suggests a role for external determinants and/or direct contagion.
Technically speaking, this means we cannot determine an optimal commitment period for our investments. In point of fact, our investment horizon is usually relatively long-term, although it can be abruptly shortened in the event of a crisis. Finally, we also pay special attention to reputation risks when engaging in specific investments. One of  BIS Review 123/2006  1  the SNB's most important assets is its good reputation and its credibility. Damage to its reputation could also have a negative impact on monetary policy. Consequently, in cases of doubt, we avoid investment classes and instruments that may be expected to have a damaging impact on our reputation. We are also very risk-conscious when it comes to potential conflicts of interest. For instance, all staff engaged in practical investment activities are shielded from confidential monetary policy information. Effective risk management requires that all relevant risks be identified and assessed regularly, in a manner that is as unbiased as possible. Experience has shown that technical failure is seldom at the root of serious losses. The greatest losses result from a lack of risk consciousness, from a total failure even to recognise significant sources of risk. This danger exists when risk assessment is restricted exclusively to easily measurable quantitative risk variables, excluding areas such as processes or legal risks, which are referred to as 'operational risks'. For this reason, we also include operational risks in our assessment. However, while pursuing this broader route, we certainly do not neglect the regular quantitative measures for assessing financial investment risks.