I mentioned one example earlier. A borrower may not repay a loan. Prudent lending standards—like securing good collateral and identifying credit-worthy borrowers—can help mitigate that risk. Here is another example. A depositor may use a bank account to hold, transfer, or obscure the proceeds of a crime. This is more difficult to determine, especially when deposits are received from half way around the world. Third-party service providers and customers are examples of risks from outside the bank that are unavoidable in the ordinary course of business. These third-party risks are not purely hypothetical. They featured in recent cases of attacks on the global correspondent banking network. My colleague Richard Dzina runs Fedwire®, the payments system that I mentioned earlier. Here is how he described some of the risk that he faces: Historically, and understandably, market infrastructures have operated on the presumption that endpoint security is principally the responsibility of the endpoint, and infrastructure security is principally the responsibility of the operator. Increasingly, reflecting the elevated cyber threat landscape, this distinction is not so clear, especially as endpoint security breaches can potentially have implications for public confidence in the network as a whole, even in circumstances when the operator’s infrastructure, applications, and security perimeter have not been compromised.3 3/7  BIS central bankers' speeches  I also worry that some risk management practices can themselves create risk. Advances in technology have enabled more sophisticated economic modeling, on which many financial institutions rely to assess and manage their risk.
No doubt at some point such perceptions will change - or the anticipated differences in future earnings growth be discounted by the change in asset prices, including the effect of exchange rates. There are some tentative signs that this may be beginning to happen. But in the meantime it is not at all clear that there is much that we could do - even if we wanted to - to weaken sterling against the euro by marginal changes in short-term interest rates. As it is our interest rate differential over the euro zone has halved since the euro started, while our exchange rate against the euro has appreciated by around 15%. We do already, of course, take full account of the exchange rate - and other prices - in both our forecasts and our policy decisions. Indeed, it was partly to avoid pushing sterling higher and so aggravating the imbalance within the economy, when we were not wholly convinced that we needed to take that risk in order to achieve the inflation target, that the Committee refrained from further monetary tightening over the past eight months. But looking ahead the risks and uncertainties are such that it would be unrealistic to suppose that we can altogether exclude the need for further tightening at some point.