Get creative It’s easy to say, in essence, “Don’t miss the forest for the trees.” Let’s acknowledge that the challenges you encounter in the first line of defense are a veritable thicket. To manage effectively the risks that your firms face requires intellectual agility and creativity. For now, I want to touch on a few considerations: diversity, choice architecture (especially incentives), and moral reasoning. These inputs can help you apply the three lines of defense model more effectively, especially in the face of rapid technological innovation. Diversity If you want to think nimbly, embrace diversity: the way we think, our backgrounds and areas of expertise, our experiences—including, but certainly not limited to, the ways that people treat us because of where we were born, our race, gender, pedigree, sexual orientation—and even our values. Diversity can help address the problem of silos that I described earlier. The problem with silos is not specialization, but blind spots. At the New York Fed, I don’t want economists making legal judgments, or lawyers performing economic analyses. But I very much want lawyers and economists to provide insights to each other based on their specialties. More generally, inviting outside views helps avoid common, human biases. 4 “Groupthink” is one well-documented bias. Another is the “endowment effect”—placing greater value on what one already has versus what one does not. What links these phenomena is an excessive preference for the status quo.
Thus the technological advances of the last 25 years – especially the internet – have not significantly diminished the demand for cash. People still appreciate cash as a store of value and a means of payment. It is visible and tangible, which makes it especially valuable when there is uncertainty about the stability of banks. In addition, interest rates have been very low for some time now, and therefore the opportunity costs of holding cash are also low. However, the significance of cash as a payment instrument, too, remains unimpaired. In this regard, two essential characteristics stand out: As legal tender, cash is widely accepted and extremely reliable to use. Nevertheless, technology is constantly moving forward in terms of new forms of electronic payment as well as in the area of digital forms of money. What is more, the share of the population which grew up without bank cards, the internet and mobile telephones is continually shrinking. Is Switzerland therefore becoming a cashless society? Even if the importance of cash does decline over time, it is unlikely that it will be completely replaced. Its specific advantages suggest, rather, that it will continue to be used as a store of value and a means of payment. With well-established, flexible processes in banknote production and handling, the SNB contributes to ensuring that cash continues to meet the public’s requirements at all times. BIS central bankers’ speeches  1