From the periphery to the core: financial health and central banks’ mandates

Good evening, ladies and gentlemen.

For my remarks, I am going to talk about financial health and central banks’ mandates.¹

And, no, I won’t be suggesting that financial health should become another central bank objective.

Instead, I will be expounding on the relationship between financial health and the mandates central banks already have.

Financial health is an important objective. But it can sometimes be seen as sitting at the periphery of central banking – certainly an important social or developmental concern, but somewhat removed from the core mandates of central banks.

Today, I would like to challenge that perception.

My central proposition is simple: the relationship between financial health and central banks’ core mandates runs in both directions.

Financial instability can undermine household financial health through job and income losses, declining asset values and reduced access to credit. Monetary instability – particularly high inflation – can erode purchasing power, diminish the real value of savings and make it harder for households to manage their finances and plan for the future.

This causality is fairly established. Financial health may not be front and centre when central banks carry out their mandates, but it is certainly the implicit motivation. 

But the reverse is equally important and, unfortunately, often missed. The financial health of households can affect financial stability. It can also influence how households respond to inflation, interest rates and monetary policy.

So rather than downplaying financial health as something at the periphery of their mission, perhaps central banks should recognise the interdependence between what happens at the periphery and what happens at the core.

Financial health – a review

Let me first briefly explain what I mean by financial health – although I am sure all of you are already familiar with this concept.

According to the G20 working definition,² financial health has four dimensions:

• Can people manage their day-to-day financial obligations?
• Can they cope with a financial shock, such as an unexpected expense or a loss of income?
• Can they pursue and prepare for future goals – retirement, education, buying a home or other longer-term aspirations?
• And finally, do they feel sufficiently secure and confident about their financial situation?

Financial health therefore takes us beyond financial inclusion.

Financial inclusion asks whether people have access to and use financial services. Financial health asks what happens after they have been financially included.

That distinction is becoming increasingly important.

As recent Financial Stability Institute (FSI) papers point out, access to financial services has expanded significantly, but this has not automatically translated into better financial health. Indeed, evidence across countries suggests that progress in financial inclusion can coexist with persistent – and sometimes worsening – financial vulnerability.³ ⁠

And this matters for central banks. 

Let me explain why.

Financial health and financial stability

The connection between financial health and financial stability is perhaps the most intuitive.

Financial stability or lack thereof ultimately affects households. When financial institutions come under stress, it can lead to reduced credit provision. Financial stress can also spill over to the wider economy through weaker investment and decreased economic activity. These, in turn, affect households in terms of lost jobs and other sources of income and lower their ability to absorb those negative income shocks by resorting to borrowing.

So a stable financial system is an important foundation for financial health, but as mentioned, it is a two-way relationship.

Households that are financially stretched will have little room in their budget to absorb an unexpected expense. In the event of an economic shock – for example, a sharp increase in food and energy prices – households react accordingly. They may reduce discretionary spending, draw down their remaining savings or borrow more. If things worsen, they may fall behind or totally forgo on debt payments.

Aggregated across households, this becomes a financial health story that can suddenly threaten financial stability and the wider economy. Higher arrears become higher credit losses for financial institutions. Banks may respond by tightening lending standards. Reduced credit availability can weaken consumption and investment. This can, in turn, slow the economy further, placing additional pressure on household incomes. Indeed, this two-way relationship creates a feedback loop.

This raises an interesting question for financial stability authorities: could measures of financial health provide early signals of emerging financial vulnerabilities?

Traditional indicators, such as household leverage, debt-to-income ratios, loan arrears and non-performing loans, are already being used to assess vulnerabilities in the financial system. These metrics are also used alongside other indicators to measure financial health.

But these indicators tell us about vulnerabilities that have already accumulated, and some only become visible once financial stress has begun to crystallise.

Subjective indicators of financial health, such as those based on households’ own assessments of the state of their financial situation, their ability to meet routine expenses or cope with an unexpected financial shock, may provide complementary and forward-looking information. Indeed, such assessments may include private information about their financial situation. For example, households may be current on their loans but know that they have no remaining capacity to absorb a financial shock or a looming big expense.

So the point is not that financial health indicators should replace conventional financial stability metrics. It is that they may help us see vulnerabilities from a different angle – and perhaps at an earlier stage.

Financial health and monetary stability

Let me turn to the second connection: monetary stability.

Uncontrolled inflation can result in households losing purchasing power. Their capacity to save therefore diminishes while the real value of accumulated savings falls. 

These effects can be particularly significant for financially vulnerable households. Households with substantial savings may have greater capacity to adjust, as they can benefit from the inflation hedging power of assets like real estate or equity. 

Those living close to the margin have much less room to adjust and would be adversely affected by the monetary policy response. The higher interest rates needed to restore price stability can increase debt service burdens for indebted households, particularly those with variable rate debt or loans that need to be refinanced.

Price stability therefore is an essential precondition for financial health, but, once again, the relationship also runs in the other direction.

Behaviours related to spending, saving and managing debt are financial health concepts when viewed at the individual household level. But when these behaviours are multiplied across households in the economy, they become relevant to the transmission of monetary policy. 

This is consistent with research and speeches in the central banking community emphasising the role of household heterogeneity in monetary transmission.⁴ 

Financial health provides a lens through which to understand this heterogeneity. The extent to which households have financial buffers and are confident about their financial situation can influence whether an interest rate increase produces a modest adjustment in consumption or a very large one.

The use of financial health-related indicators to understand household responses to monetary policy changes is not new – they are just not referred to as such. For example, central banks already use surveys of consumer confidence and inflation expectations. There may therefore be value in looking more holistically at financial health measures if these could further complement the macroeconomic indicators we already use.

Digital innovation as an accelerator

Let me now turn to digital innovation.

Digital innovation is an accelerator of the connections I just described because it can strengthen – either in a positive or a negative manner – these connections.

Here, I would like to focus on cryptoassets given that it is the theme of this roundtable. It also offers, in my view, a good illustration of how digital innovation can affect financial health.

On the positive side, cryptoassets could lower transaction costs and enable faster transfers, which are particularly appealing benefits for the financially underserved. The low entry threshold – with cryptoassets accessible through mobile devices that are widely used even in low-income segments of the population – makes them relevant for the financially excluded. Use cases with a direct impact on people’s financial lives include cross-border remittances, programmable payments (for example, for distributing social benefits and conditional cash transfers), hedges against volatile currencies, investments and income generation through gaming applications. 

However, there are questions about whether cryptoassets actually lead to positive financial health outcomes. The volatility in crypto markets, the prevalence of fraud and the absence of protection similar to that for traditional financial products, such as deposit insurance, expose retail customers to substantial losses. This is exacerbated by the generally lower financial literacy in markets where crypto use is showing the largest growth.

For cryptoassets and digital innovation more broadly, the question therefore is whether they are simply increasing access to and use of financial services or actually improving people’s financial health. A recent FSI paper examined these issues.⁵ They will also be explored further in a few weeks at the financial health workshop at the Bank for International Settlements. 

These issues matter for central banks because digital innovation can amplify and complicate the relationship of financial health with central banks’ core mandates. 

Conclusion

So what does this all mean for central banks?

To me, emphasising solely the impact of financial and monetary stability on financial health tells only part of the story. 

Highlighting the reverse relationship has more far-reaching implications. It suggests that financial health is not simply an outcome of central banks’ work but also a factor that deserves greater attention in their pursuit of their mandates.

It demands concrete action in at least two areas.

First, it highlights the need to measure financial health better.

Central banks collect enormous amounts of information on banks, credit, markets, inflation and the economy. However, measures of household financial health are often less developed. The good news is that efforts are already underway at both the international and national levels. 

Second, it highlights the need to explore whether financial health indicators can complement existing analytical frameworks.

For financial stability, can these indicators provide early warning signals of household sector vulnerabilities before they appear in loan arrears and credit losses?

For monetary policy, can these indicators help to explain differences in consumption responses to inflation, interest rates and income shocks?

These are empirical questions that would benefit from further research. 

Let me conclude by reiterating that financial health is not quite as peripheral to central banking as it tends to be perceived.

Ultimately, a financial system cannot be considered resilient simply because its institutions are resilient. 

Its resilience also depends, in part, on the resilience of the people it serves.

Thank you very much.

References

Baptista, P, M Dossche, A Hannon, D Henricot, O Kouvavas, D Malacrino and L Zimmermann (2025): “The transmission of monetary policy: from mortgage rates to consumption”, ECB Economic Bulletin, issue 4.

Costa, R (2022): “Heterogeneity in macroeconomics – implications for monetary policy”, speech at the XXV Annual Conference of the Central Bank of Chile, Santiago, 21 November.

Frost, J, J Prenio, V Shreeti and D Symington (2026): “Digitalisation and innovation – opportunities and risks for financial health”, FSI Briefs, no 31.

G20 Global Partnership for Financial Inclusion (GPFI) (2024): G20 Policy note on financial well-being, October.

Grigoli, F, D Sandri, Y Gorodnichenko and O Coibion (2026): “Monetary policy according to households: perceptions, reactions and channels”, BIS Working Papers, no 1354.

Iravantchi, S, J Prenio and F Rühmann (2025): “Financial health in review: current practices in different financial authorities”, FSI Insights on policy implementation, no 68.

Lane, P (2019): “Households and the transmission of monetary policy”, speech delivered at the Central Bank of Ireland/ECB Conference on Household Finance and Consumption, Dublin, 16 December.