And while other countries have cut the number of banks by almost a quarter following the financial and economic crisis in order to reduce overcapacity, the corresponding figure for Germany was only 10%.4  Traditional business models under review The current low interest rate environment has not just revealed weaknesses among banks, it has also called into question the traditional business models of insurance companies and pension funds. 3/5  BIS central bankers' speeches  For many insurers in Germany, guaranteed returns have become an issue. In the current market environment, it is becoming increasingly difficult to achieve the guaranteed interest rates of 4% that were commonplace in contracts concluded in the mid-1990s. The German ministry of finance has reduced the guaranteed interest rate for the current year from 1.25% to 0.9%. Many insurance companies are now increasingly turning to unit-linked products. In addition, new regulatory requirements are increasing the demand for safe assets. German government bonds alone are yielding negative returns on maturities of up to seven years. Against this backdrop, discussions are under way as to what can be done to counter this shortage of safe assets. One suggestion is that market participants create a new kind of safe asset, known as European Safe Bonds (ESBies)5, consisting of the senior tranche of a portfolio of existing bonds from different euro area countries. The advantage here would be that no joint liability would exist, as is the case in other proposals of this kind. From a purely academic perspective, this is certainly an interesting idea.

Considering the importance of credibility for a central bank, as mentioned, there should be no delay in making the necessary gradual adjustments to our communication. But support from the political dimension is needed too. Structural reforms are required in various areas as well as fiscal stimulus where budgetary flexibility exists. And what sounded like a platitude yesterday risks being forgotten today: political stability, the rule of law and reliability are essential conditions for maintaining our prosperity. And only open markets and free trade make it possible to boost this prosperity. We need to make the cake bigger, instead of squabbling over the existing portions. Protectionism will only lead to a loss of prosperity for all. Impact of monetary policy on banks We are aware that our measures have side effects and that these become more pronounced the longer the unconventional measures last. Let me emphasise that these measures are temporary and are not a permanent part of our active toolbox. To mitigate risks as far as possible, we closely monitor the broader repercussions of our monetary policy. We carefully watch insurance companies, pension funds and, above all, banks, which play a key role in the transmission of our monetary policy. Let’s first of all take a look at the banks: over the longer term abnormally low or negative interest rates, together with a very flat yield curve and negative term premia, can have adverse effects.3 Those banks whose business depends heavily on maturity transformation and on deposit-based refinancing are being hit particularly hard.