. yet this mechanism hardly worked during the crisis in the euro area. even worse : depositors in crisis - hit countries lost confidence in their domestic banking systems and withdrew their deposits. banks in the euro area also lost confidence in each other and reined in their lending. the banking union was created in part to overcome the financial fragmentation triggered by the sovereign debt crisis. with its single supervisory mechanism and rules on bailing - in creditors in the event of bank failures, the banking union bolsters the banking sector ’ s resilience. this makes a loss of confidence in national banking systems less likely. and less danger of a fragmented financial system stabilises cross - border lending, particularly in turbulent times. a common european deposit guarantee scheme could, in theory, even heighten this confidence. however, as with any insurance policy, one would have to make sure in this case, too, that the insurance does not encourage imprudent behaviour. such risks can arise from carelessly granting credit to the private sector. but they can also result from providing sovereigns with too much credit. since the onset of the sovereign debt crisis, at the latest, we know that loans to general government are not risk - free either. banks in the euro area have a sizable share of sovereign bonds on their books. to insure euroarea bank risks in such a situation would be tantamount to insuring fiscal risks. given that the member states themselves still decide freely and independently on the level of government expenditure and taxes, this ultimately sets the wrong incentives : finance ministers would see less of a need to pay adequate attention to the sustainability of public finances. the precondition for a european deposit insurance scheme, then, is that the size of government bond portfolios that banks hold on their books is limited. loans to sovereigns should not be treated any differently from loans to enterprises or individuals. another precondition concerns the stock of non - performing loans in the european banking system. insurance usually covers future damage, not damage that already exists. hence, in order to be eligible for a common deposit insurance, banks in the euro area have to either fully provision for non - performing loans or divest them. non - performing loans not only constitute an obstacle to a common deposit insurance scheme. they also weigh on financing conditions and, ultimately, growth prospects in the member states concerned. banks need to clear up existing non - performing loans. and we need to establish rules that ensure the prudent management of

jens weidmann : keynote speech - " europe into a new era - how to seize the opportunities " keynote speech by dr jens weidmann, president of the deutsche bundesbank and chairman of the board of directors of the bank for international settlements, at the frankfurt european banking congress " europe into a new era - how to seize the opportunities ", frankfurt am main, 17 november 2017. * * * 1. introduction ladies and gentlemen central bank communication can certainly be tricky. that is why bank of japan governor haruhiko kuroda said three days ago, during an ecb conference on this very issue, that the message needs to be simple. " it should better be straightforward, " he told the audience. " that ’ s the best way. " as was also alluded to at the conference by moderator david wessel, there might now be a new option that would allow governor kuroda to be taken at face value – in the truest sense of the word. artificial intelligence researchers claim to have found clues in the facial expressions of the bank of japan governor. supposedly, kuroda showed " fleeting signs of ‘ anger ’ and ‘ disgust'" at news conferences that preceded changes in monetary policy in 2016. this raises important questions : can we now make monetary policy changes with the blink of an eye? and will botox injections be the only way to uphold the maxim “ we never pre - commit? " on a more serious note : artificial intelligence is a fascinating subject, with wide - ranging implications not least for economics and finance. but today i will confine myself to more everyday matters for a central banker – matters which definitely also have wide - ranging implications for our monetary union. " restoring the european project ", the title of the upcoming panel, calls for policymakers to live up to their respective responsibilities. what is required of monetary policy, national governments, and european institutions? in the next 15 minutes, i will try to briefly sketch out some possible answers to this question. 2. monetary policy let me start by having a short look at the eurosystem ’ s monetary policy. the eurosystem ’ s expansive monetary policy has contributed significantly to the recovery in the euro area. growth rates have been positive for more than four years. the unemployment rate has almost been reduced to its pre - crisis average. and economic indicators all point to a continued economic up - swing. in germany, indicators now suggest even stronger growth than outlined in our june projection.