have emerged from the crisis in a better shape, but would have been hit harder by the containment measures at home instead. https : / / www. bundesbank. de / en / press / speeches / the - potential - long - term - effects - of - the - coronavirus - crisis - on - the - economy - and - on - monetary - policy - 855 … 3 / 14 12 / 21 / 2020 the potential long - term effects of the coronavirus crisis on the economy and on monetary policy | deutsche bundesbank the economist richard baldwin put it in a nutshell : “ putting all your eggs in one basket does not diversify risk – even if the basket is at home. ” [ 3 ] you see, global value - added chains are not inherently risky. rather, they provide an opportunity to reduce dependencies on individual suppliers or locations. that is the reason why there are more enterprises at present working on diversifying their supply chains than on shortening them, as is shown by an international survey among more than 10, 000 ﬁrms. [ 4 ] in this way, they can also use the advantages of regional specialisation and pass them on to consumers in the form of lower prices or greater choice. there nevertheless exists the danger of the pandemic reinforcing protectionist tendencies. over the past few years, there has been a strain on global trade due, in particular, to the dispute between the united states and china. the rationale behind such a trade conﬂict is often to get gain an edge at the expense of others. the situation is similar to that of the familiar prisoner's dilemma in game theory. imagine chicago in the roaring twenties. two gangland bosses are accused of being in cahoots and having committed very serious crimes together. they are interrogated separately. whoever admits guilt and turns state ’ s evidence will be immune from prosecution, whereas the other will feel the full force of the law. if they both confess, the penalty will be reduced somewhat. if they both remain silent, they will be jailed for tax evasion – a much less severe punishment – as eventually happened with al capone. in this situation, it pays for each one individually to confess. that is why they the two of them will be punished severely in the end, even though it would have been better for both of them if neither of them had said anything. there is the threat of a similar outcome with protectionism. it is true

bunds, increase in line with market participants ’ current expectations. only one insurer would be at risk in such a scenario. however, many life insurers would have insufficient own funds if bund yields persisted at their current levels or if their excess returns were to additionally fall back to their all - time low. what the scenario analysis also tells us is that there is time for the enterprises to make the adjustments needed to cushion the negative interest effects and to implement countermeasures. additionally, the introduction of the new solvency ii regime next year will improve the disclosure of risks. while there is a 16 - year transition period prior to full implementation of solvency ii, firms should not waste any time in setting aside adequate own funds against their risks. however, solvency ii tends to make insurers ’ capital requirements more procyclical. the risks this can cause will need to be monitored closely, since a solvency balance sheet focusing largely on market values as per solvency ii can produce a more volatile picture of insurers ’ resilience. this can have repercussions for insurers ’ investment policy. if, say, insurers attempt to increase their solvency ratio during crises, such endeavours can lead to fire sales, which might further accelerate the fall in asset prices. even what currently appears to be a rather unlikely scenario – that of interest rates climbing sharply within a short space of time – can pose a real threat to the stability of life insurers. this is because the regulations in germany leave them with no option but to offer fixed surrender values for products paying guaranteed returns. since life insurers invest the bulk of their customers ’ premiums in fixed - income securities, the market value of their investment is sensitive to interest rates, while surrender values are not. thus, if interest rates were to suddenly climb sharply higher, that might be a rational reason for customers to lapse their policies. in a worst - case scenario, that might spark an upsurge in policy lapses. surrender values that move in line with the market value of insurers ’ assets might be one way of eliminating this risk caused by regulation. for new policies, that would be possible without interfering in property rights. 5. significance of the shadow banking sector improvements in the regulation of banks and insurers might act as incentives for agents to switch to unregulated territory. that is why action has been taken in recent years to improve surveillance over