having a direct knock - on effect on institutions. this notably includes the need to write down government bond portfolios and volatile financial markets. however, it is our impression that germany ’ s banks are well prepared for this challenge. a more serious issue is that, in the long run, the real sector cannot completely decouple from the uncertainty of the overall situation. the german economy has weathered the crisis very well thus far. the leading indicators, however, are pointing to a certain cyclical downturn – which will also tend to squeeze banks ’ earnings. yet the factor i see as being the biggest problem, in terms of its potential impact, is the loss of confidence. we believe the correlation is monotonic : the sounder the state of public finances, the more confidence people have in that country ’ s banks, and vice versa. europe ’ s policymakers have responded to this loss of confidence and have initiated a recapitalisation of major european banks. in this process, 70 european credit institutions, including 13 german banks, marked to market their entire holdings of bonds issued by and loans granted to eea countries as at end - september. after marking the bonds to market, each institution is required to have a core tier 1 capital ratio of 9 %. according to provisional calculations by the eba – largely on the basis of half - year figures – european credit institutions currently have a combined capital shortfall of €106. 4 billion, of which german institutions account for €5. 2 billion. taking into consideration earnings performance in the third quarter of 2011 and the impact of the introduction of the capital requirements directive crd iii on individual institutions, this capital requirement figure of german banks is likely to increase. the modest size of the german banking system ’ s capital requirements in comparison with other european countries is chiefly due to the fact that german institutions have recently raised their capital ratio. in addition, banks generally hold government bonds issued by their own sovereign, and german government bonds enjoy a top credit rating. i am convinced that the eu package is a key step towards restoring confidence in the banking system. however, i am also convinced that it cannot be the sole approach to solving the problem. instead, this crisis will also have long - run consequences for the banking system. the attractiveness of government financing business has been diminishing because it has turned out to be appreciably riskier than the available returns. rating downgrades and wider bank cds spreads are making funding more expensive and could

andreas dombret : issues at the imf - world bank annual meeting 2013 statement by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the atlantic - brucke, washington dc, 9 october 2013. * 1. * * introduction ladies and gentlemen i would like to thank the hodges family for opening their house to us and for inviting me today. washington is busy with the annual meetings of the imf and the world bank. but there is even more going on. the g20 are also meeting, as are the financial stability board, the governors of the bank for international settlements and the institute of international finance. for a couple of days washington has become the mecca of the financial world. thus, it is good that this delegation from the atlantik - brucke has also come to washington to be part of it all and to gather information. i would like to give you a very brief overview of what economic issues will be under discussion. three topics will be at the center of interest : first, the global economic outlook ; second, current and future challenges for economic policy ; and third, institutional matters, such as the global reform of financial regulation. let us take a closer look at these three topics. 2. the global economy the global economy has improved, but growth is still moderate. in its latest world economic outlook, the imf projects global growth to reach 2. 9 % in 2013 and 3. 6 % in 2014. in doing that, the imf revised earlier estimates downwards. the underlying geographical pattern of this outlook is a bit scattered. growth in advanced economies is recovering, while estimates for emerging economies have been revised downwards. in the euro area, growth has picked up, but will remain weak. on the positive side, reforms in the crisis countries are progressing and initial results are becoming visible. the german economy has overcome its cyclical weakness and has returned to normal capacity utilization. 3. challenges for economic policy what are the challenges for economic policy? looking to the future, there are three major challenges we have to face. the first of these is the normalization of monetary policy in advanced economies. with improved economic conditions, it becomes more probable that interest rates will rise again. nevertheless, exiting from such a prolonged period of low interest rates will be difficult. it might cause volatility on financial markets and limiting this volatility will be decisive. emerging markets, in particular, will have to prepare themselves for potential