with the question of earnings. my first theory is this. germany ’ s banks and savings banks continue to be over - dependent on revenues from interest business. this is preventing them from being profitable in the long run. net interest income at german credit institutions has been shrinking for years now. to this day, they still haven ’ t managed to refocus their strategies on the new normal, which is why their profitability has been ebbing away. 1 / 6 bis central bankers'speeches that was a very clear message from our low - interest - rate survey, which we released three weeks ago in conjunction with the federal financial supervisory authority, bafin. our findings show that small and medium - sized german credit institutions are expecting their profits to continue shrinking between 2016 and 2021, according to their planning. they are also projecting a remarkable 16 % drop in their return on total capital. monetary policymakers are a popular scapegoat for this malaise – it is their low policy rates, some say, which have caused earnings to dry up in the banking sector. but that, i feel, would be oversimplifying things. if the ecb governing council considers an accommodative monetary policy stance to be appropriate, it also needs to set interest rate levels accordingly. monetary policymakers are, after all, responsible for the entire euro - area economy. seen through that prism, banking sector profitability is just one aspect, albeit an important one. as understandable as the criticism directed at interest rate policy may seem from the perspective of german credit institutions, there ’ s a risk they might overlook the bigger economic picture. i say that partly for historical reasons. interest rate levels in germany have generally been on the wane for more than 30 years now, notably on account of demographic and macroeconomic factors. unsurprisingly, then, the german banking sector ’ s interest margin has been steadily narrowing for more than 30 years as well. hence, accommodative monetary policy is just one – albeit important – aspect. that said, interest - driven business models have been under pressure for quite some time already. and yet we are seeing very little in the way of adjustment. the business models of small and medium - sized german institutions, in particular, tend to be more reliant on interest business than those of their international peers, despite the fact that some of them can generate sufficient profits even in this challenging setting. my conclusion, then, is this. excessively

on sifis. in my view, only globally active institutions should be addressed by an international sifi regime. a pragmatic approach would be to start with a limited number of institutions which are indisputably of global systemic relevance. the financial stability board is currently developing a methodology to accurately define global sifis based on criteria such as size, interconnectedness or substitutability. first results of this exercise are expected by mid - 2011. the outcome, that is the specific members of this group of global sifis, will probably not be much of a surprise. but the issue of how to properly identify systemically relevant institutions becomes increasingly complex and contentious when turning to a lower – for example the national – level and will keep regulators and supervisors busy for some time to come. for this reason, it is a good strategy to focus on the least contentious and at the same time most systemically relevant candidates first. 2. 3 into the light : the shadow banking sector basel iii and special rules for systemically important institutions are certainly important instruments in safeguarding the stability of the financial system. however, the best dike is of little use when there is a whole ocean at your back. this ocean is the so - called shadow banking sector : the part of the financial system that is not subject to regulation, that has been inviting regulatory arbitrage and that has been a significant amplifier of risk during the financial crisis. with stricter rules for the regular banking sector, there is a clear danger that more and more activities will flow around the newly erected dikes and add to the ocean of unregulated activity at our back, thereby increasing systemic risk. thus, we have to turn our heads, take a close look at the shadow banking sector, understand what is going on there and ultimately control the systemic risks that we have identified. as a first step it is necessary to define the shadow banking sector. here, a broad approach is warranted for two reasons. first, the broader the regulatory view, the less room for regulatory arbitrage remains – provided regulation is internationally coordinated. second, only a broad view allows the regulators to keep track of the constant evolution of the shadow banking sector. for the same reasons, it is imperative to define the shadow banking sector not in terms of entities but in terms of activities. the central characteristic of shadow banks is that they replicate the classic activities of banks : they conduct credit transformation, liquidity transformation and maturity transformation. given