am convinced that restoring market mechanisms where they have so far been impeded is crucial for strengthening the euro area ’ s institutional framework as well. a constitutive element of any functioning market monti, mario ( 2010 ) : a new strategy for the single market. bis central bankers ’ speeches economy is the principle of liability. or, as walther eucken put it, “ he who profits must also bear the losses. ” when it comes to two of the biggest economic actors in the monetary union, this principle applies only to a limited extent. banks and sovereigns being a priori deemed systemically important, since turbulence on either front threatens the stability of the financial system, would not bode well for the future stability of the monetary union. a framework in which two of the biggest players are at least partially exempt from the disciplining forces of the market would invite future aberrations and lack resilience. if we are to put monetary union on a sounder footing, such vulnerabilities need to be addressed as a matter of urgency. and, as both problems are so closely intertwined, any attempt to tackle one of them in isolation would be likely to fall short of what is required. let me first take a step back and look at why the close link between banks and sovereigns has proved to be so problematic in this crisis. if many banks get into trouble at the same time, possibly because of a large asset bubble bursting, financial stability as a whole is put at risk. the government then often has no option but to step in if it wants to prevent a meltdown of the real economy. but such a rescue rewards excessive risk - taking and can place a huge strain on government finances – which is what happened in ireland, where the need to support the financial system pushed the deficit above 30 % of gdp in 2010. conversely, weak government positions can destabilise banks – directly through their exposure to sovereign bonds, and indirectly through worsening macroeconomic conditions. breaking the link between banks and sovereigns is important for making the euro area more stable. a banking union can be a big step in that direction – but again, we need to harness the disciplinary forces of the market, not do away with them. core elements of a comprehensive banking union therefore have to be not just an effective single supervisory mechanism, but also a comprehensive bail - in of bank creditors, and a cap on exposure to individual sovereign as well as an adequate risk - weighting of

joachim wuermeling : introduction to the book " banking business in germany " opening speech by prof joachim wuermeling, member of the executive board of the deutsche bundesbank, at the occasion of the publication of the book " banking business in germany " from the association of foreign banks in germany, frankfurt am main, 16 october 2019. * * * introduction ladies and gentlemen, thank you very much for the invitation. it is my pleasure to introduce the 6th edition of “ banking business in germany ”. previous editions have been a valuable guide, with clear and insightful descriptions of the structure of the german banking sector, the structure of banking supervision in germany and the eu, and the relevant legislation for banks and investment firms active in germany. these information are very helpful for foreign banks entering the german market, which is why it has become something of a go - to guide. as this book is about german banking i would like to take this opportunity to make three remarks on the sector. first, i would like to make a brief assessment of the brexit preparations. second, i would stake stock of the incoming financial institutions due to brexit third, i will then talk about the strategic options post brexit. state of brexit preparations the book as well as the association of foreign banks in germany are as important as ever given the developments we are seeing due to brexit. this event has a major impact on the german banking sector not only in the short, but also in the long term. for the short term, i may say that banks and supervisors have more or less completed preparations for a hard brexit. this is due to the hard word of the banks but also to the clear stance of supervisors and – last but not least - the delay from march to october. we as supervisors have been very strict ; we saw no alternative than to prepare for the worst - case scenario, which is a hard brexit. that proved to be the right stance, despite of the promising rumours ahead of this week ’ s european council meeting and glowing hopes that there finally may be a withdrawal agreement between the eu and the uk. a hard brexit is exactly what institutions have been preparing for in recent months. i am well aware that this was a very challenging process for all firms, but i am convinced that these strict measures are a valuable advantage in light of the current, difficult circumstances. moreover, in areas where banks were not able to do this alone,