their total assets and workforces and therefore running a relatively straightforward business, use advanced credit portfolio models that are complex in methodological terms. as you know, extensive expertise and compliance with high regulatory standards are required to apply such models. these requirements have, quite rightly, actually been tightened further in recent years. and this is precisely what some institutions and their associations are now rallying against. truth be told, i have little sympathy for such complaints. why? because there are simple and transparent procedures that are perfectly suitable for smaller institutions. either an institution adopts a simple and transparent procedure – which is perhaps somewhat more conservative but easier to handle – or it must comply with stricter requirements for riskier transactions and complex approaches. the fact that solutions are provided by associations for internal risk measurement that institutions might wish to use for a variety of reasons need not be of any consequence to regulators and supervisors. thus, if an institution wishes to pursue risky business strategies and apply highly complex processes, it should gladly do so – but it should not expect regulators and supervisors to support these endeavours by relaxing the rules and showing leniency during inspections. the upshot is either risk and complicated rules or less risk and simplicity – risk and simplicity together is, by contrast, a pipe dream. in summarising, i would like to make two things very clear. first, only those institutions that are both small and have, above all, a sound risk profile, may be granted simplifications. second, a reform would not only provide a range of simplifications ; instead, it would also be accompanied by corresponding obligations – for example, a two - tier regulatory system with simplified requirements for smaller institutions would probably go hand in hand with increased capital requirements. the bundesbank will then be able to agree to greater proportionality in regulation if two principles are respected : no wish lists and no weakening of supervision that could be hazardous to banking stability. 5. the form that “ greater proportionality ” could take there is no doubt that sweeping reforms were essential in the wake of the financial crisis. bis central bankers ’ speeches however, now that such far - reaching reforms have been implemented, we need to honestly ask ourselves the following questions. do they still make sense when considered altogether? are the individual components of reform working together as a whole? this process of reflection has been ongoing for several months now. politicians and authorities have started to examine the impact of and interaction between these individual components. and assessing the proportional

this increase in complexity? it is the vast number of rules, the increase in the degree of detail, the expansion of the already - enormous technical specification and the growth in the multiplexity of regulation. this has made compliance with the rules an increasingly costly, time - consuming and unwieldy undertaking. such a complicated set of rules is all but bound to lead to a considerable increase in the costs of compliance. a good example of this is the framework which governs remuneration systems. in germany, we make a distinction here between general prudential requirements and specific prudential requirements – though smaller institutions do not need to meet the specific prudential requirements. according to the european commission, however, pursuant to crd iv 2 a small bank is likewise required to meet both the general and the specific prudential requirements. the following example shall serve to show how complex this would be. one rule says that part of variable remuneration is to be paid in “ instruments ”, ie in shares or “ share - linked instruments or equivalent non - cash instruments ”. however, small institutions have no such instruments, which means they must go to great lengths to create such instruments in the first place. i think this approach is going too far and suggest amending it under this year ’ s crd iv review. small institutions should be exempted from the specific prudential requirements. what burdens are complicated rules imposing on smaller institutions? one of the most problematical areas lies in the human resource requirements and costs created by the need to regularly review whether the rules are actually being fully complied with. this means that the problem is not so much the minimum capital or liquidity requirements but instead the high operational burden imposed by implementing these rules and following them. this overhead is high for all institutions – regardless of their size. however, small institutions, owing to their smaller staff sizes, are less able to spread the costs of compliance across their capital requirements directive iv. bis central bankers ’ speeches employees and have to either hire additional staff or enlist external aid. this tends to lead to relatively higher burdens. the problem, at its core, thus consists in the interplay of two aspects. the high operational requirements created by a multiplex set of rules, and the limited organisational capacity which is naturally at the disposal of smaller institutions. intricate sets of rules thus cause particular duress for institutions with limited capacities. ultimately, the debate on proportionality is leading us to the following question :