- border comparisons, for instance. such a body should be able to monitor the build - up of excessive risks and pinpoint them more easily and at an earlier stage. a single supervisory mechanism should also overcome the national bias of supervisors. but a single supervisory mechanism is not sufficient. to shield banks from weak public finances, it must be accompanied by a sound regulatory underpinning. such regulation should include upper limits for lending to governments and appropriate capital backing for sovereign bonds. finally, a banking union should comprise a european resolution and bis central bankers ’ speeches recovery mechanism to ensure that bank creditors – and not taxpayers – are the first in line to bear losses from a bank ’ s failure. such a comprehensive banking union will be an important element of the new institutional framework of the monetary union. it will bring about significant changes not only for banks and their stakeholders, but also for regulators and supervisors with functions being transferred from the national to the european level. 3. financial sector reforms changes will also be made through financial sector reforms. the financial crisis has highlighted weaknesses in financial sector regulation. as a response to this, the g20 heads of state or government set in train a comprehensive reform agenda in november 2008. in the meantime, we have passed a number of major milestones on that agenda. but to make the international financial system as resilient and robust as it should be, we still have a long way to go. one of the most pressing issues is the implementation of basel iii. what is most worrying is that doubts about implementation have been voiced with respect to countries that are home to global financial centres and systemically important institutions. i consider it of utmost importance that all g20 countries live up to their self - commitment of leading by example. the initial implementation timelines have been modified in the eu and the us. we need to make sure that such delays do not lead to a watering down of the measures that we agreed upon internationally. stricter banking regulation might set incentives to move business to less regulated entities. the regulation of the shadow banking system is therefore another pressing issue. regular monitoring exercises help us to gain a better understanding of the kind and scale of business conducted outside the regulated banking system. but its actors and activities still remain largely unregulated. i consider it particularly important to deliver a final set of integrated recommendations on regulating the shadow banking system to the g20 in september. and it is absolutely crucial to finally solve the too - big - to - fail problem. however, we

andreas dombret : total impact – how regulation and crisis management will change the world ’ s financial landscape speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the frankfurt finance summit, frankfurt, 19 march 2013. * 1. * * introduction ladies and gentlemen i am delighted to conclude this year ’ s frankfurt finance summit. for the third year in a row, this event has provided an excellent platform for an exchange of views between high - level experts from politics, academia, as well as the financial and the official sectors to discuss financial market issues of major current importance. today ’ s conference has been asking about the total impact that regulation and crisis management will have on the financial landscape. the keynote speakers and panellists have given wide - ranging and, in some cases, diverging answers to that question. i am pleased to conclude this year ’ s summit by offering my views on some particular aspects of the issues discussed today. 2. future of the european monetary union let me start with the topic of the first panel this morning : the future of european monetary union. the crisis has highlighted shortcomings in the union ’ s institutional framework. let me remind you of three serious flaws. first, the deficit rules of the stability and growth pact were not only circumvented by some member states, but deliberately bent. second, member states ’ borrowing was not effectively curbed because financial markets failed to exert a disciplining effect on public budgets. third, contagion effects transmitted via member states ’ financial systems were largely underestimated. the introduction of the single currency led to a greater integration of european financial markets. the highly integrated market increased the probability of contagion effects occurring via member states ’ financial systems. hence, it amplified the existing close link between risks stemming from a country ’ s public finances and the state of its banking system. these flaws were a major factor in the emergence of the sovereign debt crisis and that fact makes a good case for strengthening the institutional framework of the monetary union. i welcome the measures that have been initiated. the reform of the stability and growth pact and the agreement on the fiscal compact are major steps towards sounder budgetary policies. with the agreement on a european banking union, we have made further progress in one important specific area. a banking union can help to strengthen financial stability by loosening the nexus between banks and sovereigns. a european banking supervisor would benefit from the ability to make cross