andreas dombret : rules and tools for capturing systemic risk speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the svp global ’ s european symposium on “ perspectives on the european distressed and credit markets ”, london, 4 october 2011. * 1. * * introduction ladies and gentlemen this symposium could hardly be more topical. following on from this morning ’ s contributions on the subject “ perspectives of the european distressed and credit markets ”, i ’ m very pleased to have the opportunity to look beyond the credit markets and add a new dimension to the debate, namely that of regulation. the financial and economic crisis rocked the very foundations of the global financial system and ruthlessly exposed the weaknesses in international financial supervision. in areas where there are a large number of road accidents, the authorities put up additional safety barriers, bring in speed limits or divert the traffic. on top of that, each car has to have a regular mot. after the major crash that was the financial crisis, many people fear that regulatory reform will lead to an unfettered spiral of regulation. i disagree. as a central banker, i would assess the impact of this reform package by whether we succeed in strengthening the resilience of the financial system. ideally, the result of this process should be enduring and should not trigger any negative side - effects, eg on competition. but there is a long and arduous road ahead. and it will entail costs for the banking industry. 2. the international reform agenda : what have we already achieved? as an example of what we ’ ve already achieved, take the key points of the reform framework already adopted at international level : “ basel iii ”, a far - reaching new global regulatory standard for bank capital adequacy and liquidity that was endorsed by the g20 at the end of 2010. its objective, in brief, is to better equip banks for weathering future stress situations. the european commission recently published a legislative proposal to translate the basel iii rules into eu law, which will affect over 8, 000 banks. the commission cited the imf ’ s loss estimates in its justification for this move. according to these estimates, crisis - related losses between 2007 and 2010 incurred by european banks alone were close to €1 trillion, or 8 % of eu gdp. 1 given this situation, we must not postpone the global implementation of basel iii ; that would send out the wrong message. the bun

rescue expectations – which means that having systemic importance must not be tantamount to being “ too big to fail ”. the more than 60 sometimes opposing commentaries in the fsb ’ s public consultation7 on this issue have been carefully reviewed. the resulting “ key attributes of effective resolution regimes for financial institutions ” will very likely be ready for endorsement by the g20 leaders in cannes. yet, the g20 countries must take account of the fact that the european commission is currently working on a legislative proposal8 on the same issue. in my view, we need to strive for international consistency between the g20 - and the european framework. germany was quick off the mark in creating possibilities for winding up sifis. the restructuring act, or restrukturierungsgesetz, which recently came into force in germany, provides for all banks – regardless of their size – to be either restructured or wound up in an orderly procedure. in addition, the whole of the banking sector has to pay a bank levy which feeds into a restructuring fund so that the sector shares in the costs of overcoming future financial crises. it is estimated that the bank levy will channel around €1 billion per year into the restructuring fund, and the levy rate to be paid by each institution depends on its systemic importance – an aspect which i expressly welcome. however, it is vital that we do not overburden financial institutions. i am therefore unenthusiastic about the plans to introduce a financial transaction tax. much as i get the moral arguments for such a tax, setting the wrong incentives often means that the harm caused in practice outweighs the intended benefits – particularly when measures are not introduced internationally, which encourages business to migrate. we need to have a level playing field across the globe, especially within the eu. 3. 2 … the shadow banking system? ladies and gentlemen, how would a traffic authority react if there was a sudden spate of accidents involving vehicles that weren ’ t – and still aren ’ t – obliged to have an mot purely because they aren ’ t technically defined as cars? this is more or less what happened with the shadow banking system in the financial sector. first, i would like to stress that bank - like transactions outside of the banking sector should not be regarded as a bad thing per se. there can be advantages to certain activities being carried out by specialist enterprises rather than banks. the shadow banking system should not be considered the “ villain of the piece ”, and i