their business models – i ’ m talking specifically about the ones that run highly interest - driven franchises. that is why any institution that is over - reliant on revenues from interest business needs to rethink its approach. and while banks are busy reviewing their strategies, there ’ s another scenario they must also bear in mind – that interest rates are going to pick up again. this will give rise to interest rate risk, which an institution ’ s risk management will need to be able to cope with. institutions should each have a meticulously crafted response to this scenario at the ready – rather than hectically drawing up a plan when things come to a head and interest rates start climbing. furthermore, the new recipes of the future will also need to include some digital ingredients, and that goes for business models and risk management operations in equal measure. state - of - the - art risk management needs to devote far more attention to cyber risks, which are a matter of general business management. efficient processes which harness economies of scale on the cost side can help stabilise earnings. innovative information technology can play a role here, and it can also be supportive in reshaping business models. 1 in fact, to a limited extent, it can help tap new sources of income. another way in which institutions can unlock new sources of revenues and optimise their existing profit centres is by cooperating with fintechs. 5 stricter rules for the baking process : regulation and bank management but it is not just the business models which need to be scrutinised – the management approaches should be reviewed as well. and this is where regulation comes into play. up until just a few years ago, integrated performance and risk management largely revolved around allocating capital according to an institution ’ s exposures. the chief objective was to allocate capital resources as efficiently as possible whilst adhering to the minimum regulatory capital requirements. this principle is still the essence of bank management today. yet the regulatory reforms introduced since the financial crisis have been forcing institutions to rethink their set - ups somewhat. the problems facing the banking sector have shown that setting a minimum capital requirement that is based solely on risk - weighted criteria doesn ’ t go far enough to create sufficient resilience within the sector. because risk - weighted capital requirements alone did not provide the necessary level of protection, additional safety nets were introduced as part of the basel iii package. thus, the existing risk - weighted standards have now been joined by

andreas dombret : the cake's getting smaller. consolidation and reorientation in the german banking sector speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the frankfurt school of finance & amp ; management's fifth annual conference on integrated performance and risk management, frankfurt am main, 30 march 2017. * * * 1 introduction ladies and gentlemen thank you for inviting me to speak at this conference on integrated performance and risk management. the close ties between the deutsche bundesbank and the frankfurt school of finance & management have already become something of a tradition, and i hold them in high regard. the speech i am holding today is entitled “ the cake ’ s getting smaller – consolidation and reorientation in the german banking sector ", and you may be wondering what managing a credit institution has in common with this city ’ s famous cake, the frankfurter kranz … well, both are crowning achievements in their respective professions : the frankfurter kranz, invented here in frankfurt am main in 1735 by an unknown baker, is part and parcel of this city ’ s history in the 18th century. shaped like a wreath – kranz in german – it symbolises the emperor ’ s crown. unsurprisingly, then, it takes a great deal of skill and craftsmanship to prepare. similarly, managing a credit institution has emerged as one of the elite disciplines in the business world. steering an institution, with all the tasks that entails, has become far more gruelling in recent years – not just because market conditions have become harsher, but also because the cake that can be divided up in the first place has shrunk in size and is continuing to do so. and when the going gets tough, there ’ s no option but to tweak the recipes. 2 the cake ’ s getting smaller the cake that can be divided up among germany ’ s banks and savings banks has been shrinking for many years now. just look at how earnings have been contracting for more than 15 years – the figure for 2015 is nearly 30 % down on 1999. this malaise can be traced back to a number of factors. one is that europe, and germany especially, are often lambasted for being “ overbanked ". unless these overcapacities are reduced, they will continue to take their toll on earnings. the low - interest - rate environment is having much the same effect. we are already