interests. but apart from all that, the ecb will receive information on every “ less significant institution ” ( lsi ) in annual reports produced by national supervisors. this approach upholds the principle of subsidiarity, which i believe to be the sensible and correct approach. for instance, most smaller banks apply regional, relatively low - risk business models which do not necessarily require european supervision. national supervisors will be able to appropriately supervise and classify the special features of these banks in future, too. nonetheless, smaller banks, too, are affected by the ssm. in future, these institutions are also to be supervised under harmonised european standards. in order to ensure such consistent supervision, the ecb can give national supervisors guidance on how to design the supervision of smaller institutions. for instance, it can set supervisory focal points or define principles for the assessment of certain issues. in individual cases, however, the ecb does bis central bankers ’ speeches not have the power to order national supervisors to take specific supervisory actions or to issue specific decisions. the ecb and the national supervisors are currently setting the relevant guidelines and revising the supervisory manual. the challenge here is to strike the right balance between harmonising supervisory practice, which is a desirable objective, and the principles of subsidiarity and proportionality. the harmonisation of supervisory practice in europe must not lead to supervision of materially different issues under the same standards. with regard to a bank ’ s risks, size does indeed matter. of course, small banks are also capable of entering into bad deals, of taking bad decisions and failing. however, if a small bank fails, the implications for the financial system are much less severe than if a bigger bank fails. in addition, they are likely for the most part to remain nationally or even regionally restricted. small banks are not “ too big to fail ” and thus do not have an implicit guarantee by the state that they will be rescued ; they therefore have from the outset less incentive to take particularly high risks. supervisors should address these differences in their requirements. the principle of proportionality needs to be upheld. 3. indirect impacts on smaller institutions however, subsidiarity and proportionality notwithstanding, smaller banks should not complacently assume that the direct impact of the ssm on them will remain contained. it is quite conceivable that the change in the structure of supervision will also have indirect effects across the entire banking landscape. the road is clearly leading towards greater harmonisation

intellectual bankruptcy of economic research. nearly two weeks ago, chancellor merkel also made reference to this. at the 5th lindau meeting on economic sciences ( attended by nobel laureates in this field ), she noted that “ we are coming from years in which one (... ) did not always have the impression that economics already knew everything about the future. ” many are now indeed wondering quite fundamentally what use economics is to society. the question of the usefulness of economics to society is probably also a reason why, at the aforementioned gathering of nobel laureates, the closing panel discussion was entitled “ how useful is economics – how is economics useful? ” 3. the lessons of the crisis ladies and gentlemen, christoph schmidt, chair of the german council of economic experts, was quoted in yesterday ’ s frankfurter allgemeine zeitung newspaper as saying bis central bankers ’ speeches that, “ despite the uncertainty surrounding our statements, our work is still important because we can contribute to imposing a limited amount of order on a complex and uncertain world without feigning false certainties. ” the job of economics is to explain economic interrelationships and to use these explanations as a basis for making economic policy designed to increase public welfare. economics is thus, if we accept that view, a discipline which is certainly of relevance to society. however, we must admit that economics has not always been up to the task. the financial crisis showed that there were many things about financial markets which we did not know, and that much of what we thought we knew was not reality - based. this is not least because, some of the time, economists act much like the one in the story i told you at the beginning. often, they were looking where the light was, not necessarily where the knowledge was. in that vein, precisely what the standard macroeconomic models were lacking was the financial sector, which made these models incapable of predicting the financial crisis. the framework of these models therefore needs to be broadened. in the meantime, many highranking economists are working on integrating the financial sector into standard macroeconomic models : mark gertler, lawrence christiano, massimo rostagno, roberto motto and markus brunnermeier, to name but a few. although progress is being made, research has not yet reached the finishing line. but why was the financial sector missing from the models? well, it is undoubtedly very difficult to model it mathematically. this seems to have been a hurdle initially