not to buy such large volumes of government bonds. and this brings us to the second issue : capital alone is insufficient. a crucial tool of risk management is diversification. the rule of thumb is “ never put all your eggs in one basket ”. a cap on loans to an individual sovereign should therefore also be introduced. such caps have already been a fact of life for loans to the private sector for some time. they prevent banks from becoming overexposed to a single borrower. this makes them less bis central bankers ’ speeches vulnerable to the default of that borrower – and this is needed not just for private borrowers but for government borrowers as well. beyond the banks ladies and gentlemen, i have talked about banks and i have talked about states. but to reshape the world of finance we have to reach further than that. the world of finance comprises more than just banks. consider the insurance sector. just one day after lehman brothers collapsed, the us government had to invest more than $ 180 billion to bail out the insurer aig – another institution that was deemed “ too big to fail ”. five years later, the regulation of systemically relevant insurers is far less advanced than it is for banks. a relevant framework is slowly emerging, but some of the groundwork has only recently been prepared. and there are other sectors we have to look out for. there are areas of bank - like business that are still outside the perimeter of banking regulation. these areas are usually referred to as the shadow banking system. in my view, this term is somewhat misleading and unfair. it implies that institutions operating in the shadow banking system are somewhat shady in character – and that is definitely not the case. in general, the shadow banking system provides an alternative source of funding and is therefore associated with diversification and specialisation benefits. their funds are, in principle, very much welcomed in the context of the comprehensive assessment. nevertheless, institutions in the shadow banking system perform bank - like activities and incur bank - like risks without being subject to bank regulation. and these risks can certainly be systemic because of unregulated liquidity and maturity transformation, because of the build - up of leverage, and because of pro - cyclicality. we therefore will have to make sure that such entities and activities are adequately monitored and regulated. this objective is high on the agenda of the g20, and we have already made good progress. nevertheless, quite some work still lies ahead. conclusion ladies and

point is : what do we need to do in order to restore the principle of liability? the decisive point is that banks must be able to fail without dragging down the entire financial system with them. to this end, a new international standard on the recovery and resolution of systemically relevant banks has been developed. having this new standard is a major step forward. at the same time, a single resolution mechanism will be a central pillar of the european banking union. it will allow authorities to restructure or resolve banks without putting taxpayers ’ money at stake. the owners of the bank and the creditors will be the first in line when it comes to bearing the costs of a bank failure. due to its importance, let me stress how crucial it is that those involved in the negotiations reach an agreement on the european single resolution mechanism prior to the european elections in may. a european banking supervision cannot be effective without a european resolution mechanism. in the same context, the comprehensive assessment is crucial as a precondition for a successful banking union. the objective is to uncover any legacy assets in banks ’ balance sheets and to assess their resilience to stress scenarios. with that objective in mind, the asset quality review and the stress test have to be tough and thorough. this will ensure that european supervision and european resolution mechanisms do not have to deal with problems that arose under national supervision. banks and states aligning the banking sector with the principles of a market economy will take us a big step towards financial stability. but it won ’ t take us all the way. to safeguard the stability of the entire financial system, we have to look beyond the banks. one issue we definitely have to address is the connection between banks and the public sector. the banking system is closely linked with public finances. this link was a major driver bis central bankers ’ speeches of the crisis in the euro area. so, let us now take a closer look at the link between banks and states. when the financial crisis unfolded and banks everywhere ran into difficulties, governments had to step in to avoid a breakdown of the entire financial system. this experience is a real world example of the “ too big to fail ” problem which i discussed a moment ago. however, saving banks is a costly endeavour for governments. let ’ s take ireland as an example. in order to save its banking sector, ireland ran up a budget deficit amounting to 30 % of its economic output in 2010. in the same year, germany added almost €33 billion to its public