down achievements of reforms current discussions on open issues in europe and potential risks might create the impression that progress since the recent crisis has been insufficient and that flaws in the seite 2 von 10 deutsche bundesbank, directorate general communications wilhelm - epstein - strasse 14, 60431 frankfurt am main, germany, tel : + 49 ( 0 ) 69 9566 3511 or 3512, fax : + 49 ( 0 ) 69 9566 3077 presse @ bundesbank. de, www. bundesbank. de reproduction permitted only if source is stated. institutional setting have not been identified. however, the opposite is true. fundamental shortcomings of the financial system and institutional weaknesses in the currency union have been identified and addressed. discussions on future steps to be taken should, therefore, start with a stock - take of what has been achieved so far in order to identify any need for further reforms. the crisis has shown that the dynamics of debt and economic fundamentals need to be aligned. this holds true for the private and public sector sector. also, no country and no financial system is immune to distortions and misaligned incentives. in economies as deeply integrated as the euro area, consequences of such misaligned incentives easily spill over across borders. important lessons have thus been drawn from the financial crisis. with regard to fiscal policy, stricter rules on deficits and debt were established, including the “ six - pack ”, the “ two - pack ”, and the fiscal compact. the european commission was put in charge of monitoring macroeconomic imbalances through which distortions spill over internationally. the supervision of banks, insurers and financial markets has been strengthened at the national and the european level. in a first step, european supervisory authorities were established, and the “ single rulebook “ was implemented to harmonize the legal framework for banking supervision. stricter international rules for banks have thus been implemented at the european level. in a second step, the banking union was launched in 2014 with the single supervisory mechanism ( ssm ) and the single resolution mechanism ( srm ). the implementation of the european banking union is an important step towards risks in the banking sector being supervised at the supranational level. it shifted responsibilities from the national to the european level. along with the reform of traditional ( banking ) supervision, macroprudential policy was established as a new policy field. macroprudential surveillance focuses on the stability of the entire financial

, however, the errors of both groups in predicting stock prices were roughly the same. in a subsequent set - up, both groups were asked to pick the best - performing stock from two options. here, both the professionals and the laymen proved to be overconfident with regard to their ability to pick the best - performing stock. eventually, the professionals picked the correct stock in only 40 % of cases. had they randomly picked one of the two options that were offered they would have been right about 50 % of the time. 4 cheng, i ; raina, s ; xiong, w ( 2014 ), wall street and the housing bubble. in american economic review, vol 104, no 9, pp 2797 – 2829. torngren, g ; montgomery, h ( 2004 ), worse than chance? performance and confidence among professionals and laypeople in the stock market. in the journal of behavioral finance, vol 5, no 3, pp 148 – 153. bis central bankers ’ speeches studies such as these led nassim taleb to provocatively state that : “ certain professionals, while believing they are experts, are in fact not. based on their empirical record, they do not know more about their subject matter than the general population, but they are much better at narrating – or worse at smoking you with complicated mathematical models. ” this is certainly an exaggeration, but it seems justified to conclude that our ability to see in the dark is somewhat limited. the quote points to another issue that is relevant in this regard. can statistical models mitigate people ’ s biases when it comes to handling risk? to some degree, they certainly can raise our awareness of potential risks but they are by no means perfect. with regard to the financial crisis, some banks claimed to have experienced a “ 25 sigma ” event – a point in the probability distribution that is 25 standard deviations away from the mean. statistically speaking, such an event should have only occurred once since the universe came into existence. statistical models are often criticised for systemically neglecting such “ high - severity - lowprobability ” risks. 5 one reason for this is that many models use the past as the basis for the future when assessing the probability of certain events. this weakness could be referred to as the chicken fallacy. a chicken that is fed by a farmer every morning may expect this pattern to continue in the future. however, as the philosopher bertrand russell concludes : “ the