still. basel iii and the capital requirements directive, or crr, are even more detailed, heavier on formulas, and more complex. why is there this trend towards ever more complex rules? five reasons stand out in particular. bis central bankers ’ speeches first : regulation has needed to keep pace – and still needs to keep pace – with ever more complex banking business. second : we are increasingly dealing with what is known as risk regulation. here, historical data and statistical procedures are used to calculate the probability of dangerous events occurring – the rules and regulations then stipulate how banks must prepare for such scenarios. third : global harmonisation brought about by the basel standards. these standards were created mainly for large international banks, but are being applied to all institutions in germany and the european union. fourth : complexity is also caused by european regulation, which imposes an additional set of rules that need to be followed. furthermore, the relationship between european and national rules is often unclear. and last, but not least, complicated rules are also an outcome of compromises. compromises are a necessary element of regulation – especially where a large number of countries with a wide variety of banking landscapes are involved. moreover, the changes proposed by banks and saving banks often haven ’ t exactly made the rules any simpler. this has made compliance with the rules an increasingly costly, time - consuming and unwieldy undertaking. such a complicated set of rules is all but bound to lead to a considerable increase in the costs of compliance. if such rules had been imposed on inspector schimanski and his ilk, tatort would have been a much less exciting show. i personally wouldn ’ t be thrilled to spend 90 minutes watching the inspector poring over implementing regulations. that ’ s only something for masochists, and gotz george, the actor who played inspector schimanski, certainly wasn ’ t one of those. 3. disadvantages : high compliance costs as i mentioned at the outset, the suspect ’ s motive to cause harm to banks and their customers via complicated rules isn ’ t very plausible. and the supposed sequence of events isn ’ t exactly water tight either. but one thing we do have to admit is that the complexity of banking regulation has made compliance very expensive for institutions – in two respects. first, the regulatory requirements generate work for the institution ’ s executives and employees. this includes one - off costs, such as the costs of procuring new software. but it ’ s also about

andreas dombret : current developments in europe introductory remarks by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the german embassy, paris, 11 december 2013. * * * ladies and gentlemen let me kick off the discussion by offering some thoughts on the current state of play in europe, and the euro area in particular. many challenges have by now been overcome, yet some still remain ahead. let me mention a few of them. first, the markets are still concerned about the quality of banks ’ balance sheets and possible forbearance policies. the lack of transparency about true asset quality is certainly an issue. price - to - book ratios of less than one testify to this. second, it is true that we have seen significant improvements in market access and funding costs during recent months. however, signs of fragmentation between the so - called periphery and other countries of the euro area are still evident. that is, financing conditions for sovereigns, banks and corporates continue to diverge along national borders. third, in many parts of europe the necessary deleveraging process still has to continue. the corporate and private household sectors in some european economies are still riddled with debt from previous exuberance. likewise, public deficits and sovereign debt levels are uncomfortably high in many countries. finally, growth, when measured on an annual basis, in the euro area remains subdued. the european commission expects euro area real gdp to shrink by 0. 4 % in 2013. and in 2014, growth may well amount to a mere 1. 1 %. this adds to the challenges facing bank balance sheets and public finances. so, is it all gloom and doom? far from it, i would argue, as long as policy makers take the right steps. let us take a short look at what has been done so far and what remains to be done. let me begin with the issue of monetary policy, as you would probably expect from a central banker. only few would dispute that the measures taken by the eurosystem have greatly reduced tail risks in the financial markets. however, i cannot conceal the concern that these measures come with diminishing rates of return. in fact, we may soon reach a point where their risks outweigh their benefits. in the end, monetary policy cannot solve the crisis. everyone agrees on this. all monetary policy can do is to buy time. and in doing so the eurosystem has entered unchartered and dangerous territory