vanished : trust. or to use the latin word : credit. due to the lack of transparency, no one knew the exact extent of banks ’ exposure to securitised mortgage loans. consequently, market participants began to mistrust one another. at the same time, many banks found it difficult to assess their own exposure, and they began to prepare for the worst. princeton university ’ s markus brunnermeier called this “ a textbook example of precautionary hoarding by individual banks ”. as a result, money market liquidity dried up fast. banks were no longer able to tap into the interbank market to secure their funding. and such a squeeze of liquidity can even break a solvent bank ’ s neck – especially when it is engaged in maturity transformation and is short on liquid assets. at the same time, prices of financial assets began to fall. this induced banks to sell their assets as fast as possible to limit their losses ; everyone was rushing for the exit. this sent the markets into a downward spiral, reducing the sometimes already thin capital cushions of banks. 2. 3 the system breaks down as an interesting matter of fact, dick fuld, then ceo of lehman brothers, knew how essential capital and liquidity were. ” you always need a lot of cash on hand to ride out the storm, ” he used to say. however, the liquidity lehman brothers held was not at all sufficient. and, over the course of 2008, lehman got into trouble, hit by the events i have just described. but how to deal with a large, international and interconnected bank that runs into difficulties? bis central bankers ’ speeches in his book “ capitalism 4. 0 ”, the renowned journalist anatole kaletsky pinned all of the blame for the fallout from the lehman shock on hank paulson, then us secretary of the treasury. to me, this seems unfair. during the crisis, the authorities and market participants were unsettled by the unprecedented pace of events. each impact seemed to send policymakers in a different direction. the rescue of the investment bank bear sterns in march 2008 was the subject of much criticism. the us government was accused of practicing “ socialism for the rich ”. against this backdrop, the government took a harder stance toward lehman brothers. moreover, letting lehman fail was consistent with the fundamental principles of a welldefined market economy – insolvent firms should leave the market. however, no one really knew what needed to

nevertheless, banks have their share of concerns when it comes to the digital euro. they are afraid that the digital euro might become an attractive substitute to bank 4 / 6 bis - central bankers'speeches deposits. banks could lose an important source of funding. this could cause structural disintermediation and reduce banks'ability to provide credit. even if deposits remain attractive enough in normal times, a digital euro might facilitate a bank run if a bank's liquidity becomes questionable. some critics even fear that a digital euro would become a source of financial instability. the eurosystem is aware of the potential risks and will take the necessary precautions to make sure that they do not materialise. 2 first, the eurosystem has no intention of remunerating digital euro holdings. and second, there will be a holding limit. both measures underline that the digital euro is not meant to be a store of value. as users could link their digital euro wallet to their commercial bank account, they could also conveniently settle transactions that exceed the holding limit. for example, when buying a used car. the maximum amount will be low enough to ensure that banks will be able to cope with an additional demand for liquidity. bundesbank analyses have shown that given present liquidity levels and the holding limits currently under discussion, any additional demand is likely to be manageable. 3 we would see to it that people will not use the digital euro as a store of value, but as a means of payment, as intended. rest assured that the eurosystem has every intention of retaining the tried - and - tested two - tier banking system in the euro area. 5 conclusion ladies and gentlemen, ken olsen, the founder of digital equipment corporation, said in 1977, there is no reason anyone would want a computer in their home. how wrong he was! and when the brandenburg gate was opened to cars in 1998, few would have thought that almost everyone today would be using a smartphone. i am sure that many people would have said that they neither need nor want a tiny computer in their pocket. but most of them changed their mind when they saw it in practice. the same may well happen with the digital euro. the pariser platz has seen many transformations since it was built at the margins of berlin ( as i mentioned at the beginning ). today, it is one of the most central places in berlin and one of the city's most visited landmarks. the extension of central bank money into