write - downs would erode equity. and, in particular, credit risk could increase if economic activity unexpectedly declines. second, common exposures to the same risk factor can trigger systemic risks. take one example based on the german financial system. one of the german banking system ’ s strengths is its large number of smaller credit institutions operating directly within the regions in which they are based. yet, the bulk of germany ’ s smaller credit institutions – its credit cooperatives and savings banks – are highly exposed to interest rate risk. this might undermine stability precisely when interest rates climb more briskly and more strongly than anticipated. small though these institutions may be individually, together they account for a significant share – roughly 50 % – of lending to domestic enterprises and households ( deutsche bundesbank 2018 ). 6 if those institutions were to run into difficulties, the repercussions for the economy as a whole could be severe. generally, resilience with regard to such systemic events should be measured with regard to the mechanisms that are in place to deal with losses. equity capital, for example, provides an ex ante insurance mechanism. whenever risks materialize, the value of equity adjusts, and dividend payments can be suspended. thereby, equity investors bear upside and downside risks. standard debt contracts, in contrast, are insensitive to the borrower ’ s situation. risks are not shared unless the debtor enters insolvency proceedings and unless risk sharing occurs through haircuts. insolvency proceedings, however, are often inefficient, may create distortions if investments are postponed, and may lead to the liquidation of viable parts of businesses. market participant needs to hedge against negative scenarios – by making sure that they put 3 / 6 bis central bankers'speeches enough capital into any investment and basing expectations on the most realistic scenarios possible. but what happens when risk materializes that the individual cannot readily grasp, when risks become mutually reinforcing in the system? at the system level, the credibility of regimes for the recovery and resolution of financial institutions is a crucial element of resilience. in 2011, the financial stability board published an international standard for sound resolution regimes : the “ key attributes of effective resolution schemes for financial institutions ” ( fsb 2011 ). their overall aim is to establish a framework that allows for systemically important financial institutions to exit the market without endangering financial stability. in particular, the burden of losses should be shifted from taxpayers to shareholders

at cutting implicit subsidies for systemic institutions. for the private sector, funding costs are thus going up. yet, society benefits because costs of financial distress are shifted from society to the originators. also, if financial crises occur less often and are less severe, reforms carry a lower economic and social price tag. finally, benefits of the reforms can only be reaped over the longer term, whereas higher funding costs tend to be recognized immediately. evaluation, therefore, means making the costs and rewards of the reforms for society as a whole more transparent and disclosing any unintended side - effects. so far, there are no indications that the reforms have impaired the ability of the financial system to provide services and to lend to the real economy. the evaluation of the reforms should not be used as a pretext to water them down 4 / 6 bis central bankers'speeches or weaken the resilience of the financial system. ultimately, a stronger, better capitalized, and more resilient financial system promises a “ double dividend ” in terms of growth and stability. 4. references allen, franklin, and douglas gale ( 2000 ). financial contagion. journal of political economy, 108 ( 1 ) : 1 – 33. bank for international settlements – bis ( 2018 ). bis statistical bulletin, march 2018. basel. buch, claudia m., sandra eickmeier, and esteban prieto ( 2014 ). in search for yield? new survey - based evidence on bank risk taking. journal of economic dynamics and control, 43 : 12 – 30. committee on the global financial system – cgfs ( 2018 ). structural changes in banking after the crisis. cgfs report no 60, january 2018. basel. dell ’ ariccia, giovanni, luc laeven, and gustavo a. suarez ( 2017 ). bank leverage and monetary policy ’ s risk taking channel : evidence from the united states. the journal of finance, 72 ( 2 ) : 613 – 654. deutsche bundesbank ( 2017 ). financial stability review, november 2017. frankfurt. deutsche bundesbank ( 2018 ), monthly balance sheet statistics, january 2018. frankfurt. eickmeier, sandra, norbert metiu, and esteban prieto ( 2016 ). time - varying volatility, financial intermediation and monetary policy, discussion paper 46 / 2016, deutsche bundesbank, december 2016. frankfurt. federal statistical office of germany ( 2018