jens weidmann : challenges for banking regulation and supervision in the monetary union speech by dr jens weidmann, president of the deutsche bundesbank, at the deutscher sparkassentag 2013, dresden, 24 april 2013. * 1. * * introduction mr fahrenschon mr genscher mr steinbruck ladies and gentlemen it gives me great pleasure to speak to you today at the sparkassentag 2013. for more than three years now, the financial, economic and sovereign debt crisis has been the dominant topic in the european monetary union and, at the same time, its biggest test. dated from the outbreak of the crisis on the us real estate market in the summer of 2007, this is already the fifth year in which we have been in crisis mode. that said, germany is still in relatively good shape – despite undergoing by far its worst postwar slump in 2009 and despite being one of the first countries to be affected by the spillover from the crisis on the us real estate market. germany has had to use considerable financial resources to stabilise the financial system. savings banks, too, felt the effects of the crisis – although they did so directly only in a few cases ; mostly it was through their investments. even so, savings banks had a stabilising effect during the crisis. they were a robust and reliable source of lending. and they strengthened their capital base. that is a major precondition for overcoming the challenges that are on the horizon – such as sustained pressure on margins and increased risk provisioning for the next economic downturn, which is bound to come at some time. the various aspects of the crisis – first, only a financial crisis, then an economic crisis and, finally, the sovereign debt crisis – which is still with us – have prompted a large number of discussions, changes and upheavals. this applies to the role of central banks and to the expectation of what central banks can and should – or cannot and should not – do to help resolve the crisis. it also applies to the financial system and the way it is perceived by the public at large. mr steinbruck will undoubtedly explain in more detail soon how he wishes to “ tame the financial markets ”. overcoming the crisis requires considerable efforts in many areas. but, as important as the issues of government debt, monetary policy and competitiveness are, i would now like to turn my attention to banking regulation and supervision. 2. reform of financial market regulation – objectives and measures roughly ten

the japanese financial sector is still suffering from its excessive effects. that is a burden not just for japan but for the world as a whole. moreover, there is the other part of the foundations which international cooperation should not undermine either : the appropriate arrangements among countries themselves and with the financial markets. international action should improve, and not harm, the operation of the financial markets. but that is precisely what happens if there are public bail - outs of investors in the event of a crisis. they encourage moral hazard, thus weakening the efficiency of the markets. therefore, publicly financed bail - outs ultimately attack the economic basis of legitimacy for free capital markets. my criticism of some of the imf ’ s past activities is not new. in the case of mexico and, to some extent, in the crises of a few asian countries, financial resources have been thrown into the fire too quickly and too extensively and private investors have not been adequately involved or only fairly late on. certainly, the imf has been under considerable political pressure regarding some of its actions. that explains much but does not justify everything. there must be no more rescue operations without the involvement of the private creditors. the imf cannot and should not be lender of last resort. fortunately, there is now growing recognition of this. i do not wish to be misunderstood : we have urgent need of the imf. for that reason, i cannot agree with the fundamental criticism of the imf either. we need the imf, above all, as an international monetary promoter of open borders and free markets and as an advocate of sound and transparent policies on the part of its members. that is the task of the imf. it has the function of a catalyst. it can assist many countries in following and safeguarding the road to the market economy internally. the imf can help to make global finance more efficient. nevertheless, the countries themselves must ensure that their internal financial systems have a sufficiently sound structure. and the imf can act as an intermediary in the event of a crisis. in doing so, the primary objective should be maintaining access to private capital for countries in crisis. of course, in such an event financial support by the imf might play a limited role. but support has to be linked to conditionality which covers the actual causes bearing in mind that the formula for overcoming a crisis might not be the same for every country affected. this function of the imf as a catalyst is not a minor role. in today ’ s