##nated swaps and other eurodenominated transactions once the uk has formally exited the eu. these are just two of the most prominent examples of the regulatory uncertainty that is troubling the financial sector in the wake of the ukreferendum. further questions such as the free movement of labour, goods and services affect the uk economy as a whole and with it all the clients of banks. given that formal negotiations have not even started yet between the euand the uk, there are still plenty of plausible scenarios for their future relations, and thus for the environment banks will have to operate in. this uncertainty surrounding brexit will stay with the financial sector for some time to come, and there is no easy way around it. let ’ s move on to the second issue, which concerns regulation more generally. earlier this week, i was in santiago de chile to meet with my colleagues from the basel committee, where we discussed details for completing basel iii. the rules based on this regulatory regime are currently being finalised and phased in. important aspects of the current negotiations are the revisions made to the level and the calculation of capital requirements. the need to adapt to, and comply with these new requirements is imposing costs on banks and causing headaches among bank managers. this holds for european financial institutions in particular. in comparison to brazil, for example, the use of internal models for calculating riskweighted assets and thus capital requirements is widespread in europe. consequently, any changes to this approach – as currently discussed – have much stronger implications for european banks than for their counterparts elsewhere. it is therefore crucial that the final result of our current negotiations will be regionally balanced and does not undermine the risk - oriented approach of the basel framework. the committee was not able to reach such an agreement yet. we will continue our negotiations with the goal of ending regulatory uncertainty as soon as possible. and we will work towards finding a compromise before the committee ’ s oversight body – the group of governors and heads of supervision – will meet in january. 2 / 5 bis central bankers'speeches in parallel with reforming basel iii, in europe we have established the banking union with a whole new supervisory architecture at its core – the single supervisory mechanism. this supervisory mechanism is still relatively new territory for banks, as it has just recently celebrated its second anniversary. as you can see, the regulatory and supervisory world is changing significantly and rapidly for banks. keeping up with these developments is a challenging task. on top of that, we are currently

, we can see a strong dispersion of npl ratios across countries. the highest npl ratios are present in those member states that were hit hardest by the economic crisis that followed the financial crisis after 2007. the high stock of npls ties up operational capacity of the affected banks, it involves legal as well as administrative costs, and it weighs on the capacity of those banks to extend new loans to realise profits and to support economic recovery. 4. how to cope ladies and gentleman, the financial world is clearly confronted with significant change and uncertainty. and many in the financial world perceive this to be a change for the worse. there are no easy solutions. the brexit negotiations will take time and uncertainty will be with us just as long. turning back regulatory achievements to provide relief from a perceived burden is not an option. as for the challenges posed by digitalisation, sticking to business as usual will not suffice. the same is true for the low - interest - rate environment : hoping for relief from a change in monetary policy won ’ t be enough. clearly, banks need to adapt, and indeed they have already begun. any long - term strategy for profitable banking needs to be built on its value added for customers, business partners and society. in times like these, supervisors need to be especially vigilant in monitoring financial institutions and ensuring that they do not take on excessive risks. what supervisors will not do is attempt to be management consultants for banks. difficult though the times may be, and however numerous and complex the problems may seem, it ’ s important to keep a clear mind and a steady hand. having a holistic and encompassing understanding of the current challenges does not mean that there are broad encompassing solutions available. we will succeed only if we refrain from falling for sweeping answers that promise to solve all the issues at once. that ’ s why it ’ s so important to have institutes like the iepe that enable us to get together and thoroughly discuss both the 4 / 5 bis central bankers'speeches challenges and the strategies needed to overcome them. and i am looking forward to having this conversation with you now. if we approach and tackle our current problems one by one, we will see that any change is manageable – both in the financial and in the real world. thank you for your attention. 5 / 5 bis central bankers'speeches