although a populist party came in third, things need a more differentiated explanation – only half of the populist supporters were economically disaffected. i will come to that in a moment. in my eyes, though, the positive outcome is one of government stability : chancellor merkel ’ s conservative union has remained the largest force in parliament. but she faces the difficult task of forming what has been dubbed the jamaica coalition with the business - friendly free democratic party and the green party. the negotiations have just begun and are challenging. but i am confident that an agreement can be reached and that german political stability will stay intact. and that the german economy ’ s strong growth momentum will also remain intact, which, in turn, will be a strong basis for continued growth of the euro area economy. yet this election reveals a deeper, inconvenient truth – that people are not convinced that politicians have found sustainable solutions for longer - term social cohesion. this is mirrored in the first far - right party entering the bundestag since 1949 : alternative for germany, or afd for short. it is now the third - biggest party in the bundestag, having received almost 13 % of the popular vote. 2 / 6 bis central bankers'speeches about half of the party ’ s voters are economically disaffected – people without jobs, people with declining real income and people fearing future losses. this is the economic side of why protectionism and populism have enjoyed support in germany. the afd, like many other populist parties, blames the economic malaise on globalisation and european integration – and are demanding that they be reversed. these simple explanations offer intuitively appealing solutions to europe ’ s problems. but they overshadow the mid - term economic challenges, which need to be tackled urgently, however. if we do not solve these mid - term challenges, populist influence might well grow – and that would put global and european cooperation at risk. these unresolved problems could become the roots of serious political conflict. can this really become such a problem? i have one word for that : brexit. in june 2016, uk voters decided to leave the eu – they had been told that they would be able to save their money and put it to better use, and that they could once again control their destiny in the global economy, all without any negative consequences. unfortunately, the campaign was built on false anti - euinformation.

and explicit, and the list just keeps getting longer. we have the guiding principle of the reforms to thank for this : risk - oriented governance and regulation are there to help banks to allocate capital resources as efficiently as possible. but in order to prevent a state of undercapitalisation, this approach needs very specific rules. this increases the compliance workload – that is, the effort associated with meeting the requirements as well as demonstrating that they ’ ve been met. particularly for credit institutions that are able to strongly optimise their employment of capital in order to benefit from higher returns, this is worth all the effort. and it ’ s worth it for especially large credit institutions because they can profit from economies of scale where fixed costs per product fall as the volume of business increases. this then also makes it easier to finance a larger compliance department. smaller, regionally based institutions, however, cannot normally rely on these economies of scale or a strong risk appetite for a source of income. seen from an individual business perspective, the cost of regulation is similar or even higher for these banks, but their ability to take advantage of these complex strategies is somewhat weaker. in other words, the complicated risk - oriented approach favours banks with a large organisation, whose activities are more complex and which take on greater risks. the reason we should be giving this more thought is that the vast majority of german banks and savings banks are smaller institutions ; about 1, 000 credit institutions in germany recorded total assets of less than €1 billion in 2016 ; for a further 500, this figure was somewhere between €1 billion and €5 billion. we therefore need to ask ourselves two questions. how appropriate are the new regulations for smaller, regional banks? and is there any way we can simplify or even get rid of requirements that are out of proportion? 4. regulation : strict, complex and proportional? before i go on to discuss the solutions to these issues, let me first make one thing clear : i do not subscribe to the view that small banks and savings banks are put at a systematic and deliberate disadvantage – and that is because regulation and supervision have been proportionate in many areas for many years already. furthermore, i don ’ t believe that smaller and regional institutions are risk - free per se ; instead, every individual credit institution requires robust regulation for the benefit of all. what this means is that even small market players cannot expect a regulatory free pass – they, too, are not exempt from regulation. what this