in the process. for instance, tlac instruments should be strictly subordinated to instruments not included in tlac in order to ensure transparency and legal certainty. we also need clear rules that restrict the holdings of tlac instruments by other banks in order to limit the risk of contagion. here, a number of potential approaches are currently under discussion. these include deductions from total capital, punitive risk weights and large exposure limits. 4. conclusion to sum up : many people blame untamed market forces for the financial crisis of 2008. i argue that it was, in fact, not too much market but too little that contributed to the nearcollapse of the financial system. a core characteristic of any well - functioning market economy was absent from the financial sector, namely the threat of failure. large banks operated with implicit government support that distorted their incentives for prudent behaviour and eventually cost taxpayers billions of euros. therefore, the regulatory reforms aim to reintroduce the principle of individual failure into the financial system. to reach this objective we have to establish mechanisms that allow banks to fail without disrupting the entire financial system. we have made significant progress both at the european and at the global level. and although we have not yet reached our objective, i am confident that we will eventually do so. thank you. bis central bankers ’ speeches

with other institutions from their network. as such, the single rule book runs counter to the idea of a level playing field and creates problematic incentives in terms of uniformity and size in the banking sector. regulation today already takes account of proportionality to a degree. tiered standards exist in areas such as reporting, where large institutions are required to meet more frequent and comprehensive reporting standards, and supervisors largely exercise proportionality when applying the minimum requirements for risk management. proportionality is also embedded, in principle, in the eba guidelines on the supervisory review and evaluation process. but in practice i repeatedly encounter situations where the existing gradations are inadequate in my eyes. the proportionality principle is nothing new, then, but it still has not been anchored deeply enough. 4. the road to greater proportionality : a chronology that ’ s why we took action and explored ways in which the principle of proportionality could be embedded more deeply within the regulatory and supervisory frameworks. let me start by running you briefly though the events of the past one - and - a - half years. 2 / 13 bis central bankers'speeches german finance minister wolfgang schauble and his then uk counterpart george osborne moved the ongoing debate forward substantially in april last year by noting, in a joint paper, the increasing complexity of banking regulation and pointing to the excessive burden on small institutions running straightforward business models. it is a topic we at the bundesbank also feel very strongly about. hence my decision to go public with the first set of specific proposals a little while later. that november then saw the european commission likewise table its proposals for strengthening proportionality as part of the general overhaul of eu banking regulation, which is still an ongoing process. these proposals would make major changes to the small print, and i am certain that we will be able to roll out a number of meaningful initial improvements. that said, the proposals don ’ t go far enough – which is why we thought ahead. the establishment of a german specialist working group was followed by the drafting of a bundesbank paper setting out concrete measures as well as several consultations with the german central associations. the outcome of this process is a german “ non - paper ” – that is, a discussion paper – which the federal ministry of finance put before the competent expert group of the european commission in june this year. 3 / 13 bis central bankers'speeches 5. which way? when working out this common german proposal, there were essentially two paths we could take to move