andreas dombret : the role of the state in the financial system dinner speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the ifo / cesifo / bundesbank conference, munich, 14 september 2012. * * * of scientists and drivers ladies and gentlemen, please let me welcome you to tonight ’ s conference dinner. having discussed complex issues all day, you now really deserve the opportunity to socialise with one another. but before you do so, and before we start enjoying our dinner, please let me tell you a short anecdote : in 1919, the physicist max planck was awarded the nobel prize for his work on the quantum theory. as a consequence, he toured germany, having to give countless speeches about quantum physics. it is said that he complained about these many talks to his driver. the driver therefore suggested : “ by now, i have heard your talk so often that i can give it myself. why don ’ t we change places? i ’ ll pretend to be the physicist and give the talk while you pretend to be the driver. ” next time, the driver gave the talk – and his performance was quite convincing – while planck sat in the audience. all went well until someone from the audience posed a question. naturally, the driver was unable to answer it. but instead of admitting this, he replied : “ your question seems ridiculously easy to me. i believe, even my driver can answer your question. ” and his “ chauffeur ” did so. please, do not misunderstand me : considering the first - class participants list of this conference and the high quality of the papers selected, i am convinced that the academics at this conference will speak with the authority of people who absolutely know their trade. i have no doubt whatsoever on this score. however, i have to admit that when following the discussion in the media about the european debt crisis it is sometimes hard to separate the “ drivers ” from the real academics. i get the impression that everyone has an opinion on these topics – and that everyone has stated that opinion at least once. take, for instance, the discussion about a banking union in europe. this topic has stirred – quite understandably, i may add – quite some unrest in the german economic community. petitions were launched, and provocative counter - petitions were issued, in some cases endorsed by some of the exact same academics. this seems striking, given that they were signed by

appropriate step, for the recent crisis was driven strongly by liquidity problems. at the end of october, the basel committee published its final rules, which will place banks ’ funding on a more stable basis. the regulatory reform will help make banks more stable. however, it entails effort and costs – something which particularly the banks themselves point out time and again. it is certainly true that tighter bank regulation is a cost factor. however, regulation is not an end in itself ; it is there to prevent crises. so if we want to discuss the costs of regulation to banks, we also have to talk about the costs of crises to the taxpayer – and then i do believe indeed that the figures add up. the regulatory reform will undoubtedly affect the future of the banking industry. though it might mean more time and effort for one bank or another in the short run, for society it bis central bankers ’ speeches means more stability in the long run – which will also benefit, not least, the banks themselves. 3. banking supervision : increasingly international however, regulation only defines the rules of the game. an additional element is needed – a referee to monitor compliance with the rules. in this regard, we in europe set out into a new world three days ago. on 4 november, the ecb assumed responsibility for supervising the 120 largest banks in the euro area. these 120 banks represent more than 80 % of the euro - area banking system ’ s total assets. this turned the ecb overnight into one of the world ’ s largest supervisory authorities. the new single supervisory mechanism ( ssm ) in europe is getting to the root of three causes of the recent crisis. for it enables banks to be supervised at a consistently high standard throughout the euro area ; it allows cross - border problems to be handled better ; and it contributes to mitigating the influence of national interests, which has time and again hampered arm ’ s - length supervision. the step towards a european prudential supervisory regime certainly represented upheaval for the supervised banks. the supervisory culture will change : supervision will become more quantitative, and its perspective will change. thus, in future the ecb will also inspect banks ’ business models. while this is standard practice in countries such as the united states or the united kingdom, it is a first for german banks. it will certainly not be easy, but it is worth trying. the ssm, however, will naturally follow the principle of proportionality : systemically important banks and banks with riskier