results will respond to a variation of the assumptions in stress tests and scenario analyses, which should likewise be made transparent. as the risk characteristics of structured financial products differ markedly from those of traditional bonds, it seems to me that, not least, the use of a separate rating scale for structured financial products would be a promising way to help create the necessary transparency. at the same time, however, i would like to warn against exaggerated expectations. the more complex the financial products become, the more difficult it will be to create transparency. but this is where the financial institutions themselves also have a responsibility to make greater transparency possible. a tendency towards simpler financial products could also bring back more light into the financial system. last but not least, at the international level we shall certainly also have to take a good look at the experience of money market management during the financial turbulence. for the bundesbank, i would like to emphasise how much the operational framework as well as the operational capability in the eurosystem proved their effectiveness. in short, we have passed a crucial test but are still faced with challenges.

basel iii regime have been tackled in response to the financial crisis. let me discuss one example that i believe to be a very good illustration of the limits of capital as an all - purpose tool : the regulation of sovereign exposures. a problem that unfortunately became apparent during the european sovereign debt crisis was the close nexus between states and banks. under the current regime, banks do not need to hold capital against the risks associated with loans to sovereigns – unlike any other loans. this is based on the assumption that loans to governments are risk - free because states cannot default, rendering capital buffers unnecessary. all those who had trouble following this line of risk - free - debt argument saw their doubts confirmed by the sovereign debt crisis in europe. it became obvious that we need to rethink the assumption that loans to governments are risk - free. in actual fact, sovereign risk is a cluster risk because the default of a sovereign as single debtor can well cause bank insolvency. given the amount of home country sovereign debt that some banks hold – which sometimes exceeds their equity – a possible restructuring of sovereign debt may well threaten a whole national banking system. consequently, changing the rules appears imperative. if banks were required to hold capital against the risks of their government bond portfolios, they would be more resilient to fiscal distress. at the same time, banks would have less incentive to buy large volumes of government bonds if these were not privileged any longer. furthermore, this may incentivise governments to reduce their debt. 5 and this brings us to the second issue : capital alone is simply not sufficient. a crucial tool in risk management is diversification – as specified in the basel large exposure regime published in 2014 which will take effect from 1 january 2019. large exposure caps prevent banks from becoming overexposed to a single borrower and the risk of its default. currently, the regime is restricted to private borrowers, and sovereign bonds do not fall into its scope. to me, it is important to end this privilege and to create a level - playing field for private and sovereign borrowers alike. therefore, a cap on loans to an individual sovereign is needed and should also be introduced. let me be very clear on this issue : actually, i see no economic argument why banks should be the main source of funding for governments. unlike relations with private borrowers – where banks have significant informational advantages compared to other creditors – there is no privileged information on the debt of a nation. as a