securitisations. it is my firm conviction that this does not include the private equity business model in its pure form. this is quite obvious in my opinion, as private equity companies provide equity capital. it is also worth mentioning that the situation is very similar for sovereign wealth funds if they invest in participating interests in enterprises, but in return provide equity rather than debt. in a nutshell : whether an enterprise or a fund is classified as belonging to the shadow banking system depends not so much on its name as on its activities. for precisely this reason, some money market funds are included in the shadow banking system. in the run - up to the crisis, they, in particular, helped fund real estate loans in the united states by investing in asset backed commercial paper issued by special purpose vehicles to finance securitised real estate loans. hedge funds, too, at least constitute links in the intermediation chain outside of the banking sector. after all, they gather funds and invest these in bonds and other credit instruments, including the associated derivatives. consequently, as the distinction between hybrid private equity funds and hedge funds is blurred and the former partly operate under the umbrella of hedge funds, they too belong to the shadow banking system. this requires increased vigilance, as the number of structures established under their umbrella appears to be rising as first evasive action is taken. now, before you get uneasy – where regulation is concerned, i am generally opposed to illconsidered action for action ’ s sake, and this is no exception. when identifying, monitoring and, where appropriate, later introducing regulation, the primary objective is to contain those lending - related risks that are systemic and therefore relevant to financial stability. future regulation should be strictly based on the degree of risk inherent in the activities of the respective financial corporations. 6. summary the general public may hardly have noticed, but those responsible for regulation have long since become active. for instance, parts of the shadow banking system have been subject to regulation for some time. elsewhere, regulation has been improved since the onset of the crisis. one example is the introduction at eu level of the 5 % retention rule for securitisations. however, it is also already evident that merely illuminating specific areas of the shadow banking system and a one - off regulation drive will not suffice. after all, it is impossible at the current juncture to foresee all financial innovations and evasion strategies which may occur in the future, for instance in response to basel

. now that financial market activity is less profitable and loan provisioning is on the rise, german banks have embarked on deep cost - cutting measures. the cost - income ratio has been falling for months. the german banking sector is in dire straits, this is true, but there is no lurking systemic risk by any means. the case for germany turning into another japan is utterly unconvincing. there is, however, one thing germany - and not only germany - can learn from the japanese example : postponing structural reforms is downright unhelpful. 2. policy mix for sustainable growth - a european perspective what are the foundations for sustainable growth? from my european perspective, i would like to mention the following three foundations for sustainable growth : 1. a macroeconomic policy geared towards stability, 2. a structural policy geared towards growth, and 3. a sound financial sector. 2. 1 macroeconomic policy : stability orientation let me start with my core business as a central banker : price stability. price stability is the best way a central bank can contribute to steady growth. any market economy relies on prices to signal relative scarcity or abundance to market participants. that way, resources are channelled to their most productive uses. a well - functioning price mechanism therefore is a precondition for efficiency and thus for a high standard of living. frequent and large movements in the price level tend to disguise movements in relative prices ; they tend to block information. it becomes more difficult for market participants to tell the difference between overall price rises and changes in relative prices. stability in the general price level is a necessity for a market economy to function properly and for investors to make the right decisions. to sum it up, price level stability is invaluable for growth. a crisp and clear stability orientation of monetary policy therefore is the no 1 foundation for sustainable growth. price stability is a good only central banks can deliver. the maastricht treaty, which established european monetary union, reflects this insight in setting up a framework for the european system of central banks ( escb ) that prioritises price stability as the single most important goal of monetary policy. the eurosystem shall support the overall economic policies of the european union only to the extent that this does not threaten price stability. all eu central banks must be free of – and are free of – political interference. the governing council of the escb has defined price stability as an annual increase in the general price level of 2 % or less.