evolution of assets in the loan book is, however, quite different. here, the well - established stylised fact is that write - downs lag the real economy ’ s cycle this also holds in the current situation. loan losses will be a drag on banks ’ earnings going forward. using the information from a time series as well as a cross - section dimension for the whole german banking system, we conclude that further write - downs of between €50 billion and €75 billion are to be expected. it goes without saying that, particularly at this juncture, these estimates ( see charts 5 and 6 ) are subject to significant uncertainty. statistical relations are likely to be less robust than they have typically been in the past. we should add that our assumption for economic growth is significantly less benign than the current consensus. therefore, if the economic recovery accelerates, as assumed in recent forecasts, banks ’ revaluation requirements would be correspondingly lower. needless to add, the projected potential write - downs will not automatically translate into additional capital requirements. current income as well as loan - loss provisions can obviously also be used to cover potential losses. nevertheless, banks would be well advised to steel themselves against possible negative developments. they have won time to tackle their accumulated problems and prepare for future contingencies. they should use the capacity to adjust that has been created, first and foremost, to bolster their risk provisioning, shore up their capital and enhance their cost efficiency. currently, the low level of lending largely reflects german enterprises ’ weak demand for credit, hence access to credit is currently not impaired by capital scarcity. but looking ahead, fatter capital cushions would strengthen banks ’ capacity to cater to the rising corporate borrowing demand which typically accompanies an upswing. at the same time, the pricing of this credit supply should be commensurate with the underlying risks. iii macroprudential approach – a new focus for supervisors and regulators after having successfully stabilised the financial system, governments, central banks and prudential supervisory authorities around the world now face the challenge of drawing the appropriate conclusions to prevent a crisis of such a magnitude from recurring. by its nature, financial stability is a public good. it cannot therefore be ensured solely on a private basis. there is a significant difference between private and social rationality. actions that are reasonable from an individual perspective may generate unintended externalities which produce adverse implications for systemic stability. consequently, financial stability cannot be expected to arise

vulnerable, however, to setbacks in the recovery of the real economy. the upturn is still far from being self - sustaining. the coming year will show how far fading public - sector stimuli can be replaced by endogenous private sector activity – in germany ’ s case, this is typically generated by the interplay between net exports, capital expenditure and household consumption. it is still open to doubt, however, whether such a stylised or typical upswing will actually materialise this time round. hence, it would be premature to regard the financial crisis, and the economic crisis directly linked to it, as having already run their course. clearly, a protracted period of stagnation in the major economies would pose a substantial risk to financial stability. the detrimental, self - reinforcing feedback loop between an unprecedented and globally synchronous reduction in the level of real economic activity and an essentially dysfunctional financial system, which has been unravelling since the summer of this year, might then tighten again. it follows from this that exiting the broad - based stabilisation policies should be predicated on and calibrated to a sustained improvement in the underlying market conditions as well as in financial sector resilience. at the same time, it is important to bear in mind the implications which the highly unorthodox measures taken to support and stimulate the economy inevitably entail. they inherently carry considerable risks over the medium and long term. a prime example of such risks is ballooning government debt in many industrial countries. in addition to already acknowledged, explicit public debt, the bank rescue packages obviously impose an additional, implicit potential burden on the public sector. transparent and credible strategies are therefore crucial for unwinding and managing the fiscal – and, of course, monetary – policy support measures. should the policy - making process lose its credibility, this would be reflected in rising risk premiums and interest rates. higher interest rates, in turn, would tend to depress capital expenditure and, therefore, potential growth. in addition, they would further hamper the already onerous task of consolidating public finances, which is vital to ensure sustainable debt containment. it is therefore crucial to keep market participants ’ expectations of a stability - focused monetary policy as well as a sound fiscal policy firmly anchored. ii ongoing challenges the government and other public support measures have bought the financial system time to cope with losses and to prepare for potential financial strains lurking on the horizon. moreover, public - sector