, including the united states and japan, to do likewise. we all need to focus our energy on the comprehensive and consistent implementation of the basel rules and on their rigorous application. only then will we avoid regulatory conflict and arbitrage, and be able to provide a reliable framework for international banks. please note two important qualifications here. the first qualification is that basel standards are minimum standards. therefore, countries can 1 / 4 bis central bankers'speeches decide to set stricter requirements if they like. switzerland, for instance, has a higher leverage ratio. and as many of you know, the uk has ring - fencing rules in place that separate the vital basic functions of a bank from the riskier ones. even though this policy is not of the basel committee ’ s making, the uk is of course free to apply this add - on to the basel rules in its jurisdiction. the second qualification is that basel standards are intended for, and tailored to, large, complex, and internationally active financial institutions. as a result, the rules themselves have become large and extremely complex, and basel iii is certainly no exception here. appropriate as they are for the global players, the rules tend to overburden small institutions. the main problem is the compliance workload – that is, the work involved in meeting the requirements and demonstrating that they ’ ve been met. therefore, the rules could act as an additional handicap for small banks that are already under pressure from many sides. take the rapid digitalisation of banking, for example, or the lowinterest - rate environment. in this regard, the smaller financial institutions in europe are facing much the same challenges as those in japan. one reaction that we are seeing in the european banking sector is continued consolidation. as supervisors, it can ’ t be in our interest to overburden smaller institutions with rules that were designed for their larger peers. this would effectively give an advantage to larger financial institutions and intensify the pressure to consolidate. this is why jurisdictions are free to apply a different set of rules to smaller banks which operate solely within their national market and pose no threat to international financial stability. most countries already have less restrictive rules for smaller banks in order to ease the operational burden on them. and i am a strong proponent of extending this proportionality further. in europe, we are currently busy fine - tuning our regulatory framework by providing some additional relief for small, low - risk institutions. importantly, capital requirements will remain untouched. but we are aiming to reduce

##desbank is one of the institutions that have been arguing against implementing edis prematurely. and that ’ s not because we reject this proposal outright. the bundesbank ’ s position is not about blocking edis indefinitely. it is about sequencing the steps in the right order in order to reach the best possible solution. and there are a number of issues which need to be addressed first. a european deposit insurance system would entail a mutualisation of liability. so before some form of european deposit insurance is introduced, we need to ensure that it is done on the basis of both more equal and significantly lower risk levels in all the countries involved. four initiatives are needed to reduce the threats that the balance sheets of too many euro area banks still pose : first, we need improvements to the single resolution mechanism and an increase in bailinable capital. second, we need institutional improvements concerning national insolvency regimes. third, we need a reduction in non - performing loans on bank balance sheets. fourth, we need adequate regulatory treatment of sovereign exposures. all four points on this list are important, but i would like to focus on the last two today : nonperforming loans, or npls, and sovereign exposures. let ’ s start with npls. although volumes have declined overall in recent years, high npl levels are still a matter of major concern in some eu member states. on the bright side, the average ratio of npls on european banks ’ balance sheets is about one - third down on the 2014 figure. however, there are two caveats. first, we are coming from the very high levels in the years after the financial crisis. when we compare the current ratio with the lower pre - crisis levels, there is still a long way to go. what is more, the coverage ratio of non - performing loans at european banks has not improved significantly over the last three years. second, the reduction in risk we have seen so far is, to a large extent, attributable only to certain countries. for example, banks in ireland and spain have already made noticeable inroads into their high stocks of npls. in other countries, we are still looking at largely unchanged and stubbornly high ratios. in about a third of all eu countries, average npl ratios are still in the double digits. to appreciate what this means, it is instructive to compare european npl ratios with those in the us or japan. here, the npl ratio