andreas dombret : systemic risk, too big to fail and resolution regimes speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the salzburg global seminar “ out of the shadows : should non - banking financial institutions be regulated? ”, salzburg, 19 august 2013. * * * introduction good afternoon, ladies and gentlemen it ’ s a great pleasure to take part in this salzburg global seminar. many thanks for inviting me back. over the next twenty minutes, i would like to share my views on how to deal with systemic risk and moral hazard. while concepts have been developed to initiate regulatory reforms, it troubles me tremendously to have to state that the “ too - big - to - fail ” problem still remains unresolved. market participants continue to anticipate that governments will rescue systemically important financial institutions – or sifis – in the event of their failure. the resulting refinancing advantage is reflected in so - called rating “ uplifts ”. rating agencies usually calculate two different ratings for banks. one is a “ stand - alone ” rating that measures a bank ’ s genuine creditworthiness. the other is the “ all - in ” rating which includes the likelihood and extent of external support available for the bank ’ s debt. the difference between these two ratings is the “ uplift ”. it delivers a proxy for funding subsidies, which are benefiting sifis. although these uplift factors have recently shrunk to some degree, they unfortunately remain substantial. 1 this could be taken as an indicator supporting my claim that the “ too - big - to - fail ” problem remains unresolved. however, in this regard we need to achieve two objectives at the same time. first, taxpayers should not have to foot the bill for bank failures and, second, systemic disruptions must be avoided. the experiences following the lehman collapse five years ago show how important financial stability is – and how fragile. so, what can we do about the “ too - big - to - fail ” problem? solving the “ too - big - to - fail ” problem 2. 1 how to make bank failures less likely i am convinced that overcoming the “ too - big - to - fail ” problem will require a multi - track approach. the main goal is to make sifis less likely to fail by increasing their loss - absorbing capacity. basel iii represents a landmark change in this respect. these rules are much more rigorous

is now very low. the labour market is tight. unemployment has not been as low since the second half of the 1980s, and employment has risen sharply this year. wage - earners and enterprises have both fared well. cheap imported goods have resulted in a subdued rise in consumer prices and a substantial increase in wage - earners ’ real wages. high export prices have restrained the rise in real labour costs. combined with high productivity growth, this has resulted in high corporate earnings and solid growth in employment. at the same time, wage - earners share of corporate value added has been reduced, from around 75 per cent at the end of the 1980s to 70 per cent at the end of the 1990s, and now stands at below 65 per cent. solid productivity growth and high prices for export goods and deliveries to the petroleum sector have contributed to the reduction in the wage share over the past few years. the ample supply of labour has probably had a dampening effect on wage growth. increased globalisation may have provided greater opportunities for norwegian enterprises to relocate production to other countries if labour costs become too high. this probably places some restraint on wage demands among workers in sectors where enterprises have such opportunities. historically, a high wage share has tended to be accompanied by low unemployment. developments in recent years have provided the basis for strong growth in employment while the wage share has fallen. is it possible to sustain the combination of low unemployment and a low wage share? first, it partly depends on whether the positive supply - side conditions are sustained. there is probably symmetry here. should the terms of trade deteriorate, productivity growth slacken and foreign workers return to their home country, the wage share will increase, profits fall and unemployment increase. there is now a prospect of slower global growth. there are also signs that the strong growth in productivity that has been evident in other countries – for example in the us – is moderating somewhat. and we may see a similar trend in norway. second, even without a reversal, profits may fall and unemployment rise. the implications of this will depend on how far businesses, in their search for qualified labour, will go in bidding up wages. it will also depend on how wage - earners react and on their ability to adapt to change. furthermore, it must be expected that the strong krone will shave profits in some enterprises and industries at the moment, even though many have used currency hedging to safeguard their income. even though demand for labour is strong, there is