if the pfandbrief today can boast of a reputation of reliability, it is to a great part because it rests on a solid german state and a sound economy. and it has been resting there for quite some time now. originally, the german pfandbrief was introduced over 200 years ago by the prussian king frederick ii. frederick ’ s intention was to ease a credit crunch after the seven years ’ war, and with the pfandbrief he created a financial product of extremely long standing. after more than 200 years of trading experience on the german bond market, the pfandbrief has gained the trust of investors and a reputation as a secure and crisis - proof investment. in 2012, the size of the pfandbrief market was some euro525 billion, which amounts to almost 19 % of outstanding global covered bonds. the trust in the pfandbrief also stems from the fact that since 1901, no german pfandbrief bank has had to declare bankruptcy. but as frederick ii remarked : “ what is the good of experience if you do not reflect on it? ” more than 100 years without a single default is certainly an impressive feat. however, we have to reflect on the question of how to continue this accomplishment in the future. bis central bankers ’ speeches we have to acknowledge that during the crisis some pfandbrief banks encountered difficulties. hypo real estate, for instance, had to be saved with public money. and in the first half of 2009, the pfandbrief market as a whole was affected to a certain degree when the broader covered bond market experienced significant stress. the intervention of the eurosystem in the covered bond market certainly helped to ease that stress. in the wake of the financial crisis, though, many sovereigns and banks lost their top ratings. the consequence was widespread downgrades, also in the covered bond market. many pfandbriefe were affected and lost their aaa - rating. nonetheless, their spreads versus riskfree securities did not significantly change, displaying unbroken investor interest and trust. meanwhile banks have adjusted to the changing conditions. regarding mortgage pfandbriefe cover pools, for instance, overcollateralisation more than doubled. in 2007, assets in these cover pools on average had a value of 116 % of issued pfandbriefe. in the third quarter of 2013, the value of cover pools rose to 133 %. indeed, over

large enterprises that have benefited so far from the freedom of the enlarged markets when taking up funds. even so, competition is well under way. issuers are compelled to gear their issuing policy more closely to the requirements of international investors. banks and european stock exchanges and financial centres are also feeling the higher wind speed of competition in the euro area. the euro zone has accelerated the change engendered by the advance of globalisation ; in a sense, european financial markets are undergoing a dual process of radical change. many enterprises are finding that the larger and more liquid euro capital market offers more favourable financing conditions than traditional financing via a bank loan. therefore, powerful borrowers are reconsidering their method of refinancing and are more and more taking the direct route to the capital market and the financial service providers operating there. the disintermediation of the banks in the wholesale market is increasing. securitisation is intensifying competition among the banks and is having a crucial impact on the structure of the banking system. competition among financial centres has become harder as well. in securities business, the costs and the transparency of the trading platforms as well as the efficiency of the settlement systems have become increasingly important in choosing which financial centre to use. thus, competition among financial centres is increasingly also becoming a competition among systems. now that the triumphant progress of computerisation has become unstoppable, the race for the establishment of electronic trading systems has become more heated. fiercer competition, in terms of both products and costs, has necessitated concentration and cooperation. the splitting up of the trading platforms for the spot and futures markets into individual markets and the fragmentation of settlement systems with inefficient and cost - ineffective settlement procedures, especially those for cross - border securities trading, are no longer suited to the age of the single currency. 3. addressing the issue of the global perspectives of the european financial markets, in general, and the pfandbrief market, in particular, requires a brief review of the developments in the european financial markets since 1 january 1999. in the money market, the changeover to the euro and to the single monetary policy has taken place rapidly and smoothly. the development of a single european money market made such progress during the first nine months of monetary union that it can now be described as integrated and liquid. this is a crucial factor both for the ecb ’ s monetary policy, which is geared to the stability of the euro, and for the development of