the major question in this context is about the optimal level of capital banks need to hold. so what is a sufficient capital basis for banks in the long run? i would like to see that from a functional perspective : a bank is sufficiently capitalized, when – even after a major external shock has materialized – the bank is still able to refinance itself on the market at reasonable spreads. banks on their own define what reasonable spreads are from their perspective as spreads differ depending on size, business model and region. hence, investors that fund european banks rather than regulators or supervisors define the longterm optimal level of capitalization. this means also that there is an upper limit for bank capitalization. above a certain level you will not find anybody to invest in bank shares. similar and connected to the issue of optimal capital level is the introduction of mrel ( the minimum requirement for own funds and eligible liabilities ) and therefore the question on how much mrel is needed? the mrel requirement is designed to ensure a ‘ bail - in ’ of shareholders and creditors in the case of a failing bank. it safeguards that a bank has sufficient shares and debt instruments issued to absorb losses or to convert into new shares to recapitalize systemic functions. in particular, it is questionable how capital buffers are linked to the amount of mrel needed. in my opinion, it strongly depends on the bank ‘ s individual resolution strategy. if a bank is not recapitalized in a resolution it does not need to mirror its capital buffers in the mrel amount. moreover, if a bank in resolution is fully or close to 100 % recapitalized it will also not need to include its capital buffers fully in the mrel amount as capital buffers shall absorb losses in times of stressed periods. however, the right balance of mrel has to be found to ensure that the recapitalized institute has sufficient capital to access funding markets. let me come to another often quoted assumption in the context of financial regulation : higher capital requirements restrict bank credit supply. what do we observe? higher capital requirements cause deleveraging but without hampering credit to private sector7 : capital has contributed the lion ’ s share to the leverage reduction in the euro area ( 88 % ) and austria ( 73 % ) between oct. 2008 and feb. 2014. contrary to popular opinion, bank funding for the real economy and for governments has increased even after the crisis, despite substantial deleveraging both in

the euro area and in austria. hahn, f. r., holzl, w., kwapil, c. ( 2016 ) : the credit channel and the role of monetary policy before, during and after the global financial crisis – a micro data approach to the analysis of bank - firm relationships. wifo. eidenberger j., schmitz s. w., steiner, k. ( 2014 ) : the priorities of deleveraging in the euro area and austria and its implications for cesee. oenb financial stability report 27. july 2014. https : / / www. oenb. at / publikationen / finanzmarkt / finanzmarktstabilitaetsbericht. html seite 4 von 5 the decrease in total assets was driven by reductions in interbank assets and external assets, while funding for governments and for the real economy have increased since the outbreak of the crisis. these results go in line with an important point the oecd always makes : capital levels have increased since the crises without leading to a credit crunch. let me comment on this from a financial stability perspective. this deleveraging development is to be welcomed, as reduced leverage decreases both the potential for risks and the degree of financial interconnectedness and thus mitigates systemic risks and strengthens financial stability. hence, deleveraging takes place without constraining private sector loans. this empirical evidence is also supported by a topical eba survey, the eba risk assessment questionnaire 2016. and i quote : “ results from the risk assessment questionnaire confirm that banks plan to continue moving towards their predominantly traditional lending role in the financial sector. ” 8 further you can take out of this survey that banks will endeavor to increase lending volumes to the corporate sector, in particular smes, and to households, including both residential mortgage and consumer credit loans. the strategic goal of european banks is the further increase of corporate and household loans. to sum up, monetary policy and financial stability are complementary. a better understanding of how banks work and how they are steered ( namely via dynamic balance sheet optimization ) helps not only to implement effective micro - and macroprudential regulation but also better targeted monetary policy. banks and their environment have dramatically changed over the last years. banks are not the same as before the crisis. hence, it is essential that models and analytical tools are frequently adapted to fit the current environment. and the conclusions regarding one of