jens weidmann : stable banks for a stable europe speech by dr jens weidmann, president of the deutsche bundesbank, at the 20th german banking congress, berlin, 7 april 2014. * 1. * * welcome mr fitschen, ladies and gentlemen i am honoured to have been asked to speak to you this evening at the 20th german banking congress. the film we have just seen illustrates that german banking congresses, or bankers ’ congresses as they used to be called, have always mirrored our country ’ s colourful history. i would like to take the opportunity today to talk about the importance of stable and healthy banks for a stable currency union. 2. dissecting the financial crisis do you remember the agatha christie film “ murder on the orient express ”? the us businessman mr ratchett is murdered on the train from istanbul to calais. detective hercule poirot, who happens to be on the same train and is asked to investigate by the director of the train company, a fellow traveller, discovers that the murder victim has twelve stab wounds and is, in reality, the criminal cassetti. after questioning the witnesses, he ascertains that a number of passengers had a motive to murder cassetti. he therefore comes to the conclusion that there is not one culprit for cassetti ’ s murder, but twelve. i am telling you this because the chief economist of the bis, claudio borio, recently said that the search for the culprit for the financial crisis brought to mind the search for the culprit in “ murder on the orient express ”. as with cassetti ’ s brutal murder, for which there is no one culprit, there is no monocausal explanation for the financial crisis. in fact, the contrary is true : an analysis of the root causes of the global financial crisis, as well as the european debt crisis, shows that many are to blame, or should we say responsible. i believe that no one here in this room will deny that there were serious aberrations in the banking sector, which contributed to the crisis. however, central banks and the regulatory authorities also made mistakes. although the central banks successfully combatted inflation, they provided incentives for risky investor behaviour. regulatory authorities underestimated the resulting dangers, as did the financial markets, where risk premiums were long at extraordinarily low levels. politicians trusted in the efficiency of the financial markets and pursued a policy of market liberalisation and deregulation

2016 – an adequate timeframe, in my opinion, for mobilising these funds. it would also be right, in my view, to use the option granted by the srm regulation of also counting amounts which banks have already paid into national resolution funds towards their contributions. a european deposit guarantee scheme is not being regarded as a matter of priority at the moment, and rightly so. after all, a joint deposit guarantee scheme would necessarily mean joint liability. but joint european liability would necessitate joint european control, which would require more than the creation of a single supervisory mechanism. 6. 2 single supervisory mechanism the ecb is aiming to be ready to launch the single supervisory mechanism ( ssm ) on 4 november. this will require a mammoth effort by all the parties involved. it is a project that is comparable to the creation of monetary union, but is to be rolled out at seven times the speed. at the current juncture, the ecb together with the national supervisors is comprehensively assessing the balance sheets of 128 banks which, as things stand today, are candidates for direct ecb supervision. if the asset quality review and the subsequent stress test reveal that banks need to be recapitalised, the need for capital will have occurred on the watch of the national supervisors – so you could say it is a legacy issue. it is therefore down to the member states in question to repair these legacy issues before responsibility shifts to the ecb. private funds should be first in line to address any capital shortfalls. failing that, it should be up to the member state to recapitalise the bank in question, assuming the latter runs a viable business model. this asset quality review is a major undertaking for supervisors and the banks in question. yet at the same time, it is crucial for ensuring that the single supervisory mechanism gets off to a credible start in its mission to restore confidence in banks and revitalise lending in the euro area. hence the strict and demanding standards set by the asset quality review and the subsequent stress test. the assessment represents a huge administrative burden for the banks, so their misgivings are understandable. but if you are looking to paint a complete picture, there ’ s simply no getting round a thorough assessment. the procedure is even being likened to a full physical examination for banks. before a football club signs a new player, it first subjects him to a thorough medical – and that is more than just a quick once - over. of course there are some