we need to take all facts into account and assess them case by case, and not against a single yardstick. in short, we must be proportionate. imagine a bank breaches capital requirements. then we have to ask how severe that breach is and whether it might just be temporary. if it ’ s just a marginal breach which could be healed within a reasonable period of time, it might not be proportionate to declare the bank “ failing or likely to fail ”. we also need to take into account that a bank depends on the markets. so how do they react? a bank in trouble might quickly lose the trust of the markets. this could lead to a bank run, which requires supervisors to act differently. 4 / 9 bis central bankers'speeches so, to sum up : “ failing or likely to fail ” decisions are not taken automatically but are based on expert judgement. at the same time, they have to be taken case by case and in a proportionate manner. all in all, they are the most difficult decisions a supervisor has to take. and i can assure you that we do not take them lightly. how to resolve a bank imagine that we have declared a bank failing or likely to fail. what happens next? well, at that point the resolution authority takes over. in europe, this is the single resolution board, or srb for short. the srb then has to answer two basic questions. first : are there any measures, private or otherwise, that could restore the viability of the bank? if the answer to this question is “ no ”, the second question is : should the bank be resolved or liquidated? and the answer to this question depends on a number of things. the objective should always be to ensure that the financial system is not disrupted. if the bank performs critical functions, these need to be continued one way or another. in addition, measures need to be taken to prevent the bank from “ infecting ” other banks or the markets in general. and finally, public funds and the bank ’ s insured depositors, for instance, need to be protected. so, it is crucial to conduct what we call a “ public interest test ”. if all these goals can be met by liquidating the bank, then that ’ s what will happen under national insolvency law. and this is something of a weak spot, because these laws still differ significantly across the euro area. a minimum level of harmonisation is thus called

sabine lautenschlager : the banks and the market speech by ms sabine lautenschlager, member of the executive board of the european central bank and vice - chair of the supervisory board of the european central bank, at a lecture at the florence school of banking and finance, florence, 15 march 2018. * * * almost ten years ago to the day, the world of finance was shaken by a strong tremor. on 16 march 2008, jp morgan offered to buy the investment bank bear stearns. and it was time. bear stearns was in deep trouble : its share price had fallen by two - thirds since the beginning of that year ; it was bleeding money ; and it was basically shut out of the funding market. at the time, the failure of bear sterns was considered a major event. no one knew that the big quake was still to come. it happened half a year later, on 15 september 2008, when another investment bank failed : lehman brothers. it pushed the financial system close to the abyss. trust evaporated, markets dried up, and around the globe, banks were sent reeling. all in all, it was the biggest financial crisis in decades. it dragged down the real economy, which fell into what we now call the great recession. in the euro area, economic output went down by almost 4. 5 % in 2009, while unemployment jumped by more than a quarter to 9. 6 %. three years later, it reached 12 %. in italy, for instance, output fell by more than 5 % in 2009, while unemployment peaked at almost 13 % in 2014. these figures are alarming, but they tell us little about the people who lost their jobs, their homes and their future. taking all this suffering into account, the crisis turned into a tragedy. as for its causes, i admit that the story i ’ ve just told is far too simple. of course, it was not the failure of a single investment bank that caused all this mayhem. the full story is much longer and much more complex. however, no one can deny that banks played a crucial role. it became obvious that they can pose a huge risk to financial stability and the economy. but at the same it ’ s an inescapable truth that we need banks. or, to be more precise, we need the services they provide. why we need banks who does an investor turn to when she needs money to start or expand a business, when she needs to