sabine mauderer : structural changes in financial markets and implications for monetary policy implementation speech by dr sabine mauderer, member of the executive board of the deutsche bundesbank, at the dz bank international capital markets conference, frankfurt am main, 29 august 2019. * * * welcome & introduction ladies and gentlemen, welcome to the bundesbank ’ s regional office. it ’ s a real treat for me to speak to you today. “ when the going gets tough ” – this conference title was wisely chosen by dz bank earlier this year. looking at the latest ructions in financial markets, the going has already got tough. “ navigating the challenges ” is the order of the day, and not just for market participants. the same goes for policymakers – especially when it comes to fiscal policy or monetary policy. as far as central banking is concerned, “ navigating the challenges ” is broad in scope. it includes drawing the right conclusions from financial market signals. the relationship between monetary policy and financial markets is not a one - way street. stock and bond prices reflect expectations on future growth and inflation, but also on monetary policy. these market expectations, in turn, provide valuable information for policymakers. but things have become even more multi - layered. on the one hand we face increasing market complexity and changes. on the other hand we see new players, products and trading patterns. to be honest, keeping tabs on the relevant changes is anything but easy. we have to keep asking ourselves which elements of change have an impact on monetary policy and which do not. so what i am going to do is present some of these changes in the first part of my speech. it would be a bit of a “ long shot ” to always call them “ structural ”, since their longevity is not entirely clear. then i ’ ll use the second part of my remarks to point out what these changes mean for monetary policy implementation. admittedly, i´ll give you rather a rough sketch than a finished painting, so some items might be left unresolved. fortunately, we will have the opportunity to delve a little deeper into some of the issues later on tonight. but for starters, let ’ s take a look at my selection of recent changes in financial markets. a – structural changes in financial markets 1 / 5 bis central bankers'speeches i based my choice of changes on how strongly they impact on market dynamics. the first change is a shift in the relative importance

60431 frankfurt am main, germany, tel : + 49 ( 0 ) 69 9566 3511 or 3512, fax : + 49 ( 0 ) 69 9566 3077 presse @ bundesbank. de, www. bundesbank. de reproduction permitted only if source is stated. 2 ) what happened since the financial crisis? capital flow / default cycles have been around since at least 1800 – if not before. technology has changed, the height of humans has changed, and fashions have changed. yet the ability of governments and investors to delude themselves, giving rise to periodic bouts of euphoria that usually end in tears, seems to have remained a constant. ( kaminsky and rogoff 2008, p. 53 ) 1. is this time different? have policymakers learned from the recent financial crisis? one key insight of the financial crisis has been that supervision needs to go beyond the individual institution and take a system - wide perspective. macroprudential policy aims to mitigate systemic risks, i. e. risks to the financial system as a whole. it builds on microprudential regulations which are concerned with the stability of individual financial institutions. the need for a macroprudential perspective is a lesson learned from the global financial crisis : even though individual financial institutions may seem stable from a microprudential perspective, the financial system may be highly vulnerable to shocks, and it may amplify these shocks. since 2009, the g20 has implemented a wide range of policies which aim at reducing the probability and the effects of future financial crises ( figure 1 ). these fall into four areas : 2 a first set of policies aims at enhancing the resilience of the financial sector with regard to adverse shocks. these policies include higher capital and liquidity requirements for all banks and in particular for systemically important banks. more resilient financial institutions can better withstand negative shocks and are less likely to amplify them. this mitigates negative repercussions on the real economy. one key insight of the financial crisis has been that large, complex, and connected financial institutions can be particularly systemic and “ too big to fail ”. large and systemically important financial institutions are thus required to fulfil additional _ _ _ _ _ _ _ _ _ _ _ _ _ reinhart, carmen m. and kenneth rogoff ( 2018 ), “ this time is different : a panoramic view of eight centuries of financial crisis ”