buffers. as from 2019, global systemically important banks will have to maintain sufficient total loss - absorbing capacity, or tlac, in the form of debt and equity capital, which can be tapped in a resolution or recovery event. all these measures are designed to reduce the likelihood of larger institutions running into difficulties and to facilitate the recovery or resolution of a failing institution without the need for taxpayer support. but smaller institutions, too, can be a source of risk if they are too interconnected and exposed to similar risks. the countercyclical capital buffer ( ccb ) will be added to the macroprudential toolkit in january 2016 in an effort to combat procyclical risk. banks will be forced to step up their provisioning in times of excessive credit growth, thus bringing capital adequacy levels across the entire banking system into line with economic activity. in the current situation, however, there is no need to ask institutions to set aside more capital because there are no signs of excessively rapid lending growth. financial crises are often triggered by excesses in real estate markets. up to now, germany has not had any macroprudential instruments which directly address the lending relationship between the creditor and the borrower. this deficit prompted the german financial stability committee, in june 2015, to recommend the federal government to create legal foundations for a set of new macroprudential instruments regulating housing loans. these instruments include a cap on the credit volume relative to the property value ( loan - to - value, or ltv, ratio ) and a cap on the borrower ’ s debt servicing capacity relative to their income ( debt - service - toincome, or dsti, ratio ). our work on these instruments does not necessarily mean that they will be activated in the near future. we do, however, need to be capable of nipping any unwelcome developments in the bud. 7. the european capital markets union before i bring my remarks to a close, i would like to take a look beyond the realm of banking regulation. the banking union was without doubt a huge step forward in curbing risk and making it more manageable. but in a monetary union, financial stability hinges on other factors as well – the functioning of the european capital markets and the way in which they facilitate the distribution of risk. bis central bankers ’ speeches at the current juncture, cross - border capital flows in europe are largely made up of debt capital – bank loans

entire financial system? are individual market participants very large – that is to say, too big to fail – or too closely interlinked with other market actors, meaning they are too connected to fail. second, can many smaller market participants collectively engender systemic risk given that they are exposed to similar risks – are they too many to fail? for instance, a sharp hike in interest rates could weigh on multiple credit institutions at the same time. the objective of macroprudential oversight and regulation is to identify and contain such risks and misguided incentives. this can only be achieved by ensuring sufficient resilience in the financial system as a whole. bis central bankers ’ speeches 2. key statements of the financial stability review 2015 against this backdrop, allow me to summarise the current situation in the german financial sector by outlining the key statements made in our report. 1. low interest rates pose risks to financial stability as they squeeze banks ’ and insurers ’ earnings. institutions could then assume greater risks without having sufficient capital buffers to be able to cushion the impact of these risks. 2. dangers are also associated with an abrupt sharp hike in interest rates. banks that, for instance, had granted long - term, low - yielding loans would then have higher funding costs. 3. the business volume in germany ’ s shadow banking sector has grown. we see no evidence of heightened risks at this time, however. 4. macroprudential instruments are gradually being put in place. these instruments are intended to curb scale effects and procyclical effects. instruments that can be employed to mitigate risks arising from mortgage lending are under development. 5. the european capital markets union will be an important complement to the banking union. better developed and integrated equity markets, in particular, could play a role in improving the way in which risks are shared. 3. low interest rates and financial stability the current low interest rates are a global phenomenon. they reflect the low real economic growth and expansionary monetary policy stance observed around the world. consequently, attention is currently focused on monetary policy decisions and their impact on interest rates. however, an expansionary monetary policy can also cause significant risks to financial stability to build up. empirical studies have shown that monetary policy has an impact on the price of shares, bonds and real estate. the longer interest rates stay low, the more incentive market participants have to take greater risks. however, it can end up being a problem if misguided incentives cause risk