consequence, i fail to see the reason why the financing of states should not mainly be a matter for the capital markets. and i very much welcome the international community ’ s efforts to tackle this topic : this summer, the g7 finance ministers and central bank governors identified the regulatory treatment of sovereign debt as a major topic to work on. also, the basel committee on banking supervision has been working on sovereign debt for almost a year now. i believe the following points to be crucial and i hope they will be addressed by the committee next year. 6 european systemic risk board ( 2015 ) : esrb report on the treatment of sovereign exposures. march 2015. dombret, andreas ( 2015 ) : regulatory reform in europe – mission accomplished? speech at the iib annual conference, march 2, 2015, washington, d. c. bis central bankers ’ speeches • first, as i argued before, the large exposures regime should also apply to sovereign debts. • second, the zero - weighting of sovereign exposures should be replaced by risk adequate weights and capital requirements. the calibration needs to be careful, and an appropriate phasing - in needs to be implemented. • third, and i find this equally important, regulation of sovereign exposures must be consistent for all credit institutions. if we succeed in establishing a regulation consisting of these three points, i see four main benefits. first, if sovereign bonds needed risk adequate capital requirements, banks would have to take greater account of differences in the risk profiles of states. second, countries that burden their budget in an unsustainable manner would have to pay risk premiums – this is the so - called disciplinary force of financial markets. third, a large exposure regime applied to sovereign bonds would prevent banks from being overexposed to a single borrower. related to that, the fourth last benefit, and this is of high importance to me as a banking supervisor – a sovereign debt restructuring would not any longer harm the whole financial system of a nation state and beyond. the regulation of sovereign debt is one topic we must centre our attention on in the nearest future. i am cautiously optimistic that we will come to a transatlantic solution in the basel committee. in this context, i cannot say often enough that each regulatory project – be it basel iii or now the regulation of sovereign exposures – very much calls for international cooperation. if we do not coordinate our approaches towards regulation, we will create a fragmented financial system with vast opportunities for regulatory arbit

the leverage ratio, and there are also two new liquidity ratios, capital buffers, loss - absorbing capital and individual capital add - ons under the supervisory review and evaluation process ( srep ). these are worthwhile additions from a supervisory vantage point because they give us a tailormade toolkit to control the various risks which can cause a bank to fail. but for credit institutions, the new system means that their management systems now have to take into account not just one metric, but several of them. so a decision whether or not to grant a loan no longer depends solely on the return and the efficient allocation of equity, but also, for 3 / 4 bis central bankers'speeches instance, on the impact on the balance sheet structure, which is regulated by the net stable funding ratio ( nsfr ). the toughest challenge probably lies in coping with the interplay between the various minimum standards and the need to simultaneously adhere to minimum capital requirements, the leverage ratio, requirements for an institution ’ s liquidity and balance sheet structure as well as varying point - in - time and institution - specific criteria – on this magnitude, this is uncharted territory. what all this means is that the optimisation problem suddenly becomes much more complicated, raising the question as to whether compliance can be achieved by means of a simple equation. or does a more multifaceted approach need to be adopted? it is precisely this complexity which makes a smart approach to integrated risk management so crucial. there is the question, of course, of the levels which this integrated management approach ought to address. can different metrics be broken down to individual business activities? or does it make more sense to look at the bank as a whole or at portfolio level in order to identify risk drivers and render management measures more transparent? all this is forcing institutions to rethink both their operational and strategic set - ups. one aspect, i believe, is particularly crucial. institutions should not and cannot steer their business solely on the basis of compliance with the regulatory minimum requirements. even if i do have to concede that the rules which supervisors including myself have created naturally curtail the scope of management action. but there is nonetheless still a great deal of entrepreneurial scope which institutions can capitalise on – by running smart business models, by adopting innovative strategies, and by smoothly putting them into operation. business models that operate solely on the basis of satisfying the regulatory minimum requirements cannot be successful over the long run. adhering to the minimum requirements