sabine lautenschlager : is small beautiful? supervision, regulation and the size of banks statement 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 an imf seminar, washington dc, 14 october 2017. * * * the call for greater proportionality in banking regulation and supervision is growing louder – not just in the united states and europe, but also globally. to put it bluntly, proportionality involves applying a different set of rules to banks operating in the same market. careful consideration must therefore be given to the various objectives pursued, and the costs and benefits involved. on the one hand, this means that we need to assess the financial stability risks posed by individual banks and groups of banks. and we need to look at the implications of proportionality for local competition. on the other hand, we have to consider the costs of regulation and supervision. small banks face greater difficulties in complying with complex regulation. this may put them at a disadvantage and therefore reduce diversity in the banking sector. however, a wide diversity of small and medium - sized banks makes the banking sector more stable. thus proportionality may be necessary to foster such diversity. these are the kind of trade - offs we need to talk about. but let me begin by talking about risks, as this is the starting point for regulation and supervision. it can generally be assumed that the failure of a small bank poses a smaller risk to the financial system than the failure of a big bank. so it might make sense to apply a different regulatory and supervisory regime to small individual banks. however, when many small banks with the same business model form mutual liability arrangements via institutional protection schemes, qualified holdings or integrated cooperative structures, they might become systemically relevant – at least at national level. in the event of a failure, all these small banks taken together could pose a big risk to the financial system. this is known as the “ too many to fail ” problem. it deserves particular attention – and probably a response that goes beyond the standard microprudential supervision that we are here to talk about today. as small banks are generally less risky, the costs and benefits of regulation and supervision may not be balanced for small banks in some areas. applying to small banks the same approach that is applied to large banks would not be proportionate, as the costs, in particular of complex prudential rules, would be higher in

changeover with the end of the changeover period on 28 february 2002 the euro became the sole legal tender in all euro area countries with effect from 1 march 2002. both in terms of acceptance by consumers and the achievement of logistical targets, the introduction of the euro banknotes and coins has surpassed all expectations. here and there some minor mishaps have occurred, but this is quite normal for such a huge and complex undertaking. in any case, with the support of european citizens, who have accepted their new money both rapidly and enthusiastically, these minor difficulties have been overcome. european citizens have clearly chosen to be actors and not merely spectators in the euro changeover. according to the latest eurobarometer of the european commission, over 80 % of euro area citizens see the euro changeover as having been successful, and almost 70 % declare themselves happy that the euro has become their new currency. but what were the logistical factors which contributed to the success of the euro cash changeover? first, measures were taken to ensure an early return of national banknotes and coins. one example which i would mention in this context are the campaigns which aimed at encouraging people to pay any surplus banknotes and coins into their bank accounts well before the end of 2001. overall, the number of legacy currency banknotes in circulation fell by almost one - third during the course of 2001. by the end of the cash changeover period, some eur 38 billion – or a little over 10 % of the original amount of legacy currency banknotes – was still in circulation. second, the pre - distribution or " frontloading " of the " critical mass " of euro banknotes and coins made a crucial contribution to ensuring a smooth changeover in all euro area countries. a four - month lead time was required in order to ensure that sufficient euro banknotes and coins were available within banks and other target groups on 1 january 2002. this pre - distribution was a key factor in the successful attainment of one of the primary goals of the changeover process, namely to ensure that the bulk of cash transactions in euro could be effected within a fortnight of the new currency's introduction. all in all, more than 6 billion euro banknotes were distributed by the central banks of the euro area prior to " € - day ". nearly 38 billion euro coins were frontloaded in parallel. to put these figures into perspective, four - fifths of euro banknotes and almost all euro coins were frontloaded during this period. third,