will apply, as the uk will be a third country. with regard to banking, the relevant eu regulations and directives will necessitate a licence from an eu supervisor. therefore, banks are well able to prepare for this scenario and so make the worst case manageable. the necessary preparations certainly mean costs and a heavy administrative burden for banks, and they are complex and time - consuming. yet, despite these costs, it would be irresponsible to speculate on one particular outcome of the talks – such as a possible transition period – and adopt a wait - and - see strategy based on that educated guess. 3 / 4 bis central bankers'speeches let me be crystal - clear. preparations should already be well underway ; if not, they must start now! banks must establish at least basic entities in the eu – and, vice versa, in the uk – before it ’ s too late. in many cases, that means applying for new licences and a great deal of paperwork. while i am concerned about the state of preparations at some banks, i am at least as worried about the current position at other firms. for them, the pressure to prepare for the worst – and to do so now – may be even greater. as i said, the “ no - deal ” scenario represents an event with clear terms – with no hidden surprises – but, of course, there will be no surprises only if a company thinks this scenario through and asks itself : how would it affect us, our customer relations, our product offerings, our supply chains, and in terms of regulatory approval, and so on? think of it as a brexit stress test. if – and only if – you prepare meticulously, you won ’ t be caught out by the “ no deal ” scenario. so, the motto must be : hope for the best, but prepare for the worst. the potential repercussions of inaction are huge. firms have to act now! 5 friends after the break - up? terms of future cooperation supervisors are playing their part to support preparations. we are taking a strict, yet at the same time pragmatic approach. what do i mean by that? our aim is to make the transition as smooth as possible. we are providing a clear point of contact for banks, explaining our supervisory approach and offering guidance with the licensing. here is one example : when eu supervisors examine a bank ’ s internal model used to calculate regulatory capital requirements, they could proceed –

. in addition, rating agencies have issued warnings, with germany no longer being left out. the timing of some of these announcements is certainly debatable – and, in my opinion, bis central bankers ’ speeches often questionable. however, this should not divert our attention from the responsibilities of fiscal policymakers. introducing, through regulatory measures, special rules for developing sovereign bond ratings does not seem a particularly appropriate solution, at any rate. instead, we should reduce references to ratings in regulations wherever possible. i should also mention that significant progress has already been made in the area of financial market regulation, too. given the fact that regulatory flaws were among the main causes of the financial crisis, this was, in my opinion, of paramount importance. the reform of the capital framework, which will improve the quantity and quality of banks ’ capital and thus their capacity to absorb losses, is certainly a particularly welcome development. increasing the amount of losses the banks ’ investors are able, and required, to bear, reduces the danger of taxpayers once again having to foot the bill. the phenomenon of systemically important banks, meanwhile, shows that basel iii is by no means the end of the road. the internationally agreed rules for dealing with the “ too - big - to - fail ” issue now have to be rapidly implemented at national level in an internationally consistent manner. the complex oversight and, if necessary, regulatory treatment of the shadow banking system remain atop the reform agenda. although the current zero weighting of government bonds likewise sets the wrong incentives, it should only be adjusted going forward, predicated on precise studies. looking at the financial markets and their regulation, however, i would like to mention one more thing. the sovereign debt crisis is shining a new light on a commonly held assumption, namely, that crises are caused by unfettered markets and can be avoided only by giving the state more space. however, the sovereign debt crisis has shown quite clearly that even states are fallible. of course, the crisis has opened our eyes to the blind faith in the market that has sometimes prevailed ; however, statism and dirigisme are by no means the right path to take. instead, we should return to a founding tenet of the social market economy : individual responsibility. those who take risks must also face the consequences. reviving attaching more importance to this principle this would represent major progress – including with respect to the sovereign debt crisis. conclusion ladies and gentlemen, i have touched upon various aspects which i think