the government bonds held by euro - area banks are issued by just one sovereign – their domestic government. for example, in december 2014, 98 % of the loans from greek banks to euro - area sovereign debtors were granted to the greek government. is it clear that in cases where the ties are so close, doubts concerning government solvency have a direct negative impact on the banking system. it is in this particular context that we have devoted the first main article of this year ’ s annual report to the topic of the sovereign - bank nexus. in particular, the article examines what would happen if sovereign loans were backed with capital, on the one hand, and if large exposures were subject to limits, on the other. because of the potentially significant consequences, especially of the application of the large exposure limit, any reforms would require a certain transitional period. however, the macroeconomic effects of such new rules would no doubt be positive. financial stability would be enhanced, incentives to pursue this type of fiscal policy would be increased and lending to private borrowers would become more attractive which, in turn, might boost capital stock and economies ’ growth potential. it would therefore be important not to lose any time. this article should be seen as a contribution to this debate. against this backdrop, it is a welcome development that the basel committee has now added the regulatory treatment of lending to sovereigns to its agenda. furthermore, the european systemic risk board published its report on this topic just the day before yesterday. in the foreword to the report, mario draghi quite rightly said that a discussion on the topic was long overdue. if it is not possible to reach a consensus at the international level on eliminating the privileged treatment of loans to sovereigns, we should push ahead with a european solution in order to make this important contribution to the long - term stability of the euro area. as well as focusing on major issues relating to a stability - oriented regulatory framework, the bundesbank also takes a look at the bigger picture, including, for example, the topic of payment transactions. the second main article in this year ’ s annual report therefore examines digital structural change in payment services. bis central bankers ’ speeches 8. bundesbank profit and risk provisions ladies and gentlemen, finally i would like to come now to our annual accounts and hence also to this year ’ s bundesbank profit. the profit and loss account for the 2014 financial year closed with an annual surplus of €2. 95 billion. the annual surplus

covered some of the facts about hft in foreign exchange, i will conclude by summarising the lessons and issues that the report highlights : on market functioning : hft has had a marked impact on the functioning of the fx market in ways that could be seen as beneficial in normal times. hft helps to bis central bankers ’ speeches distribute liquidity across the decentralised fx market, improving efficiency, and has narrowed spreads, at least for smaller trade sizes. but liquidity for larger trade sizes may have become inferior. the introduction of hft to the market has affected the ecology of the fx market in ways that are not yet fully understood. questions remain about hft participants ’ willingness to provide liquidity on a sustained basis under different market conditions. while hft generates increased activity and narrower spreads in normal times, it may have reduced the resilience of the system as a whole in stressed times by reducing the activity of traditional market participants who may have otherwise been an important stabilising presence in volatile environments. that said, recent experience suggests that hft participants are not necessarily flightier than traditional participants in times of market stress and may be quicker to re - enter the market as it stabilises. furthermore, the market infrastructure itself, such as the various electronic trading platforms, is also changing in reaction to the growth of hft and is likely to have a significant impact on how different market participants execute trades over time. for example, hft has led to traditional liquidity providers developing proprietary liquidity pools through which to hedge their own risk. banks are internalising more transactions in - house using the same technology that makes hft viable. however, this takes liquidity out of the main markets such as reuters and ebs. as a result, less information is flowing to the market on trading activity ; a development that might detract from the price discovery process, at least for some market participants. on hft and systemic risks : the 6 may 2010 flash crash in equities shows that rather than hft per se, algorithmic execution more generally can be a trigger of systemic risk. rather than being an initiator of such shocks, hft may accelerate and propagate shocks initiated elsewhere. it is important to bear in mind that, while hft is dependent on technology to function and that trade positions are often being open and closed faster than human comprehension, there still remains an important human element. the hft models are continually monitored by human traders to ensure that