the only useful financial innovation in the past few decades was the invention of the atm. after all, there are also studies that find no evidence of such a threshold in the capital markets. 3. core hypotheses regarding the role of capital markets any attempt to assess the macroeconomic importance of capital markets solely on the basis of empirical studies of their growth - promoting impact would surely overstate the meaningfulness of such studies. instead, a more comprehensive approach is necessary to address this issue. but first, let me present four core hypotheses regarding the importance of the capital market from a central bank ’ s perspective, on which i will then expand in the course of my speech. 1. developed capital markets are instrumental in providing investors with a broad range of investment products, enabling them to select the best risk - return mix in their particular case. key determinants of developed capital markets are liquidity, transparency and integrity. from the point of view of corporations, developed capital markets ensure a broad range of financing sources. this makes capital market funding an important and welcome supplement to bank borrowing for firms. a stronger role for equity capital would be desirable, not least in germany. 2. investor protection is essential. it contributes to making the capital market attractive to broader groups of investors. the best form of investor protection is a broadly based system of general financial education. however, it is also crucial to ensure that products are sufficiently transparent. 3. it is not the responsibility of central banks to provide investment advice or to protect investors against losses. a monetary policy approach that was forever willing to clean up the mess after financial market bubbles have burst would create the wrong incentives. the primary objective of monetary policy is to safeguard price stability ; bis central bankers ’ speeches financial stability ought to be ensured mainly through macroprudential instruments along in tandem with effective regulation and supervision. 4. capital markets have an important disciplining function, especially with regard to fiscal policy. in the run - up to the crisis in the euro area, the capital markets did not always live up to this role. the institutional framework of monetary union should be structured in such a way that capital markets can perform their disciplining role effectively. 4. capital markets from the investors ’ and issuers ’ perspective 4. 1 capital markets from the investors ’ perspective when talking about the economic significance of capital markets, it is useful to distinguish between the investor ’ s and the issuer ’ s perspective. for this reason, i will first

jens weidmann : the macroeconomic importance of capital markets speech by dr jens weidmann, president of the deutsche bundesbank, at the annual reception of deutsches aktieninstitut e. v., frankfurt am main, 22 may 2014. * 1. * * welcome mr baumann, dr bortenlanger, ladies and gentlemen i would like to thank you very much for giving me the opportunity to speak to you at today ’ s annual reception of deutsches aktieninstitut. i would like to use this occasion to talk about the importance of capital markets. given that i am speaking before an audience of capital market experts, i shall try to avoid the danger of telling you what you already know and focus instead on the macroeconomic view of capital markets as seen by a central banker. first, however, i would like to congratulate the winners of the university prize, who are being honoured here today. they approached the subject of capital markets from different angles, analysed it from a scientific perspective and obtained valuable insights. 2. doubts about the efficiency of financial markets in macroeconomic theory, economists traditionally assume the ideal state of a “ perfect capital market ”. such a market is characterised by a high level of efficiency. this is, of course, based on assumptions that are not necessarily realistic. economists, too, are aware of this – or at least most of them are. you may be familiar with the dialogue between the two economists crossing the road. one of them says : “ look. there ’ s a one hundred euro note lying there. ” the other one replies : “ if a one hundred euro note were lying there, someone would have picked it up by now ”, and walks on. economists ’ faith in the efficiency of the markets is sometimes measured against reality and found wanting. the financial crisis, too, has sorely tested this faith in the markets ’ efficiency. this applies especially to the financial markets. in other words, the same markets that were previously regarded as being particularly efficient, as information spreads quickly in these markets and can therefore be promptly priced in by market participants. however, it has become evident that market participants do not always act rationally. in addition, markets are not completely transparent and do not function smoothly at all times. eugene fama ’ s efficient market hypothesis was, of course, criticised long before the financial crisis. way back in the 1980s, robert shiller, who last year was awarded