mr schmitz, president of the association of german banks, when he says that “ the decisive factor is that the risk incurred is commensurate with risk buffers. to that extent, imposing greater restrictions on some areas of proprietary trading than existed before the crisis makes sense and is the right move. ” bis central bankers ’ speeches 4. capital adequacy : a key element solvency is a necessary, but not sufficient condition for financial stability. what is crucial for solvency, besides the quality of the asset portfolio, is the amount of capital. this is a key element in restoring confidence. that is just as relevant now as it was in 2008 and 2009. in its 2011 financial stability review, for example, the bundesbank had the following to say, “ however, in times of systemic stress, markets cease to make broad - based distinctions because, supposing an exogenous shock actually triggers a systemic crisis, it is almost impossible ex ante to forecast the position of an individual bank. in such a scenario, the task of restoring confidence is not merely the responsibility of an individual bank but also a call to arms for the system as a whole. ” injections of capital can be one weapon in that cause. capital adequacy is not everything. but without adequate capital, it all comes to nothing. capital acts as a substantial internal buffer. such buffers have to be large enough to cushion any stresses and strains. provided they are put in place in good time, lending does not have to be cut back straightaway, even in the event of a systemic shock. the institutions gain some respite and do not have to launch fire - sale auctions to shed their risky assets all at the same time, which can bring about a cumulative decline in the value of those assets. here i can see many practitioners objecting on the grounds that capital is too scarce and expensive. most economists doubt that or – like the bonn economist, martin hellwig – they do not accept it as a reason for forgoing stricter regulatory capital requirements. the reason is that, at this point, practitioners like to argue implicitly using a ceteris paribus clause, in other words, all other things being equal. in this line of reasoning, the capital donors have a certain idea about the return on the capital they have put in. if the capital share is increased, expenditures are greater than in a situation with higher borrowed capital. the crux of

, empirical studies by the bundesbank show that the major systemically important banks – at least in germany – largely shield themselves from interest rate risk. on balance, they have hedged a large percentage of their positions. interest income risk is therefore not affected. however, there is still liquidity risk – in other words, refinancing risk. this was seen by many as irrelevant during the boom cycle. market liquidity dried out quickly during the financial crisis, though. it became ever - more difficult to roll over loans, even though central banks were doing all they could to help. it used to be true that “ liquidity followed creditworthiness ” or that “ liquidity followed solvency ”. the financial crisis has shown that this is not the case all the time. even institutions with a “ healthy ” asset portfolio were capable of running into distress – not least because, at first, nobody was entirely sure who was holding how much in “ toxic assets ” on their balance sheets – and also, and especially, off their balance sheets in the “ shadow banking system ”. spun - off spvs meant that now everyone was a suspect. 3. specialised banking versus universal banks : missing the point one of the main concerns in the aftermath of the crisis has been making the banking system safer overall and protecting taxpayers, and thus the general public, from having to pay the price for banks ’ mistakes – and quite rightly so. some observers who are “ in the know ” believe that divorcing investment banking from commercial banking is the perfect way to limit the social costs of ailing banks. a high - level expert group of the european commission, headed by erkki liikanen, governor of the bank of finland, is studying these issues. i therefore now only want to go into some aspects which i think are particularly important. as i said at the beginning, investment banking does, indeed, involve very specific risks. by contrast, traditional banking, with its deposit and lending business, is often – but not necessarily always – characterised by a less risky business model. some argue that separating the two types of banking activities would protect the macroeconomically vital task of supplying the real economy with credit and, at the same time, shielding it from investment banking ’ s inherent risks. they also claim that this would make bank resolution easier. what i ’ m wondering, however, is if such a specialised banking system can truly fulfil all the hopes invested in it. unfortunately, in practice