3 moving away from risk - oriented banking regulation? introducing the leverage ratio as the primary regulatory requirement would mean taking two steps back to the risk - insensitivity of basel i and even beyond. why is this a headache for me? there is a danger that we will effectively end up with a leverage ratio only, because a sufficiently high leverage ratio requirement will override the calculation of risk - weighted assets. why is this? let me draw your attention to one result from the recently published basel iii monitoring exercise. only 30 % of the large, international banks analysed is more easily able to fulfil a risk - based tier 1 capital ratio of 8. 5 % ( including the capital conservation buffer ) than a 3 % leverage ratio, which is the ratio the basel committee favours. this does not look very balanced to me, yet voices from the regulatory community, such as fdic vice chairman thomas hoenig or fed governor daniel tarullo, have recently proposed going higher. daniel tarullo is advocating a leverage ratio of 6 % for globally systemically important banks ( g - sibs ), for example. and economists like martin hellwig are even more radical ; they are bis central bankers ’ speeches suggesting that banks should hold minimum capital of 20 % to 30 %, relative to their non - risk weighted assets. as a practitioner i can only marvel at such notions. such a step requires thorough consideration and careful analysis – not only regarding the definition and level of capital, but also regarding the transitional period – and i am therefore far from being convinced that we should take such a radical step. what should we do instead? my answer is straightforward : we should stick to the basel iii timeline. under the basel iii timeline, banks will be required to disclose their leverage ratios as of 2015, which allows both the supervisors and the investors to use it as an indicator for bank risk. however, the definition will remain under review until 2018, when the decision about its introduction as a binding “ pillar 1 ” requirement will eventually be taken. i believe that we should use this parallel run period for further analyses regarding the leverage ratio ’ s interaction with risk - based capital requirements, regarding the undesirable incentives it may potentially create, and regarding its impact on low - risk business models. 4. conclusions to be absolutely clear : i am not against a leverage ratio. supervisors should actually make use of a leverage ratio, but they should also rely on a risk - sensitive measure. a

rates on government bonds started to rise, the damage had already been done. and, faced with that situation, it is extremely difficult to uphold the no - bail - out principle. as i ’ m sure you will remember, no member state is allowed to assume liability for another ’ s debts. this principle was, at the very least, stretched quite a long way when assistance was granted to greece. that, however, was not entirely unjustified : the euro - area countries are now so closely integrated that problems in one country can spread quickly to the entire euro area in a phenomenon known as contagion. when push came to shove, it appeared necessary to help other member states. and that is quite understandable in the short term. however, in the long run it is dangerous if countries with a debt problem can expect to receive help no matter what. this risks triggering a dangerous spiral of more and more assistance and less and less confidence in the will of the affected countries to mend their ways. routes to a stable monetary union and such a loss of confidence is just what we are facing right now. the public, and also the markets, have lost faith – in politics, but also in the architecture of our monetary union. the question is : how do we go about restoring confidence? let me begin by stating clearly what won ’ t work. setting up larger and larger rescue packages is not the way to instil lasting confidence. this strategy ultimately has its limits – be they political or financial. and the proposal of circumventing financial limits by printing money is dangerous. of course the resources of a central bank are, in theory, nearly without limit. using them to finance sovereign debt, however, does not solve problems but, instead, creates new ones. such an approach would endanger the key foundation of a stable currency : the independence of a central bank dedicated to price stability. this would throw overboard the very things that need saving. and, as i said earlier : money can ’ t buy confidence. even the largest rescue packages can provide no more than a temporary reprieve. time, in fact, is the only thing you can buy. but this bought time must actually be used to eliminate the root causes of the crisis. and this leads us to three key steps that the bundesbank believes need to be taken. bis central bankers ’ speeches firstly, government budgets need to be put back in order. this goes for all euro - area countries but is particularly