", and the banks are perfectly aware of this. sound local structures with working risk management frameworks are indispensable. this does not preclude a certain shifting of sub - risks to specialised risk hubs in london which ensure group - wide risk management. it is clear that decisions cannot be made exclusively from london. what makes this approach all the more important is that, in a crisis, eu - based units will have to be able to act, or be resolved, independently. we will try to take as pragmatic an approach as possible in our preparations. thus, for instance, we are willing to provisionally recognise models approved by uk supervisors in order to ensure a smooth transition. on - site inspections by our banking supervisors, however, will then gradually ensue. the labour market for specialists is an aspect of brexit that thus far has received little attention. this represents a dormant, and not very tangible, risk – as demand for experienced staff will encounter limited supply. these specialists ’ current employers will have to reckon with intensified competition for able brains. this must not be permitted to develop into a risk to the stability of our financial centre. the bundesbank – along with the ssm – will increase its staff in order to maintain the high quality with which it supervises the growing banking market. for us – precisely under the constraints of the public sector – this will represent a challenge. our executive board has already taken the appropriate decisions, which we are now in the process of implementing. all in all – as our talks with the affected institutions, amongst other things, have shown us – i see banks and supervisors alike as being on the right track in terms of shaping brexit - induced change without any major frictions or risks to financial stability. another sign of this is that brexit is not a sudden shock for which there was no time for preparation or response. ever since the uk prime minister declared in the middle of last year that " brexit means brexit, " it has been clear that the united kingdom will leave the eu and that this will entail far - reaching implications for the economy in general and the financial markets in particular. if nothing else, the principle of commercial prudence impels us to prepare for the least - favourable outcome – a hard brexit. all things considered, i am convinced that, while brexit will continue to impair the efficiency of the financial industry, it will, in the process

this reason, the bundesbank expressly supports the initiative of the ecb, which in october published guidelines in an effort to push ahead with scaling back of npls. 3. profitability in the german banking sector still low after the good news, now for the not - so - good : the profitability of german institutions continues to be low. this effect is partly attributable to structural factors and partly to the low - interest - rate setting. indeed, the impact of low interest rates is hitting the german banking sector especially hard, as in many cases, the business models are heavily geared to interest income. as a result, we are seeing a substantial drop in profits in traditional deposit and lending business. german credit institutions are predicting that this development will continue. another factor is that german banks and savings banks are paying negative interest rates on their deposits with the central bank, but rarely pass these negative rates on to private customers. 1 / 4 bis central bankers'speeches so far, this development has been countered by the favourable macroeconomic conditions here in germany. the buoyant economic development, which is reflected, for example, in the small number of corporate and personal insolvencies, is a major reason why both loan default rates and risk provisioning needs have stayed low. in other words, the write - downs banks are having to make on loans are very small. this effect has boosted earnings, which would otherwise have been even lower. in the context of the dialogue with external auditors, who are advocating releasing risk provisions where possible given the current economic situation, i nevertheless advise banks and savings banks to stick with their conservative stance going forward. i consider necessary the additions to risk provisions which banks, according to information provided as part of the low - interest - rate survey, are planning in the medium to long term. it is good to see the managing boards at these banks are resisting the inclination to assume that conditions will always be good. to expect the favourable developments of the past to continue indefinitely might otherwise be tantamount to systematically underestimating credit risk. 4. a change in interest rates could hit parts of the banking system hard this problem is compounded by the fact that german banks have expanded their maturity transformation in recent years. in order to stabilise profits in times of very low interest rates, they have increasingly extended the lives and the interest rate lock - in periods of their loans. for instance, the percentage share of longer - term loans and advances – that