to be determined by market forces. it is therefore all the more important that this market process functions as efficiently as possible. and this is where the regulators come in. it is our job to make sure that the regulatory treatment of debt does not give rise to incentives that endanger financial stability. and it is our job to make sure that, if things still go wrong, the financial sector can still deliver its important services to the real economy. as the financial crisis and the euro - area sovereign debt crisis have shown, there is ample room for improvement here. in particular, we need to ensure that all actors bear the responsibility for their respective decisions. to me, three issues are of special relevance in this regard : the question of bail - in vs. bail - out, the regulatory treatment of sovereign debt, and the tax preference of debt over equity. 2. bail - in vs. bail - out let me start with a question that has been debated heatedly since the crisis broke out : the issue of bail - in vs. bail - out. the financial sector is unique in that a malfunctioning of this sector impairs the functioning of all other sectors of the economy. and the crisis has served as a stark reminder that a malfunctioning cannot be ruled out. some form of protection is therefore called for – otherwise, innocent bystanders in the real economy will inevitably get hurt. depending on the kind of malfunctioning, the central bank might be able to provide the protection. if the issue is a temporary dry - up of liquidity, it can act as a lender of last resort and supply the necessary funding – on an interim basis. but if the issue is one of solvency, then the central bank has no role to play, as taxpayers ’ money might be ultimately at stake. rather, it is then for politicians to decide whether to let a bank fail or not. providing insurance in the form of a bail - out comes with obvious moral hazard problems. if banks know that they are too big to fail, they are tempted to make the most of this insurance and take on excessive risks, at the expense of society at large. as the bank of england ’ s chief economist andy haldane put it : “ only in banking do control rights and incentive wrongs combine so uncomfortably. ” instead of the public providing cost - free insurance for banks, the onus is on banks to insure themselves against failure. only then are risk and reward

", 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