of origin ” principle in the services sector, as is already the case in the common market for goods. this principle states that a firm should no longer be hampered by regulation in the import country if it has already complied with the national regulations in its home country. such a move would make services markets more open to competition. and reducing barriers to entry to more than two - thirds of the overall eu economy could provide a real boost to productivity. labour markets and productivity ladies and gentlemen, barriers to market entry can exert a powerful drag on productivity. but productivity is not only held back by product market regulations. for productivity to flourish, we need resources to flow – to the most innovative and efficient firms. this is why creating a working european venture capital market is very important. here, another factor comes into play : on average, bigger firms tend to be more productive and are better placed to compete in export markets. unfortunately, the growth of small, innovative companies is hindered in some european countries by a plethora of regulations that kick in at a certain size threshold. in france, for instance, many regulations become binding when a firm reaches a size of 50 employees. this causes some firms which would otherwise expand to stay below that level. research9 suggests that this distortion leads to a loss of 4 – 5 % of french gdp. other size - contingent regulations exist in other countries such as portugal or italy, where the threshold is 15 employees. what these regulations all have in common is that they deter firms from expanding. therefore, they are a drag on growth. these examples show that capital is not the only indispensable input for firms. labour is equally crucial. studies10 indicate that, compared to the us, innovative european firms have considerably more difficulties in attracting the staff they need. this lowers allocative efficiency and, ultimately, productivity. the reason for this seems to be that overly strict employment protection exerts a “ lock - in ” effect : workers do not move easily from firm to firm. this not only hampers productivity, but is of particular concern in a monetary union. after all, the theory of optimum currency areas suggests that, in the absence of the exchange rate as markus poschke, 2010. “ the regulation of entry and aggregate productivity, ” economic journal, royal economic society, vol 120 ( 549 ), pages 1175 – 1200, december. garicano, luis, claire lelarge and john van reenen ( 2013 )

furthermore, we consider it a good thing that the thresholds are to be raised for trading book institutions. it is much to my regret, however, that a general approach – such as the small banking box – was rejected. i ’ ll come back to this shortly. without wishing to anticipate the final result of the legislative process, i would like to paint a picture of how we, as german banking supervisors, need to tackle the issue of proportionality in the eu. with that in mind, let ’ s turn our attention to three key questions : who, how, and what? let ’ s begin with “ who ”, as in who should be subject to eased requirements. as i have already mentioned, we are focusing on small institutions. in other words, the target group comprises institutions with a manageable level of total assets. the problem is that the definition of “ manageable ” varies from country to country in the eu. in order to account for this heterogeneity, we will probably set an absolute threshold value for total assets combined with a relative threshold value that takes national gdp into account. this quantitative threshold value will be accompanied by additional criteria in order to prevent institutions with riskier business models from benefiting from simplified rules. thus, banks to which reduced requirements apply are not permitted to use internal models ; they ought to have a small trading book and carry out derivatives transactions to a limited extent only ; and they may not participate to any meaningful extent on the capital market or in cross - border activities. but as experience has taught us that it is all but impossible to draw up an exhaustive list of criteria covering all eventualities, the final decision must rest with the supervisors. and, of course, banks should ultimately also have the opportunity to reject their classification as such an institution. now let ’ s turn to “ how ”. there are basically two potential ways of improving proportionality here. first, we could take a small - scale approach and introduce simplifications and exceptions for individual rules. second, we could create a whole new framework that is specifically tailored to small banks and low - risk institutions. the second solution would be further - reaching and clearercut. but at present, the majorities in europe appear to favour the small - scale solution. and then we still have to consider “ what ”. it is important the emphasis lies on reducing the administrative workload and minimising the red tape. the measures we are currently reviewing include exceptions to disclosure