from a financial stability angle, two factors are crucial in this respect : developments over time, and the risk level. low interest rates might fuel demand for mortgage loans, which might give rise to a selfreinforcing interaction between lending and prices. however, the results of a bundesbank survey of banks have indicated that the risks inherent in real estate business are hardly procyclical. all in all, mortgage loans grew at no more than a modest pace – at 2 % per year, to be precise – while lending standards have hardly been loosened. what we do see, though, are signs of structural vulnerability within the german banking system. the surveys found that 100 % financing arrangements are certainly no longer out of the ordinary in the surveyed towns and cities. if a decline in urban real estate prices were to coincide with climbing default rates, this would have a considerable impact on banks ’ profits. a scenario like this might well be manageable, were it to occur in isolation. but experience has taught us that real estate crises normally go hand in hand with a downturn in the broader economy. if this occurred simultaneously, it could prove to be very trying indeed for banks. besides continuing to monitor developments in the real estate market, we currently see two areas in which action is needed. first, we are laying the groundwork for closing major data gaps. second, we are evaluating what fundamental legislation is needed to even more effectively counter risk in the real estate market going forward. 6. banking union and financial stability we have taken a huge step forward at the european level this year. the european single supervisory mechanism can apply a consistent and strict standard of supervision and compare banks across national borders, meaning that risks to financial stability can be identified earlier on. while it is true that it is primarily the nation states which decide on the use of macroprudential instruments, the european central bank, too, has been given macroprudential powers, and it can tighten national regulations. that makes sense and averts the danger of not addressing risks to financial system stability in good time. but the banking union also provides answers to another key question : who is to bear risks that have materialised? in the pre - crisis era, there were no effective procedures for dealing with major banks that had run into difficulties. all too often, the cost of risks that materialised were passed on to the taxpayer, while private sector owners and creditors were hardly ever made liable. looking ahead, the single resolution mechanism, the

jean - claude trichet : central bank cooperation after the global financial crisis video address by mr jean - claude trichet, president of the european central bank, at the bank of korea international conference 2010 “ the changing role of central banks ”, seoul, 31 may 2010. * * * ladies and gentlemen, first, let me congratulate the bank of korea on its 60th anniversary. the bank has made essential contributions in korea ’ s economic development, the reform of the country ’ s financial system and its integration into the global financial system. the clear focus on controlling inflation and the strengthened independence further buttressed the role of bank of korea in the economy. and recently, the bank ’ s timely and decisive measures helped korea weather the global financial crisis. hence, there are many reasons to congratulate and wish bank of korea a very happy birthday! * * * let me now say a few words about central bank cooperation during and after the crisis, which the bank of korea is so closely involved in. the cooperation among central banks has recently taken numerous forms, such as information sharing and the setting of general standards and rules. such cooperation has been mainly channelled through the various fora at the bank for international settlements ( bis ) in basel. these include the governors ’ global economy meeting and the other committees that meet under the aegis of the bis as well as the financial stability board. the global economy meeting comprises the esteemed governor kim and some 30 other governors from all systemically important economies. it is held every two months in basel and provides a unique opportunity to discuss the global economic outlook, policy challenges as well as any other topics of mutual interest. until january this year, the global economy meeting was primarily concerned with assessing global economic and financial conditions. since then, it was entrusted with an additional assignment : it now provides guidance to, and formally decides on, issues discussed by the various basel - based central bank committees. this responsibility had been in the hands of g10 governors for decades. i have the privilege to chair the global economy meeting and find the frank and in - depth discussions of invaluable importance for my own work and for the central bank community at large. central bank cooperation is part of a more general trend that is reshaping global governance, and which has been spurred by the global financial crisis. one distinctive aspect of this crisis has been its originating in industrial economies. emerging countries have also been severely affected, but as a group remained a source of strength for the