such developments and anticipate possible repercussions. 1 / 5 bis central bankers'speeches in addition, digital transformation brings about fundamental changes in working modes and business models of the financial sector. established banks are challenged by new, agile players. existing value chains are disrupted and redesigned. from the perspective of banking supervision and financial stability, in particular, we must keep an eye on these developments and the potential risks they may create. i will address this topic in more detail later on. finally, digital transformation has very direct effects on the day - to - day work of central banks. we, too, must become more digital so ( that ) we can do our job ( even ) better. let me elaborate on this. we at the bundesbank – much like other central banks, of course – have already been in the process of going digital for a long time. however, digital transformation has taken on a different dynamic as a result of recent technological breakthroughs in fields such as machine learning, process automation and distributed ledger technology. we therefore decided to examine more closely the potential and possible applications of these new technologies. we wanted to acquaint ourselves with larger - scale digitalisation concepts early on and at the level of our institution as a whole. to achieve this, we set up an interdisciplinary committee to promote digitalisation topics at an early stage and across departments. building on this, we are currently working on a “ digital agenda ” for the entire bundesbank. in this context, we are also discussing the opportunities and challenges related to cloud services. cloud service providers offer a wide range of services, supplying storage space or computing power, making developer platforms available or providing software and web applications. outsourcing activities and processes by using such services can be an efficient way to benefit from the division of labour. it allows companies to save costs and resources, use synergies, optimise processes and gain access to specialist knowledge. and central banks may benefit from this, too. the bundesbank, for instance, already applies cloud services in several areas. in particular, we are examining how cloud services may help to improve agility, data analysis and research methodologies. in economic research, for instance, demands for scalability have become apparent that can hardly be met by using exclusively internal it resources. this is due, amongst other things, to the increasing focus on microdata, which requires the processing of considerably larger volumes of data. that said, central banks, in particular

in order to insulate banks from weak public finances, we need not only appropriate supervision but also suitable regulation ; regulation that will prevent banks from taking on excessive risk through state financing. such regulation should, for instance, include upper limits for lending to governments. it should also encompass appropriate capital backing for government bonds – which is another proposal made by stefan gerlach, incidentally. but the single supervisory mechanism and suitable regulation are just two elements of a banking union, and there are also other means available for severing the link between sovereigns and banks. the third tool in this respect is a european recovery and resolution mechanism for banks that has access to “ european ” funds. in this context, it is necessary that any such mechanism ensure that investors are first in line to bear the risk of their investment decision. taxpayers must be spared the burden of other people ’ s investment decisions – at the national level and even more so at the european level – for as long as there is no proper balance between liability and control. ladies and gentlemen, i have very briefly highlighted a few arguments in favour of european banking supervision – the “ why ”, so to speak. now, let us take a look at the “ how ”. 3. european banking supervision – the “ how ” the establishment of the single supervisory mechanism will see wide - ranging banking supervisory functions being transferred to the ecb. at least seventeen countries will give up their sovereignty in supervisory matters to the ecb ; the ecb will be directly responsible for the supervision of the most systemically important banks domestically and at european level. nevertheless, national legal systems and national market structures will still be of utmost importance for the welfare and success of these banks. given the multitude of different s gerlach, a schulz, g wolff ( 2010 ), banking and sovereign risk in the euro area. centre for economic policy research, discussion paper, no 7833. bis central bankers ’ speeches supervisory traditions, legal systems and people involved in supervision, the ssm will only be successful if appropriate governance and transparent cooperation and task - sharing are installed. one of the “ hot ” topics when swiftly organising a banking supervisory function for the ecb is future cooperation between the ecb and the national supervisors. organising a european banking supervisory mechanism in such a short time firstly means building upon existing structures. secondly, supervision will only be successful if the ecb is able to benefit from cross - border comparisons, taking into account the macroeconomic and microeconomic knowledge and