will change the banking sector in this country. quite generally, however, the fact of the matter is that size alone by no means implies a hallmark of quality. the hoped - for commercial advantages of such mergers must materialise first. in terms of banking supervision, “ mega - mergers ” involve the drawback that banking structures become less transparent and groups become more difficult to control by the management. overall, the number of institutions that are to be classified as “ too big to fail ” will increase. in the context of the growing competition, there is also a danger that banks will run greater risks in order to defend their market positions and make attractive profits. that may lead to a tendency towards increasing fragility and a higher probability of market exits, which would make additional demands on banking supervisors. furthermore, the current problems of the hedge fund ltcm show that the danger of excessive risk taking is not limited to banks. against this background the precise measurement and monitoring of risks, sufficient transparency, a strong capital base and an adequate supervision become factors of increasing significance. this does not only apply to supervised banks but principally to other major players on the financial markets. with regard to hedge funds my preliminary conclusions are threefold : 1. bank loans to hedge funds should be limited in relation to the funds ’ own capital to contain their leverage and thus excessive risk taking ( for example ratio of own capital to loans 1 : 10 ) 2. hedge funds ’ exposures should be made transparent through for example an international credit and derivatives register. and 3. banks should basically not be allowed to invest in hedge funds. coming back to my main topic, competition in emu : in particular, the following points will be of paramount importance to banking supervisors, to enable them to adjust to the growing competition within emu and cope with its consequences. • the continuation and deepening of the harmonisation of european banking legislation and of the pan - european co - operation among banking supervisors ; • the exploitation of competition to strengthen the market players ’ sense of responsibility and self - discipline ; • the creation of adequate transparency for both market players and supervisors ; • the further development of the capital provisions, as the keystone of banking supervision. allow me to elaborate on these points in greater detail : iv in view of the progressive integration of european financial markets accompanying emu, there is a greater need for co - ordination between the european supervisory authorities and a need to press on with the process of the european harmonisation of banking legislation, which has already made

limited will banks be able to effectively cope with the process of restructuring sovereign debt. and only then is there likely to be any concrete political will to take such action. government bonds are far from being risk - free. banking regulation should at last acknowledge this fact. the federal ministry of finance has made similar proposals. incidentally, these also include the possibility of strengthening the role of the esm in the area of fiscal surveillance. after all, unlike the european commission, the esm is not exposed to any conflict of interest arising from the need to act both as a political institution and as the “ guardian of the eu treaties ". i believe that these changes are needed to make the euro area more stable, regardless of whether we pursue the idea of greater joint financial obligations at the european level. the more evenly economic shocks are spread across a currency union as a whole, the less likely it is to drift apart. to a certain extent, a common budget could help cushion shocks that affect individual member states and thus synchronise the economic performance of the individual countries to a larger degree. but this effect would not be as major as some might hope. fiscal policy in the united states, for example, only absorbs 10 – 20 % of economic shocks. private forms of risk sharing play a much greater role. integrated capital markets, especially integrated equity markets, smooth cyclical fluctuations between the us states, thus cushioning around 40 % of volatility. if a business ’ s shareholder base is spread across many different states, so, too, will potential losses ripple out across several states. this absorbs some of the effects on income in the state affected by the shock. and during upturns, these states can benefit from investment opportunities in others. taking these steps to make the euro area more robust is a chance that should not go to waste. this is why we support the european commission ’ s efforts to establish a european capital markets union when it comes to harmonising insolvency law in the eu, for example. 4. concluding remarks ladies and gentlemen, john pemberton developed coca - cola to free himself from his morphine addiction. no - one would claim that coca - cola carries a greater health risk than opiates. but, by the same token, few would claim that coca - cola is an essential part of a balanced diet. ultimately, consuming more caffeine than is compatible with a healthy lifestyle only makes us more vulnerable. and the same is true of