interest rate setting also has directly negative repercussions for banks, building and loan associations and insurance companies. in the case of banks, declining margins mean a deterioration in profitability. banks whose earnings derive mainly from the interest rate differential between deposits and loans are hit especially hard by this, and that means not least savings banks and credit cooperatives. these institutions will find it an increasing problem in the long run to conduct risk provisioning for economically difficult times. and insurers as well, particularly life insurers, will have an increasingly hard time generating guaranteed returns, the longer low interest rates persist. at the same time, there is a risk that low interest rates will prompt investors to embark on a “ search for yield ”. an increasing risk propensity on the part of investors might lead to hazardous excesses in individual financial market segments and, as it were, sow the seeds of the next financial crisis. the hype surrounding the “ internet currency ” bitcoin also has to be seen in this context. i say “ internet currency ” in inverted commas, as bitcoins do not nearly fulfil the essential criteria for a currency and are more an object of speculation, the risks of which should be fully understood by investors. over the long term, low interest rates can also encourage excessive behaviour in the housing market. in actual fact, house prices in germany have been showing a marked rise since 2010, especially in urban centres. however, it is not yet possible to speak of a broadly based bubble. at the moment, price increases are concentrated on urban property markets. real estate prices in fashionable downtown areas are not an indication of what is happening in the rest of the country. still, it is a development we have to keep an eye on. claudio borio, currently head of the monetary and economic department at the bank for international settlements ( bis ) – in other words, the central banks ’ bank – says of ultra - loose monetary policy, in my view quite correctly, that “ the longer these policies and measures last, the worse the cost - benefit outcome will be. ” monetary policymakers should therefore not only have an eye on the risks to price stability, which are indicated by the commonly used projection models, but also be aware of the fact that financial instability can also jeopardise price stability. the monetary pillar in the eurosystem ’ s monetary policy strategy attempts to identify longerterm risks to price stability, although modelling the link between money

should we further simplify the rules for small institutions? i use the term “ further ” because the rules are already proportional to some extent. the design of the basel framework, too, incorporates a sense of proportionality, by making a distinction between standardised and advanced approaches. but i will come to that later on. 3. no place for general criticism there is no question that the cost of the new regulation is considerable. however, it is necessary to weigh these costs against the benefits to society as a result of financial crises being prevented. in this context, i believe the cost of regulation to be justified overall. this means that, if you look at the proportionality debate from the perspective of society as a whole, it essentially goes beyond the burdens facing credit institutions. the crux of the matter is whether it is a viable option to graduate regulation relative to the size of a bank or savings bank without jeopardising the stability of the financial system. it is therefore important, despite all of the well - reasoned criticism, to be realistic. all too often, the proportionality debate is used to wrap general criticism of regulation in politically correct packaging. but this criticism clearly goes too far on three accounts. first, regulatory tightening in the wake of the financial crisis was the right move as ( capital ) requirements were too low prior to the crisis. at the same time, there was a high degree of deregulation – and we all now know where that led us. we must take care not to throw the baby out with the bath water in the face of justified criticism. second, it is wrong to assume that small and medium - sized institutions pose no risks. crises also emanated from medium - sized banks, even in germany – particularly from institutions with business models that included proprietary trading and capital market funding, for example. even small banks, which all follow the same or very similar business models, pose risks to financial stability – that is to say, they are “ too many to fail ” instead of “ too big to fail ”. third, there is already an extensive degree of proportionality in banking regulation. this is true of both regulation itself, in which there are gradations such as the standardised approach, and the field of supervision, in which the application of the minimum requirements for risk management is largely proportional. general criticism will therefore be largely unsuccessful because it is not justified. without laws and regulations, a community – much less an advanced economy – does not work.