axel a weber : challenges to the financial system - ageing and low growth opening address by professor axel a weber, president of the deutsche bundesbank, at the third conference of the monetary stability foundation on “ challenges to the financial system - ageing and low growth ”, frankfurt am main, 6 july 2006. * 1. * * introduction ladies and gentlemen! i am pleased to welcome you to the third conference of the monetary stability foundation here in frankfurt. as in previous conferences, i am again very delighted that so many distinguished speakers will share their thoughts with us during the forthcoming panels. this year ’ s conference is entitled “ challenges to the financial system – ageing and low growth ”. one might ask : why is this topic of interest to the monetary stability foundation, whose aim is to maintain and promote public awareness of the importance of stable money? the reason is that maintaining the intrinsic value of money requires that we look not just at short - term developments that have a direct impact on inflation dynamics ; in fact, we also need to closely monitor long - term developments that might ultimately affect - inflation - the transmission process of monetary policy - or financial market developments in general. low growth and the ageing phenomenon are examples of such long - term developments and therefore quite suitable topics for this year ’ s conference. during my opening address, i would like to outline the general topic of the conference and its likely implications. in doing so, i hope to pave the way for the forthcoming panels that will elaborate on several aspects in more detail. 2. ageing and low growth – interrelated phenomena and real economy implications if one were asked to rank the two phenomena of ageing and low growth in order of public awareness in europe, low growth would most likely come out ahead of ageing. the picture is quite clear : while the world economy continues to see strong growth, the euro area ’ s economic upswing remains by comparison rather sluggish. a special matter of concern is the fact that not only euro area ’ s actual growth, but also its potential growth has visibly declined over the past few years. 1 in parenthesis : this development stands in stark contrast to the objectives of the lisbon strategy, which was especially developed to tackle low productivity and low economic growth in the euro area! whereas the challenge of low growth is widely discussed, the phenomenon of ageing generally does not receive as much public attention. evidently, it is very difficult to convince people and policy makers of the importance of a

have recently added fuel to the debate. the discussions are currently even going as far as to create a specific set of rules for smaller institutions. at the recent bundesbank symposium, ms sabine lautenschlager, the deputy hackethal, andreas and inderst, roman ( 2015 ) auswirkungen der regulatorik auf kleinere und mittlere banken am beispiel der deutschen genossenschaftsbanken. expert opinion commissioned by the federal association of german people ’ s banks and raiffeisen banks, 30 september 2015 bis central bankers ’ speeches chair of the single supervisory mechanism for banks in europe, voiced scepticism as to the feasibility of such a separate set of rules. what is this debate actually all about? to the management and staff of all institutions – small and large alike – it is about the work created by regulation. it is about the one - off costs of, for example, procuring new software. but it is also about the running costs, ie the costs of keeping systems operational or of personnel. and it is about the time that needs to be devoted to these matters – which is time no longer available to deal with clients, to conduct credit analysis or to develop investment strategies. why does this take a greater toll on small institutions than on large institutions? after giving the issue some thought, we at the bundesbank quickly diagnosed the source of the real problem. it is that the rules are becoming more and more complex and interconnected and that this is increasingly becoming too much for, in particular, small institutions with limited human resources to cope with. i must confess that i, too, am sometimes amazed at the detailed structure of regulation created over the past few years. where does this come from? there are three trends in particular which have made the rules more complex. global harmonisation brought about by the basel standards is one of these trends. these standards, created mainly for large international banks, are being applied to all institutions in germany and the euro area. european regulation, which imposes an additional set of rules that need to be followed, is another source of complexity. and last, but not least, complicated rules are also an outcome of compromises that have to be made when developing regulation – especially where a large number of countries with a wide variety of banking landscapes are involved. banks and saving banks, too, have often proposed changes which have not necessarily made the rules any more simple. but what exactly is behind