we try. the possibility of a market exit is fundamental to any market economy. failed business models must make way for better ones, in the process that schumpeter famously described as “ creative destruction ”. what we need are mechanisms that allow even big banks to fail without destabilising the entire financial system. only then will banks face the real threat of a market exit ; only then will we eliminate their implicit state guarantee ; and only then will banks have an incentive to be risk - aware in their actions. without these kinds of mechanisms, we cannot solve the “ too big to fail ” problem. and there is still a good deal left to be done, as the markets themselves acknowledge. recent studies by the imf and the oecd show that the markets still assume that, if push came to shove, the state would not let big banks go under. and it ’ s true that there are two problems relating to credible resolution mechanisms which have yet to be resolved. first, resolution mechanisms are inherently complex – especially those for big banks, which tend to operate globally. they often have dozens of branches spread across numerous countries. to be able to resolve a bank of this kind, we need international cooperation that is built on solid legal foundations. we have now taken some initial steps towards this goal – through the financial stability board principles at an international level and the agreement to create a single resolution mechanism at a european level. even so, there is still a long road ahead of us. second, each bank resolution throws up the same question : who should bear the costs? when a bank is resolved, there have to be sufficient resources available to absorb losses. these resources – known as “ gone concern loss absorbing capacity ”, or “ glac ” – should be sufficient to allow the failed bank to be resolved. in other words, glac should help to recapitalise viable components of the failed bank, or a bridge bank. the aim is to preserve the bank ’ s critical functions while avoiding a government bailout or turmoil on the financial markets. glac should become to the “ gone concern ” scenario what the basel iii regime is to the “ going concern ” scenario. and for both we need internationally binding minimum standards which are mutually compatible. the basel iii capital standards have already been approved, whereas a minimum standard for glac is currently under development. bis central bankers ’ speeches parallel banking – there is no light without shadow ladies and gentlemen, we haven ’ t

the cumulative effect of new measures has to be considered, which makes thorough impact assessments necessary. also, actions have to be sufficiently coordinated on the global level in order to maintain a level playing field and to reduce the risks stemming from a fragmented and piecemeal regulatory response. even so, policy development is proceeding to agreed – and very ambitious – timelines, thereby reducing regulatory uncertainty as far as possible. 4. conclusion ladies and gentlemen given the magnitude of the challenges that lie ahead of us, it seems fair to say that we have come a good distance already. however, there are a couple of things we have to be aware of : first of all, it is essential that the process of reform remains an international endeavour and is not hampered by unilateralist leanings. also, as we are now hopefully entering better times, there is a certain danger that some major issues on the reform agenda might fall prey to dwindling commitment and political interests. this must not be allowed to happen as only a coordinated and harmonised effort will enable us to ensure financial stability and thus pave the way for steady and sustainable global development. thank you for your attention.