naturally depends on who these creditors are – if they are other financial institutions, the chances are high that regulators will shy away from resolution. within the framework of the financial stability board, work is ongoing at the global level to define a minimum standard on liabilities in terms of both quality and quantity that are eligible for bail - in. in order to tackle the issue of contagion, this standard should discourage other financial institutions from holding these liabilities. european commission ( 2013 ), “ the euro area ’ s growth prospects over the coming decade ”, quarterly report on the euro area 12 ( 4 ). bouis, r and r duval ( 2011 ), “ raising the potential growth after the crisis : a quantitative assessment of the potential gains from various structural reforms in the oecd area and beyond ”, oecd economics department working paper no. 835. bis central bankers ’ speeches the euro area already has a minimum requirement for such eligible liabilities. but so far, these liabilities can be held by other institutions without restriction. in the interest of financial stability, europe should lead the way and change this. resolution is obviously only the last line of defence against a bank failure. higher bank equity is the first. basel iii with its more stringent requirements reduces the likelihood that losses will run a bank into trouble. and as the banks ’ shareholders have more “ skin in the game ”, their risk appetite should moderate, which reduces the likelihood of losses in the first place. the new capital requirements are not exactly loved by bankers. their argument is straightforward : equity is expensive. this is undoubtedly true. but as franco modigliani and the university of chicago ’ s merton miller already pointed out in the late 1950s, in theory, the total cost of a bank ’ s capital stems from the riskiness of its assets, not from the composition of its liabilities. this theorem, however, obviously does not hold today, and mainly for one simple reason. interest on debt is tax - deductible ; pay - outs on equity are not. how sensitive are banks to this difference in tax treatment? a study3 by imf economists suggests that they are as sensitive as any other firm. what does this imply for the leverage of banks? imf economists estimate that abolishing the preferential tax treatment of debt would raise average unweighted bank equity by 2. 2 to 4. 2 percentage points. even though the authors caution that the effect is likely to be lower

would like to remind you that our gold reserves are part of the german currency reserves. these were accumulated over time thanks, in part, to germany ’ s economic boom in the 1950s and 1960s. germany ’ s growing economic strength, especially its strong external position, resulted in rather large trade account surpluses, most of them acquired in us dollars. at that time, the international monetary system, known as the bretton woods system, was dominated by the us currency. as long as this system was in force, which was up until 1971, the us fed was obliged to exchange its currency for gold. any current account surplus thus resulted in an increase in germany ’ s gold reserves. this gold was stored in us vaults for obvious reasons. this was not only the case for the gold hold by the bundesbank – it was, in fact, common practice. by the way : it was the only practical thing to do, since running a trade account deficit meant a decrease in gold stocks. thus, we are now looking back at sixty years not only of fruitful cooperation in many fields and international fora, but also of storing gold and trading via the new york fed. as a matter of fact, it is sensible for us to do so in new york, as frankfurt is not a gold trading venue. throughout these sixty years, we have never encountered the slightest problem, let alone had any doubts concerning the credibility of the fed. and for this, bill, i would like to thank you personally. i am also grateful for your uncomplicated cooperation in so many matters. the bundesbank will remain the fed ’ s trusted partner in future, and we will continue to take advantage of the fed ’ s services by storing some of our currency reserves as gold in new york. at the same time, you can be assured that we are confident that our gold is in safe hands with you. the days in which hollywood germans such as gerd frobe, better known as goldfinger, and east german terrorist simon gruber, masterminded gold heists in us vaults are long gone. nobody can seriously imagine scenarios like these, which are reminiscent of a james bond movie with goldfinger playing the role of a us fed accounting clerk. while gold is important, we have to combat a crisis of confidence in the euro area. this is the task we need to concentrate on. and we will do so. thank you for your attention. bis central bankers ’ speeches