management groups for each systemically important institution. their role is to assess a bank ’ s resolvability and to support the process of recovery and resolution planning. the third element is a specific resolution strategy. this is the key component of resolution planning. the strategy will be chosen according to the respective business model. in the same vein, we need to establish the single resolution mechanism as a central pillar of the european banking union. it will be a quantum leap if the bail - in principle is generally accepted as it is foreseen by ecofin. if banks incur losses in the future, shareholders and bis central bankers ’ speeches creditors will be first in line to bear these losses ; the taxpayer, on the other hand, will be last in line. if the bail - in principle is implemented as currently foreseen, bail - ins are going to become the rule, bail - outs the exception. with the envisaged general acceptance of the bail - in principle, an important necessary condition for a return to the fundamental principle of market economies will be fulfilled : control and liability will be in balance, those who make the decisions will bear the costs. 4. redrawing the lines between the state and banks : capital buffers are essential i argued how important it is that the single resolution mechanism be applied effectively in the spirit of the bail - in principle. as i mentioned earlier, the bail - in threat can only be credible if the costs of the failure of a systemically important bank are significantly reduced. without reducing these costs, the bailin threat would be questionable. the overall costs of a failure would be greater than the costs of a bail - out. hence, establishing effective resolution procedures and reducing the overall costs of a bank failure are two sides of the same coin. this is where good bank capitalisation comes into play. it is the other side of the coin. good regulation should directly address the key problem. if the system is too fragile, an important and direct measure to reduce fragility is to have enough capital. with the basel iii requirements, regulation is taking an important step in the right direction. banks have to hold not only more capital but also capital of a higher quality. the system is therefore more resilient now compared with the situation after the lehman insolvency. and german banks are going to anticipate the higher regulatory requirements of basel iii. good capitalisation will have the positive side effect of reducing many of the wrong incentives and distortions

globalization, journal of economic perspectives, vol, 18, no 3 summer 2004 ( forthcoming ). ladies and gentlemen, by attending this workshop and contributing to it, you have shown your interest in all these issues. i very much welcome your active participation. thank you once again for coming. last but not least special thanks go to the kiel institute for world economics for its hospitality and cooperation and to claudia buch and heinz herrmann for their excellent teamwork in organising and presenting this workshop on multinationals and international integration. our experience here in kiel and with the institute have stimulated us in frankfurt to intensify our research activities. as our new president at the bundesbank is a driving force in research i would like to pass on professor weber ’ s warmest regards.