, this treatment has no longer seemed justified, as it has become apparent that government bonds do carry some solvency risk. it would therefore be appropriate to change the rules in the medium term. we believe that government bonds, just like other loans, should be backed with sufficient capital to reflect the risks that they carry. at the same time, a ceiling could be imposed on lending to any one government, just as lending to other borrowers is subject to a limit of this kind. these two measures combined would shield banks from the impact of public finance problems. by adjusting the rules, governments can help to make banks, and hence the financial system, more stable. however, rules are only effective in the areas where they apply. and there is one area of the financial system which is not yet truly regulated : the shadow banking system. i have to confess that i don ’ t really like the term “ shadow banking ”, as it strikes me as slightly unfair. it makes the industry sound rather shady, or even criminal. and that certainly isn ’ t the case. the shadow banking system contains entities which, like banks, perform credit intermediation. the difference is that these entities – such as us - style money market funds – don ’ t belong to the regulated banking sector. shadow banks are not bound by the normal “ rules of play ”. in terms of financial stability, the crux of the matter is that these entities can cause similar risks to banks but are not subject to bank regulation. and the shadow banking system can certainly generate systemic risks which pose a threat to the entire financial system. much the same applies to insurance companies. although they aren ’ t a direct component of the shadow banking system, they can also be a source of systemic risk. all of this makes it appropriate to extend the reach of regulation. 4. conclusion in conclusion, i would like to reiterate the three main points of my speech. • first, we need to redraw the boundaries between the state and the market by tackling and solving the problem of systemically important banks. • second, the state needs to amend bank regulation – not least by requiring banks to hold capital against government bonds. bis central bankers ’ speeches • and third, the state must extend the reach of regulation. the shadow banking system and insurance companies also warrant our attention – albeit for very different reasons. these three aspects are crucial to ensuring financial stability, but they will not be sufficient on their own. we need to be clear

axel a weber : what imbalances after the crisis? speech by professor axel a weber, president of the deutsche bundesbank, at the international symposium of the banque de france : regulation in the face of global imbalances, paris, 4 march 2011. * 1. * * introduction ladies and gentlemen, over the past several decades, the economies of the world have become increasingly integrated. with the removal of barriers to the worldwide flow of ideas, services, goods and capital, a global economy emerged. this has brought about a large increase in welfare and still harbours huge potential for further economic growth and prosperity. during the past years, growth in the world economy has become increasingly unbalanced, however. a visible expression of these imbalances are divergences in current account positions. although these imbalances were not the ultimate cause of the financial crisis, they did play a role in the build - up of unsustainable structures. this sparked public debate regarding the options to rebalance the world economy and secure sustainable long - term growth. let us first take a look at recent developments with regard to global imbalances and then discuss some policy options to address these imbalances. 2. global rebalancing : recent trends and perspectives over the past two and a half years we have witnessed a partial correction of current account imbalances which was mainly driven by external adjustments in deficit countries and by lower surpluses in commodity exporting countries. however, the imf forecasts a renewed divergence of current account positions. while the current account of the euro area as a whole will remain broadly in balance, future trends in global imbalances will be determined mainly by the united states on the deficit side and by emerging asia and oil - exporting countries on the surplus side. according to these forecasts, the current account deficit of the united states will increase slightly until 2015, while the chinese current account surplus is expected to increase more sharply. the medium - term outlook, however, is uncertain as the chinese government has outlined a new plan to raise domestic demand. current account surpluses in oil - exporting countries have not returned to pre - crisis levels, but given the recent hike in oil prices the surpluses might increase faster than initially expected. to sum up, current developments suggest that global imbalances will grow again and remain uncomfortably large over the coming years, albeit at below pre - crisis levels. thus, there is good reason to further discuss policy options