business models will be supervised more closely than small banks and banks with low - risk business models. the process of change associated with the ssm, by the way, will affect not only the banks but also us as supervisors. however, even in the new supervisory world order, the bundesbank and bafin will still be closely involved in off - site supervision. the ssm will give national supervisors the opportunity to acquire new experience, which they can then transfer to supervision of the nearly 2, 000 german banks for which national supervisors will remain responsible. the step towards an ssm for europe will therefore affect all banks, and all banks will benefit. 4. competition : much tougher to sum up : we have improved regulation and supervision alike. this will make the future of the banking system more stable and less crisis - prone. however, i already hinted at the beginning that supervision and regulation are not just for banks but particularly for society at large. within the regulatory framework and under supervisors ’ watchful eye, banks will have to look out for themselves in future, too. this is all the more so as, in future, sovereigns will no longer be around to rescue banks in an emergency with taxpayers ’ money. this is due to the new “ bail - in ” rules for shareholders and creditors and to the new european resolution mechanism which will take effect in 2016. regulatory reform is thus putting more “ market ” into the financial markets – and with markets also comes the possibility of failure. in the words of economist allan meltzer : “ capitalism without failure is like religion without sin – it doesn ’ t work ”. in future, it will be up to the banks themselves to hold their own in the market. and for this they need two factors : stability and profitability. regulation and supervision can at least contribute to stability ; however, banks themselves are responsible for profitability. bis central bankers ’ speeches where does the german banking system stand with respect to stability and profitability? not quite two weeks ago, the ecb published the results of the comprehensive assessment. in this exercise, the 130 most significant euro - area banks were subjected to a thorough health check – with regard to the quality of their assets as well as to their resilience to a possible economic downturn. the exercise identified capital shortfalls at a total of 25 banks in europe. twelve of these banks already closed the capital shortfalls this year, while the other 13 now have nine months to remedy their shortfalls. this should

take place primarily through genuine capital increases, ie not by reducing their risk - weighted assets and especially not using public funds – a particularly important point, in my book. the 25 german banks passed the comprehensive assessment, with one exception. the bank that failed has already closed the identified capital shortfall, however. incidentally, a total of five german banks would have failed the test if the basel iii capital definitions which enter into force from 2018 had been applied. like with any test, among those banks which passed the test, some passed with good marks and others only just scraped through. it is above all those banks which just barely passed which can expect to be monitored particularly closely in future – by supervisors and by the markets. ultimately, however, for all banks, this is absolutely not the time for complacency. the real work is only just beginning. for investors and supervisors are, of course, looking beyond the results of the comprehensive assessment. take, for example, the unweighted capital ratio, that is to say, banks ’ leverage ratio. despite improvements of late, it is still well below the european average – and this goes particularly for the large, internationally active german banks. there is thus a need to catch up. the same also applies to german banks ’ profitability. competition for customers and investors will become much tougher in future, and at the same time more international. global regulation and european supervision will level the playing field on an international scale. german banks are therefore increasingly being forced to face international competition. and an international comparison shows that german banks do indeed have catching - up to do with respect to profitability. their return on equity and return on assets were both well below the european average in 2013. one driver of german banks ’ sluggish earnings is that their business models depend relatively heavily on interest income. in a protracted period of low interest rates, this naturally weighs on earnings. in the first half of this year, the large german banks ’ operating income was down roughly 8 % from the previous year – a decline driven by falling net interest income. the problem we are dealing with here is ultimately structural : one can see that interest rate margins have been on a continuous slide since the mid - 1980s. this has been affecting, in particular, the major banks in germany, including the landesbanken. therefore, in order to be ready for the future, banks should rethink their business models and orient them to sustainable profitability. the need to