to rebalance the world economy. 3. policy options to reduce global imbalances in principle, current account surpluses or deficits are not a problem in themselves. however, the ones we have been observing at the global level are an expression of underlying barriers to sustainable growth and, at the same time, add an element of instability to the global economy. the us current account deficit, for example, has reflected a general decline in saving. despite an ageing population and foreseeable increases in health and age - related expenditures, public saving has deteriorated. at the same time household savings have declined due to increased borrowing against rising house values. the counterpart to the us current account deficits were surpluses in emerging markets such as china and some oilexporting countries. for the latter group of countries, the surpluses can partly be explained bis central bankers ’ speeches by an increase in oil prices. nevertheless, current account surpluses were also caused by exchange rate policies that some countries pursued to artificially support their export sectors. given the malign nature of these persistent differences in current account positions the term global imbalances is indeed justified, and it is necessary to address them. however, when designing relevant measures, it is imperative not to underestimate the complexity of the problem. a country ’ s current account position is driven by a very diverse set of underlying factors from within and outside its borders. consequently, any sensible approach to reducing current account imbalances should not aim at steering them directly. instead, the objective should be to create circumstances in which current account positions are determined by efficient and unbiased market decisions. in this context, the question of which countries have to act to correct the global imbalances can only be answered by taking into account their ultimate causes. in general, emerging economies with high current account surpluses as well as oil - exporting countries should remove structural distortions that limit the expansion of domestic demand. in countries with an undervalued currency, for example, more flexible exchange rates would strengthen purchasing power and thus help to redirect growth from exports to domestic demand. this, however, is not a panacea and should be supplemented by structural reforms. in china, for example, such reforms might include measures to improve social security, which would reduce precautionary household saving, strengthen domestic demand and ultimately lead to a more balanced current account. economies with persistently large current account deficits, on the other hand, should adopt measures

towards greater proportionality. should we look into specific adjustments, or should we go straight into creating a separate regulatory framework for small institutions? the first path has a clear practical advantage : it would be quick and relatively simple to implement, especially since european legislation on banking regulation is currently being revised anyway. it does have its disadvantages, however : realistically speaking, smaller institutions will not gain any substantial relief from their burdens on account of a few specific improvements to regulation. there is also the risk of ending up with a patchwork of exceptions that are difficult to interpret. the second path would be more radical. the creation of a separate regulatory framework for small institutions – also known as the “ small banking box ” – would mean more fundamental relief for these institutions. a clear and consistent definition would also prevent any difficulties in interpretation. though the implementation and maintenance of this would be somewhat more complicated, in future the regulations for small and large banks would be developed in parallel and in alignment with each other. depending on how the threshold values for the small banking box are set, there is also the risk of cliff effects. 4 / 13 bis central bankers'speeches we have carefully weighed up these and many other arguments in the specialist working group on proportionality. the group ’ s purpose was to facilitate the exchange of views between politicians, supervisors and the banking industry. the federal ministry of finance, bafin, the bundesbank and the five central associations of the german banking industry were all represented in this group. these members agreed that it would be expedient to bolster proportionality in regulation. the aim of the working group was therefore to work out specific proposals on how to alleviate the burden of regulation on small institutions with simple business models. and it delivered on that aim : the non - paper that i mentioned earlier, which was written with the group ’ s help, is now in brussels, where it is being used as the basis for further discussion at the european level. 5 / 13 bis central bankers'speeches 5. 1 the question of “ who? " : a three - tier approach so what does the german proposal look like? first, let me address the “ who? ", namely who are the relief measures intended for. the proposal takes a three - tier approach in this regard. at the very top are the systemically important and potentially systemically risky institutions – the smallest group in terms of numbers but extremely important in terms of risk. because of this, it is also the most intensely