regulated. generally speaking, this group includes institutions with total assets of over €20 billion. nothing will change for these institutions : all of the basel iii requirements will still apply, as will the additional capital buffer, the total loss absorbing capacity, and so on. a second group would include institutions which are not large and systemically important, but which are also not small and low - risk, which is why it is not possible to make any extensive simplifications for them. nonetheless, the proposal does include for this middle group some targeted relief measures which could be achieved by making specific amendments to the current regulations. finally, the third group is made up of small and non - complex institutions – the banks that are most affected by the fixed costs of regulation without their systemic importance being considered individually. this group – the largest in numerical terms – is to have its cost burden alleviated radically by means of a separate regulation : the small banking box. the burning question now, of course, is which institutions belong in which group – and particularly, which banks could be included in the small banking box. i will say right off that i am not able to conclusively answer this important question today. these classifications have to be balanced carefully, and we will do this as part of european - level discussions. 6 / 13 bis central bankers'speeches i would, however, like to give you an initial idea of how this classification might look. by talking of small institutions, this suggests that a qualification criterion for the small banking box would be relatively modest total assets. for example, in germany, a total assets threshold value of €3 billion could put more than 80 % of institutions into this category. what constitutes large and small in other member states is completely different, however. to account for this heterogeneity, absolute size would have to be supplemented with relative size. 7 / 13 bis central bankers'speeches this could be the ratio of the bank ’ s total assets to its home country ’ s economic power or the size of the domestic banking sector, though in this case, too, size isn ’ t everything. i ’ ve already said that not only do institutions in the small banking box have to be relatively small, they also must not be too complex. this is why we need additional criteria. first, only institutions that we believe would be subject to insolvency proceedings in the event of resolution may be part of the box. second, candidates for the small banking box must not engage

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