and all that in 20 minutes. in light of such incidents some have argued that post - crisis regulation has put pressure on banks to quit activities, which led to reduced liquidity, thereby increasing the likelihood of extreme price swings. this logic provides the basis for some people ’ s demand for a redesign of regulation. regulators are carefully monitoring the micro - and macro - prudential implications of the reforms. however, any analysis and recommendation would have to recognise that a reduction in the trading activity of banks was a genuine intention of the post - crisis reforms. we therefore need to weigh up concerns about liquidity against reduced trading activity. to put it bluntly : yes, markets are going to be less conducive for the generation of quick profits, but that was what was intended by the reforms – what we very much need are informed and committed investors, not short - termism. this will strengthen stability. but that is also why banks need to adapt to the new environment. while the banking sector has been shaken, business models have not been stirred – that is, only few have been overhauled. some stirring, however, might not hurt. and, here, it is market forces, rather than regulatory forces that come into play. what i mean is that banks must apply the acid test to their business models. especially european banks are lagging behind in redirecting their strategies. against the backdrop of changed market structures and in a low interest rate bis central bankers ’ speeches environment – which is, in all likelihood, here to stay – banks must urgently rethink their strategies to survive. i cannot emphasise enough how pressing it is for banks to assess and adapt their business models. but let me also stress that it is not the task of supervisors to intervene in the strategic orientation of banks. we have a public mandate to put a stop to imprudent activity with the aim of securing a stable banking sector that serves the real economy. therefore, we tax and limit negative externalities. for example, in addition to what i have already discussed, legislation and regulation of banking structural reform – also known as “ ringfencing ” – is under way in the us, the uk, and the eu. the regulations will ringfence those segments of banks that deserve particular protection, in particular deposits. this is designed to internalise negative externalities and reduce moral hazard. banks will have to accept the new public framework and construct sustainable business strategies which are compatible with it and which may restru

had been a significant factor in boosting consolidation. the second paper evaluates the fear that the lower on average, risk - based capital charges on loans to small - and medium - sized enterprises by basel ii adopters would put non - adopters at a competitive disadvantage. this study concludes that the empirical evidence suggests that, indeed, a competitive issue in this market might arise between adopters and large bank non - adopters, both of which make the same types of loans in the same markets. this potential effect must be addressed. but the study also concludes that, on the basis of empirical review, the types of small business loans generally made by community banks - relationship - based loans, which community banks do so well - are so different from the types of loans made by larger banks, and so differently priced, that the competitive effects on community banks of basel ii application to large banks are likely to be insignificant. two other studies, exploring the competitive effects in the residential mortgage and credit card markets will be available in the next few months. the results of all four studies will be reviewed when we conduct later this year another quantitative impact study on the revised basel ii now being developed. and, again, if updates of the completed studies or the analyses in the new studies demonstrate competitive problems, we will modify the proposals to address them. summary in summary, the banking system is in a strong and profitable position to finance the credit demands of the current expansion. as that expansion continues, both large and community banks will have to once again look beyond their core deposit base to fund those demands. the competitive environment for banks, especially community banks, will continue to intensify. both history and current behavior suggest, however, that community banks can innovate and meet these competitive challenges. the merger trends of both large and small banks will undoubtedly continue, but both public policy and new entry will also continue to limit concentration in local markets. if evidence shows that a bifurcated application of basel ii would distort competitive markets in the united states, the agencies are pledged to make whatever modifications are necessary to either the proposal or the current capital rules. and, finally, once again : ken, i wish you a productive and enjoyable retirement.