resolve banks without significant economic harm to the economy as a whole – and to see this through if the worst comes to the worst. resolving and closing a bank is by no means a cure - all and it is certainly not an easy task. where possible, things should not be allowed to go that far in the first place. and that is where strict capital requirements, effective supervision and deposit business shielded from riskier business lines come into play. the banking union also needs to be supported by an appropriate regulatory structure. in other words, banks must be required to hold sufficient capital for claims on government and not be allowed to accumulate them on too large a scale in future. it would be dishonest to assert that all these measures will make it impossible for banks to get into difficulties in the future. therefore, if that actually does happen at some time, having a reliable procedure in place that creates planning certainty will be all the more important. with this in mind, the main task of the single resolution mechanism that is currently being developed is to ensure the correct sequence of liability is applied in such a process. if a bank is to be restructured or resolved, equity investors should be the first port of call, followed by the providers of debt capital, and only then the depositors, taking due account of deposit guarantees in the respective member states. national and european taxpayers should only be called upon as a very last resort. if public funds are used, the question arises as to how liability is to be apportioned between the european level and the member states. joint liability of all member states can only exist at eu level for those institutions directly supervised by the ssm. in such a case, it is also appropriate, however. having said that, it is unclear whether the member states are to be discharged of all liability or whether a certain percentage of the costs is still to be apportioned to them. the latter is suggested by fact that, in the current framework of monetary union, member states are still able to exert a perceptible influence on financial stability through their national economic and financial policies – say, encouraging the emergence of a real estate bubble through special tax benefits. this should be kept separate from the treatment of balance - sheet burdens that arose while the various banking systems were still under national supervision. if the unity of liability and control is also taken seriously on this point, too, the member states in question should themselves also be liable for these burdens as well. as the

jens weidmann : challenges for banking regulation and supervision in the monetary union speech by dr jens weidmann, president of the deutsche bundesbank, at the deutscher sparkassentag 2013, dresden, 24 april 2013. * 1. * * introduction mr fahrenschon mr genscher mr steinbruck ladies and gentlemen it gives me great pleasure to speak to you today at the sparkassentag 2013. for more than three years now, the financial, economic and sovereign debt crisis has been the dominant topic in the european monetary union and, at the same time, its biggest test. dated from the outbreak of the crisis on the us real estate market in the summer of 2007, this is already the fifth year in which we have been in crisis mode. that said, germany is still in relatively good shape – despite undergoing by far its worst postwar slump in 2009 and despite being one of the first countries to be affected by the spillover from the crisis on the us real estate market. germany has had to use considerable financial resources to stabilise the financial system. savings banks, too, felt the effects of the crisis – although they did so directly only in a few cases ; mostly it was through their investments. even so, savings banks had a stabilising effect during the crisis. they were a robust and reliable source of lending. and they strengthened their capital base. that is a major precondition for overcoming the challenges that are on the horizon – such as sustained pressure on margins and increased risk provisioning for the next economic downturn, which is bound to come at some time. the various aspects of the crisis – first, only a financial crisis, then an economic crisis and, finally, the sovereign debt crisis – which is still with us – have prompted a large number of discussions, changes and upheavals. this applies to the role of central banks and to the expectation of what central banks can and should – or cannot and should not – do to help resolve the crisis. it also applies to the financial system and the way it is perceived by the public at large. mr steinbruck will undoubtedly explain in more detail soon how he wishes to “ tame the financial markets ”. overcoming the crisis requires considerable efforts in many areas. but, as important as the issues of government debt, monetary policy and competitiveness are, i would now like to turn my attention to banking regulation and supervision. 2. reform of financial market regulation – objectives and measures roughly ten