“ market ” to the financial markets – that is, we have to restore the fundamental principles of a market economy. the most important of these principles is the principle of liability. everywhere it is common sense that people should be held responsible for their actions. everywhere but in the world of banking, it would appear. during the crisis, governments around the world spent billions of dollars out of taxpayers ’ pockets to save the banks. this indicates that the too - big - to - fail banks, at least, play by a different set of rules. they are woven so deeply into the fabric of the financial system that their failure might tear everything apart. the consequence is this : whenever a too - big - to - fail bank runs into trouble, the government might be compelled to bail it out in order to prevent a full - blown financial crisis. this means that these banks are implicitly insured. whatever happens, the government is likely to stand ready to help. and this has consequences for the nature of the game. first, according to a recent study by the federal reserve bank of new york, “ too - big - to - fail ” banks have a funding advantage bis central bankers ’ speeches over smaller banks. second, the implicit insurance provides incentives to engage in risky business that promises high returns. if things turn out well, the bank wins. if things go wrong, the taxpayers lose. the principle of liability has obviously been violated. the crucial question at this juncture is the following : what do we need to do to restore it? well, the decisive point is that banks must be able to fail without dragging the entire financial system down with them. what we need are effective resolution mechanisms for banks. this is common sense at the conceptual level. however, when it comes to implementation, things turn out to be a little more complex. putting practicable resolution procedures in place is a difficult endeavour, especially in the international context. systemically important banks have large numbers of entities in many countries, each of which has its own procedures and supervisory traditions. in the absence of a sound legal basis and close cooperation, resolution measures executed in one country might not always be recognised by other countries. thus a well - coordinated approach between authorities is needed. the purpose is to maintain systemically important activities while resolution procedures are applied. coordination and advanced planning of resolution measures enable authorities to consider financial stability from an international point of view, not merely from a national perspective. to this end, a new international standard on the

the ecb governing council reacted swiftly and decisively – with a wide range of monetary policy measures. public attention honed in on the purchase programmes in particular : in this context, the governing council page 16 of 19 deutsche bundesbank, directorate general communications wilhelm - epstein - strasse 14, 60431 frankfurt am main, germany, tel. : + 49 ( 0 ) 69 9566 3511, fax : + 49 ( 0 ) 69 9566 3077 presse @ bundesbank. de, www. bundesbank. de reproduction permitted only if source is stated. expanded the existing programme and also launched a new, pandemic - specific emergency purchase programme, the pepp. i ’ m sure you ’ re aware of my fundamental scepticism regarding large - scale government bond purchases. indeed, these purchases risk blurring the boundary between monetary and fiscal policy. this is particularly problematic in the context of a monetary union. for instance, the purchase programmes prior to the coronavirus crisis caused the eurosystem to become the member states ’ biggest creditor. this waters down the disciplining effect of market forces on fiscal policy, and incentives to achieve sound public finances dissipate. overall, i deem the risks associated with government bond purchases to be high. that being said, bond purchases can undoubtedly be a legitimate and effective monetary policy instrument. that ’ s why ongoing assessment, which must cover the impact and potential side effects of any action taken, is also required here. even in times of crisis, monetary policy depends on selecting the right yardstick, choosing appropriate instruments and designing programmes cleverly. this can certainly result in assessments that vary in terms of detail. when deciding on the pepp, it was particularly important to me that it have a time limit and be explicitly tied to the crisis : the emergency monetary policy measures must be scaled back when the crisis is over. furthermore, one thing needs to be clear : monetary policy as a whole must be normalised if the price outlook requires this. after all, the risks and side page 17 of 19 deutsche bundesbank, directorate general communications wilhelm - epstein - strasse 14, 60431 frankfurt am main, germany, tel. : + 49 ( 0 ) 69 9566 3511, fax : + 49 ( 0 ) 69 9566 3077 presse @ bundesbank. de, www. bundesbank. de reproduction permitted only if source is stated. effects of