andreas dombret : long - term challenges facing banks in germany dinner speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the bundesbank ’ s autumn conference “ achieving sustainable financial stability ”, berlin, 1 october 2014. * 1. * * introduction ladies and gentlemen it is a pleasure for me to welcome you to this year ’ s bundesbank autumn conference. in my view, the topic of this conference is well chosen. the crisis and the great uncertainties it has brought on have made the pursuit of financial stability all the more urgent. for this reason i am delighted that so many of you have been able to accept the bundesbank ’ s invitation to discuss this sensitive issue. this evening i would like to take a closer look, with you, at the long - term challenges facing german credit institutions. with more than 1, 800 institutions, the german financial system is the largest – in terms of sheer numbers – in the euro area. this large number reflects a special feature of the german banking system, namely that it is built on three pillars. alongside the private banks, many regional savings banks and credit cooperatives are in operation. in the crisis, these locally important institutions played a major part in stabilising the german economy, because they were less strongly affected by the financial crisis thanks to their traditional business model. nonetheless, all banks have felt the effects of a great loss of confidence since the financial crisis erupted in 2008 – they have lost the confidence of the general public, of trade and industry and of the interbank community. there are two major reasons for this loss of confidence. the first is uncertainty about how sound individual institutions actually are. the second relates to wrong investment advice in connection with securitisation products and certificates. more recently, confidence suffered again as information about banks ’ misconduct came to light – for example, the manipulation of reference rates such as euribor and libor or the legal violations that have often garnered so much attention from the media. the financial crisis and the subsequent loss of confidence have given rise to a major reform of financial regulation. basel iii is certainly the best known and most important of the measures designed to make banks more resilient by strengthening their capital and liquidity position. and many banks have indeed strengthened their capital position significantly over the past years. this elevated robustness is indispensable, as it was never possible at any point in the past to identify the specific causes

, initial experience with the new currency in the international financial markets can be evaluated. the changeover to stage three of emu, which posed an extraordinary technical and operational challenge to all financial market participants, was an unqualified success. despite the technically complex task at hand, there were no serious malfunctions. much to the relief of the financial market participants, the convergence of interest and exchange rates took place even before the euro was launched. the speculative attacks against the euro which many people were afraid would happen did not come to pass. the money market rates converged towards the low level of the core countries, which was set by means of the coordinated interest rate reduction by the central banks of the eurosystem in december 1998. all in all, the smooth transition from the national currencies to the euro can be regarded as a sign of the high quality of the preparations made by the central banks and the private financial market participants – and as public recognition of the hitherto successful convergence process of the partner countries. - iv confidence in the role and the work of the ecb is rising within the german population. the decision to locate the european central bank in frankfurt and the composition of the governing council with wim duisenberg as president stand for a tradition of stabilityoriented monetary policy. after all, the institutional regulatory system of the eurosystem was modelled on that of the bundesbank. the establishment of an independent european system of central banks unmistakably dedicated to the goal of price stability was of the utmost importance for german residents and politicians. like the bundesbank act, the maastricht treaty only envisages supporting the general economic policy of member states provided this does not prejudice the objective of price stability. the governing council of the ecb has thoroughly discussed its monetary policy approach and subsequently presented and explained the results in detail to the public. the ecb has made it plain that – in line with its mandate – it shall pursue neither an exchange - rate - oriented monetary policy nor an anticyclical monetary policy. exchange rates and the business cycle will certainly be carefully observed, analysed and taken into consideration in the decisionmaking process, but they do not determine the general orientation of the ecb ’ s monetary policy. rather, monetary stability as the primary goal of the ecb shall be ensured by regulating the growth of the money stock, with the aid of interest rate policy, in a way that, on the one hand, enables