sabine lautenschlager : current developments in macroprudential oversight speech by ms sabine lautenschlager, deputy president of the deutsche bundesbank, at the 14th handelsblatt annual conference “ update on banking regulation ”, mainz, 6 november 2013. * 1. * * introduction dear mr afhuppe, dear professor schulte - mattler, ladies and gentlemen the flyer advertising this event invited us to “ keep our finger on the pulse of developments in banking regulation ”. in my opinion, the heartbeat of regulation cannot be overheard ; it beats fast, almost a staccato – if you consider the wave of regulations over the past five years and the changes in the approach to supervision. today, i would like to discuss one of the three major changes that face banks and supervisors – and will possibly get your pulse going in the future. what changes am i referring to? the first major change are the completely revised rules for banks, known as “ basel iii ”. the second change is the banking union. both subjects have already been discussed at length and in great detail. i therefore propose to talk about major change number 3 today, “ macroprudential oversight ”. it is my impression that banks and market participants have, to date, paid too little attention to the ways in which this new type of supervision could affect them. however, the potential impact of the instruments available for this task should not be underestimated ; on the whole, they are directed at banks, they may affect a category of banks or a national banking industry, and may impact all of the business or just individual business areas. this raises elementary questions such as that of a level playing field. 2. macroprudential oversight : definition and background what is macroprudential oversight anyway? before the financial crisis, financial supervision dealt mainly with individual market players or individual institutions. put simply, the motto was : if all is well at the individual institutions, all will be well with the system. attention centred on the micro level ; the macro level was not monitored and evaluated systematically, at least not at the national level. macroprudential oversight is intended to do just that : its aim is to identify and assess, in a timely manner, developments that could jeopardise the financial system. we – the bundesbank – define financial stability as the ability of the financial system to fulfil its key economic functions at all times – in particular, to efficiently all

8 per cent in 2013 to 2. 5 per cent in both 2014 and 2015. this implies that the economy will return gradually to capacity over the next two years or so. • our recent analysis has given us an improved, yet still incomplete, understanding of the inflation picture. we now believe the effect of heightened retail competition will subtract about 0. 3 percentage points from core inflation in 2014. this effect will be more persistent than initially thought. • this finding, though, does not explain all of the weakness in inflation. and so, we are exploring whether the output gap has a greater impact on inflation than previously bis central bankers ’ speeches believed, especially when the gap is persistent. this interpretation seems to be relevant for other countries, as well as canada. • while increased competition will have a permanent effect on the level of prices, it will have a transitory effect on the rate of inflation. as such, we believe policy should look through it. • although the fundamental drivers of growth and future inflation appear to be strengthening, inflation is expected to remain well below target for some time, and therefore the downside risks to inflation have grown in importance. at the same time, risks associated with elevated household imbalances have not materially changed. • weighing these considerations, the bank judges that the balance of risks remains within the zone articulated in october, and therefore has decided to maintain the target for the overnight rate at 1 per cent. the timing and direction of the next change to the policy rate will depend on how new information influences this balance of risks. with that, tiff and i would be pleased to take your questions. bis central bankers ’ speeches