solution to the “ too big to fail ” problem will be critical in order to protect public budgets from banks ’ distress. what we need is a resolution mechanism which will allow even large banks to be resolved without jeopardising the financial system or requiring the taxpayer to foot the bill. looking towards europe, this is where the second element of the banking union comes into play : a single recovery and resolution mechanism for banks. what will initially be decisive here is to define a clear liability cascade. who is liable when banks founder? shareholders and creditors undoubtedly should be at the very front of the line when it comes to shouldering losses. taxpayers should be the last link in the chain, if they are even in the chain to begin with. a bank recovery and resolution directive, which would cover all these factors and thus represent a great step forward, is currently being discussed at the european level. the draft version currently on the table, however, still leaves discretionary scope in deciding the extent to which creditors shall be held liable. in the interests of market discipline, that should be changed. it is also important that the resolution mechanism be introduced at the same time as the ssm, if at all possible. on the whole, however, the banking union is a key milestone on the way to a stable monetary union, not least because it will help to sever the sovereign - bank doom loop – at least clockwise. 6. conclusion ladies and gentlemen, we have examined the crisis from the perspective of financial stability. a key element is the doom loop of mutual contagion between banks and sovereigns, the vicious circle. we will have to pull levers at several different places in order to sever this loop. we have to improve the framework of monetary union, especially with regard to the rules for sovereign debt. we have to adapt banking regulation. we have to elevate banking supervision to the european level. and we have to establish mechanisms which allow banks to be resolved without impacting on public budgets or taxpayers. we should remain aware, though, that we will not be able to solve all problems through government regulation and government supervision. financial stability starts first and foremost with banks themselves. it is the responsibility of banks to act as carefully and prudently as possible. and, in that respect, the banks squandered much in the way of confidence during the crisis. changes are needed here, ladies and gentlemen. we need a change of culture in the banking world. banks have to return

hermann remsperger : research matters – sdge models and the financial sector speech by professor hermann remsperger, member of the executive board of the deutsche bundesbank, at a workshop entitled “ sdge models and the financial sector ” hosted by the technical university of darmstadt and deutsche bundesbank, eltville, 26 - 27 november 2004. * * * i am often asked what role the deutsche bundesbank will be playing - in five or ten years ’ time - not just in the eurosystem but internationally as well. my answer is always the same. over the longer term the importance of the bundesbank will to a large extent depend on how we position ourselves in the field of research. i am not saying that because so many distinguished researchers are gathered here today. nor am i saying it because i am responsible for our research centre. no, i want to emphasise the role of research because in the field of monetary policy, we are faced time and again with new questions which call for theoretically and empirically founded answers. at the same time there are the familiar old problems such as the stability of the demand for money, which have to be continually re - analysed. this strive for knowledge is gaining importance also because the influence of national central banks within the eurosystem depends predominantly on the weight of their arguments. the meetings of the ecb governing council are not a debating club for doves and hawks where everyone knows in advance what the others are going to say about interest rates. it is precisely at monetary policy meetings that one has to have a very good idea of where the wind is blowing from in terms of research. so it comes as no surprise that two focal points of our research agenda are closely tied to monetary policy considerations. one is dedicated to “ goals and effects of monetary policy ”. in the context of the monetary transmission process, for instance, we examine the influence of corporate heterogeneity on the effects of monetary policy. in addition, we concentrate on the role of output gaps, exchange rates and monetary aggregates in monetary policy. the other focal point is concerned with analysing how monetary policy is influenced by several longterm developments in the real sector of the economy. globalisation of production is one of many examples in this area. research papers on labour and capital supply as well as on potential growth are further important examples. however, i do not want to create the impression that central banks are only concerned with monetary