The Federal Reserve places great importance on our relations with the Bundesbank. Few such relationships have been as important, over the decades, in promoting financial stability and prosperity around the world. Governments, central bankers, and financial regulators labor today in the long shadow cast by the global financial crisis, and that likely will remain the case for many years.
For some parts of the banking system, these adjustment needs have arisen because of regulation discouraging unsustainable pre-crisis business models that were highly reliant on aggressive leverage and maturity transformation, regulatory arbitrage (in particular via offbalance sheet activities), and a lack of transparency and due diligence in the origination of financial products. In others, the adjustment needs reflect structural challenges and overcapacity.