29 May 2017

Mario Draghi statement at the hearing of the Committee on Economic and Monetary Affairs of the European Parliament

[...] The economic upswing is becoming increasingly solid and continues to broaden across sectors and countries. Real GDP in the euro area has expanded for 16 consecutive quarters, growing by 1.7% year-on-year during the first quarter of 2017. Unemployment has fallen to its lowest level since 2009. Consumer and business sentiment has risen to a six-year high, supporting expectations of a further strengthening of growth in the coming months.

Downside risks to the growth outlook are further diminishing, and some of the tail risks we were facing at the end of last year have receded measurably. The fact that domestic consumption and investment are the main engines driving the recovery makes it more robust and resilient to downside risks, which relate predominantly to global factors.

Despite a firmer recovery, and looking through the volatile readings in HICP inflation over recent months, underlying inflation pressures have remained subdued. Domestic cost pressures, notably from wages, are still insufficient to support a durable and self-sustaining convergence of inflation toward our medium-term objective. For domestic price pressures to strengthen, we still need very accommodative financing conditions, which are themselves dependent on a fairly substantial amount of monetary accommodation.

[...]Overall, we remain firmly convinced that an extraordinary amount of monetary policy support, including through our forward guidance, is still necessary for the present level of underutilised resources to be re-absorbed and for inflation to return to and durably stabilise around levels close to 2% within a meaningful medium-term horizon. [...]

The relevance of financial innovation for the ECB and the euro area

[...]A deep knowledge of the channels through which monetary policy affects the economy is of crucial importance to us. As fintech, and financial innovation more broadly, have the potential to impact the way the economy is financed, in the future they may affect the transmission mechanism of monetary policy and ultimately financing conditions. As the central bank for the euro area, we thus remain vigilant and make sure that changes in the financial landscape are closely tracked.

As central bank of issue for the euro, the ECB and the Eurosystem also have a statutory interest in the safety and efficiency of payment systems and market infrastructures. One of the most active fields of fintech innovation which might affect the processing of payments and securities is that of distributed ledger technologies (DLTs), such as the blockchain. Given the rapid pace of development in this field, there is a need to constantly monitor and assess potential new or more pronounced risks resulting from the application of new technology such as DLTs to payment, clearing and settlement infrastructures in particular. One such possible risk is an increase in market fragmentation if different DLT approaches were to become firmly established in parallel in different Member States. Moreover, the Eurosystem oversight framework has to remain effective if we are to discharge our responsibility in this new environment. And the Eurosystem will of course continue to act in accordance with its mandate to promote the smooth operation of payment systems.

Fintech also gives the financial sector, more generally, a chance to provide more efficient and effective services to households and companies. Fintech can, for instance, make it easier for banks to adjust their business models, cut costs and exploit new business opportunities. Fintech companies can also complement the lending capacity of banks by acting as an additional channel for accessing credit, for instance through peer-to-peer lending platforms. This may in turn help to reduce the macroeconomic fallout from disruptions in the provision of bank credit to households and firms, including smaller ones.

At the same time, the increasing relevance of non-banks and digital innovation in the provision of financial services may also harbour new risks. It is, for instance, essential to assess and adapt the prudential framework to cater for the increased role of non-banks and financial innovation, ensure the existence of a level playing field for both new and existing players and provide supervisors with adequate tools to address new risks. To this end, we are actively involved in ongoing work at both European and international levels.

Furthermore, risks stemming from the use of new technologies need to be carefully managed, particularly in the context of heightened cybersecurity concerns. Cyber risk has long been a priority for national and European supervisory authorities. Since day one, the ECB Banking Supervision has also addressed the issue from various angles. As financial market infrastructure overseer, we also need to ensure that individual systems, as well as the network as a whole, are operationally resilient to cybercrime.

While we are closely monitoring potential risks from fintech, we also contribute to financial innovation by acting as operators. The TARGET2-Securities (T2S) platform that went live in June 2015 is now a cornerstone of the capital markets union project and has given a strong impetus to promoting and creating harmonised, integrated and efficient euro payments and securities post-trade services.

The ECB is also acting as a catalyst in the creation of a truly single European market for payments and securities. Financial integration and financial development are distinct, but interrelated concepts. Therefore, in designing the necessary institutional and regulatory frameworks we need to make sure that financial integration and financial development reinforce each other, thus improving the performance of the financial system. This is why EU legislators have an important role to play. A Europe-wide harmonised and principles-based framework to regulate fintech, in the context of the capital markets union agenda, would indeed help to create a level playing field from the outset. This would in turn foster cross-border investment and expansion. [...]

Full speech

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