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Mr. Liikanen starts: "I thank the organisers for assigning me such a thought-provoking title. For a start, to me it is clear that we continue to need banks also in the future - especially in Europe, where the role of banks in financing households and SMEs is crucial and important also for other enterprises.
However, we have needed and we need a change. We have just experienced and are still recovering from the biggest financial crisis of our generation. The social costs of the financial crisis have been enormous: the losses in the GDP and the increases in unemployment have been very high. If policymakers, in central banks and in governments, had not learned from the policy mistakes made during the Depression in the 1930s, the crisis could have been even more destructive.
To avoid such crises in the future, there is need a more stable and resilient banking and financial system in Europe. To that end, better regulation and supervision of banks and other financial institutions is needed. Well-designed regulation would provide banks with the right incentives to choose their business model, scope, and size efficiently to best serve the society.
Before the crisis, financial regulation was too lax and the supervision of financial institutions too fragmented. Many important steps have been taken or are being discussed to repair the regulatory and supervisory framework."
Some observers have argued that the new regulation has gone too far. Mr. Liikanen disagrees. It is a key responsibility of todays generation to make the financial system much safer than it has been. "To be sure, we do not need to return to the repressive regulation of the post-war period. But we do need to find a better balance between rules and flexibility in regulation than we have had.
Banks play an important role in the economy as the key financiers of households and companies, among other tasks. Banks' role is especially important in Europe, as they are by far the most important source of finance for small and medium-sized enterprises.
One of the principal aims of the ongoing regulatory reforms and other policy actions is to enhance the ability of the financial sector to provide loans and other financial services efficiently and without compromising financial stability. Being successful in these aims would improve the long-term growth prospects of the European economy and thus the welfare of European citizens.
Banks' reputation and the public confidence towards banks have suffered badly since the financial crisis. That has harmed not only banks but also the wider economy. Mr. Liikanen concludes: „We must rebuild the confidence on financial institutions and financial markets. The regulatory reforms advance that aim. I strongly believe that the ongoing reforms will benefit us all - the citizens, the wider economy, but also the financial institutions.“