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Lecture by Vítor Constâncio, Vice-President of the European Central Bank (ECB), at the Conference on “European Banking Industry: what’s next?”
Mr. Constâncio argues that banks are under siege but a successful adaptation to the challenges they face is key to revive their prospects and their effective contribution to credit intermediation. After all, one cannot ignore the importance of a stable, profitable and competitive banking sector for sustainable economic growth, even if it is bound to shrink.
In this lecture, he first dwells upon the main challenges that banking activity faces in the world at large.
He then discusses some proposals that aim at a deep reform of the financial system, in view of the future role of banking.
Finally, he focuses on the specific challenges confronting the euro area banking sector, from low profitability to excessive NPLs, overbanking and new regulations like TLAC and MREL.
ECB’smonetary policy has been the only expansionary policy in the euro area. Putting together all its policy effects, it has undoubtedly helped banks, as the improvement in profitability since 2013 illustrates. ECB trusts that ECB will achieve normalisation of inflation levels in the next few years, which will change the macroeconomic environment for the better, thereby supporting the banking sector. At the same time, ECB are well aware of collateral effects of its policy on the economy and know the limits of certain policy instruments.
Banks are not going to disappear any time soon under a wave of Fintech start-ups. Mr. Constânciosays: „However, in the present situation we must count on the ingenuity, effort and competence of the banks to change into more efficient institutions with lower cost/income ratios and with the capacity to face fierce competition in a world of changing technology. Only a robust and profitable banking sector can serve the economy and finance the economic growth that we need.”