Yves Mersch: Grasping the new normal of the banking industry – a view from a European Central Banker

14 June 2016

ECB's Yves Mersch speech at the European Financial Congress focused on the message that both change and stability are needed to secure the future of Europe’s banking sector.

Europe’s banking sector faces many challenges: challenges to its business models and to its profitability; competition from the non-bank sector; disruptions provoked by new technologies in the payments field; and challenges related to implementing the requirements of new regulation.

Mr. Mersch first elaborates on the challenges facing banks under what has come to be known as the ‘new normal’. Then he focuses on the new regulatory and supervisory framework and the importance of it being completed with a solid architecture for managing financial crises.

“Let me draw to a close. A stable financial system is an absolute prerequisite for sustainable economic growth, but stability alone is not enough: as has been said before, we all want stability, but we should not want the stability of the graveyard.” Mr Mersch said.

He continues: “It also has to be profitable for banks to provide credit to the real economy. For that, we need a more favourable business environment in Europe but we also need less uncertainty, including in the realm of regulation. The cost of equity cannot stay above the return on equity forever.”

Regulatory reform is necessary but it should lead to regulatory reliability. There is need to aim for regulatory completion yet still strive for a new dynamic equilibrium to provide the solid foundation that banks need in order to operate effectively.

Mr Mersch is convinced that the transformation of Europe’s banking landscape currently in progress can lead to a stronger, more competitive and more resilient banking system if we succeed in balancing change and stability.

Full speech

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