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A resilient and well-functioning banking system forms the backbone of a thriving economy, acting as the engine that drives innovation and sustainable growth. By providing reliable access to credit and financial services, banks help people invest in their education, start businesses and achieve long-term financial security. A safe and stable banking system gives depositors the confidence to save and plan for the future, knowing their money is protected.
I would like to make three main points.
First, ten years after successfully establishing a banking union and helping strengthen the banking sector – no small feat – the SSM is evolving in its supervisory approach to ensure that we continue to deliver effective supervision amid a changing financial landscape.
Second, I will argue that we need to use our full range of vision to tackle the current risk environment. This includes the challenges posed by the growth of the non-bank financial intermediation (NBFI) sector and rising geopolitical risk, which manifests itself in several ways, such as concerns about cyberattacks as well as nature and climate risks. Addressing these risks will contribute to the continued resilience of the financial system.
Third, our playing field has shifted dramatically. A stable and secure financial system is essential for long-term competitiveness, and we should not see safety and competitiveness as opposing forces. They are both preconditions for resilience. And to achieve long-term competitiveness, we need to embrace digital transformation.
It is important that the hard-won lessons of the global financial crisis are not for naught. In the last few years, the banking sector faced the triple threat of the pandemic, energy shocks from the war in Ukraine and a rising interest rate environment after a prolonged period of low interest rates. Or as President Lagarde put it[1]: “We have faced the worst pandemic since the 1920s, the worst conflict in Europe since the 1940s, and the worst energy shock since the 1970s”.
These all were the kind of events that happen infrequently; any one of them could have resulted in significant weaknesses in the banking system. But thanks to the work of my predecessors, the banking system proved resilient in the face of these threats.
The robustness of the system is evident in the data: in 2015 the average ratio of non-performing loans (NPLs) for significant banks in the banking union was 7.5%, at a time when some banking systems had ratios nearing 50%. By the end of the second quarter of this year, it had decreased to 2.3%, driven mainly by the reduction of NPLs in high-NPL banks.
Likewise, the Common Equity Tier 1 ratio for significant banks has improved, rising from 12.7% in 2015 to 15.8% today. Bank profitability has increased considerably in recent quarters, benefiting from higher interest rates, and return on equity now stands at 10.1%....
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