Transcription
It's a great pleasure to introduce and open the uh ECB annual research conference. I think it's a flagship event by now which brings together researchers from academas and policy makers so that in a spirit of good uh and respectful uh cooperation we can actually confront ideas and compare notes and come to conclusions.
And I found, I have to say, the title of this conference a little bit intriguing. Quite provocative as you said, Luke, rightly. And I wondered whether I should really open the conference because my professional life in public service is just littered with crisis one after the other to the point that my husband actually said that I should not take another job after this one risk of provoking yet another crisis. So being where I am and comfortably facing adversity, we still ask ourselves with a big question mark at the end. Please note the next financial crisis. And the question mark is intended to express that we're not trying to trigger, to provoke, but to actually do everything we we we can to anticipate, prevent, and examine what the circumstances are that would actually trigger such a a crisis.
And I think we must keep two points in mind when thinking about the topic. First, throughout the post-war era, the global financial system has been in constant transformation and the pace has only accelerated with advances in technology. And second, what appears new often simply reflects old risks except with a different costume and in a different form. And here I'm reminded of professor Carmen Rhina and Kenneth Rogoff's and the history of financial crisis. This time is different. The book's subtle subtitle tellingly is not it's different. It says eight centuries of financial folly. After eight centuries of experience, I think it's fair to say that this time it is never different. And that is why research plays such an important role in helping to safeguard financial stability through rigorous analysis and a solid understanding of the past. Research helps us see how innovation advances and reshapes the economy while also bringing potential risk into sharper focus so that policy makers can address them proactively and hopefully anticipate them and prevent them.
Research is particularly vital in helping us to understand the implications of the profound transformations that have reshaped the financial system since the global financial crisis which is a relatively short span of time. If you look at the eight centuries on the one hand and you know the 15 years or so on the other hand and one of the major structural shifts in the financial system over those past two decades has been the growing footprint not so much of banks but of non-banks financial institutions we used to call them the the shadow banking system now it's the NBFI and all of you know what the NBFIs are but they are non-bank but yet financial institutions s and that will be the the focus of today's first session.
In the euro area, non-banks ranging from investment funds and insurance corporations to money market funds and securitization vehicles and what have you. Those non-banks have expanded from 140% of GDP in 1999 to nearly 400% of GDP today. 400% of GDP today on a per capita basis. This is way more than the US market. So they play an increasingly important role in financing the real economy and in managing the savings of households and firms. They now account for over 60% of the Euro area financial sector. The banking sector, which is the focus of your second session, is also operating in a fast changing landscape driven both by technological innovation and by the emergence of non-banks. For starters, technology challenges banks business models through the rise of fintex as well as new innovations like stable coins if they gain substantial traction and could cause a major threat at least in this part of the world. On top of this, technology also amplifies both the speed and scale at which these risks can materialize. You would all remember March 2023 when three banks, relatively small, granted, but three banks nonetheless, collapsed in less than 5 days. It highlighted how social media can act as a powerful conduit, an amplifier for panic and contagion. All the more so now that banking services are available on our phones.
The bank and non-bank sectors are not just changing rapidly. They're also highly interconnected. In the Euro area, for example, banks asset exposures to non-banks are consider considerable and on average account for around 10% of significant institutions total assets. Given this transformation in the financial system, astute supervision and regulation, the focus of your third session taking place tomorrow at the conference, remain in our view critical. Guided by the insight of cutting edge research, it is incumbent on policy makers to remain alert to financial stability risks as what they are and when they emerge. These risks may present themselves in new costumes, arise in industries well-versed in obscure terminology and be cloaked in the language of innovation. But in substance, the underlying types of risks are often the usual suspects. Non-banks face liquidity and leverage risks. Banks face maturity transformation and run risk. and stable coin issuers face redemption and reserve risks. But at the end of the day, it's always the same who hold the bag and suffer the loss.
Europe is sometimes accused of overregulating. But the role of supervision and regulation is not to hold back innovation or structural transformation. Far from it. On the contrary, it is to contain the risks that may accompany those changes. This helps to ensure that innovation can take secure route and actually thrive. With this in mind, Europe is now implementing an ambitious simplification agenda under the direction of the European Commission and the European Central Bank will contribute with all the points that I have just made in that I have just made in mind. Because simplification does not mean deregulation. Not here. It means maintaining resilience with a more effective and efficient supervisory and regulatory framework. And the discussions over the next two days will add insights to the debate on the efficient design of supervision.
But before those sessions begin, the conference opens with a much anxiously anticipated keynote by my friend Raguran or Rajan. Thank you very much for joining us. Your experience combines a distinguished academic carrier you started. It brings into your profile public service on the international scene as chief economist of the IMF and I salute here one of your eminent successes Pier Olivier who is with us as well and then a very uh eminent role in domestic public policy as central bank governor of uh your country India. Your keynote will reflect on the relationship between monetary policy and financial stability and we're very grateful that you've accepted uh this uh task.
We will not have all the answers on ensuring financial stability at the close of this conference. But testing ideas, comparing evidence, engaging in rigorous debate, we can make policy more robust in the face of an uncertain future. At a time of rapid transformation in the financial system, some may think the old risks no longer apply. But research and experience demonstrate otherwise. And as the French critic Jean Batist Alonskar observed, all right, I'll translate. The more it changes, the more of the same we get. So in other words, this time it's not different, but we have to be a bit different in the face of changes. Thank you very much.