Yannis Stournaras: Welcome speech - 6th Endless Summer
Conference
Welcome speech by Mr Yannis Stournaras, Governor of the Bank of Greece, at the 6th
Endless Summer Conference on Financial Intermediation and Corporate Finance,
Vouliagmeni , 3 September 2024.
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Ladies and Gentlemen,
On behalf of everyone here at the Bank of Greece, I am pleased to welcome you all to
the second day of the 6 th Endless Summer Conference on Financial Intermediation and
Corporate Finance.
Over the past six years, this conference has established itself as a premier platform to
share rigorous research in the fields of financial intermediation and corporate finance. I
understand that about thirty papers presented in the last editions have been published
in top peer-reviewed journals in finance and economics. This achievement is
undoubtedly a reflection of the high quality of the conference's research program.
The focus of the conference is directly relevant to the work of a central bank. New (and
old) risks loom high. Geopolitical shifts fundamentally reshape the business
environment for financial intermediaries. Technological advances and new
climaterelated risks also put the current business models to the test. At the same time,
corporate finance continues to evolve in response to emerging trends such as the
incorporation of environmental, social, and governance (ESG) criteria into investment
decisions. In view of the obvious importance of these risks for the transmission of
monetary policy and financial stability, I am indeed pleased that so many eminent
speakers in the fields of financial intermediation and corporate finance are present to
lead the discussions today and I am sure that the conference will provide plenty of food
for thought.
Today's event is structured into three sessions, each of which includes presentations on
cutting-edge topics:
In the first session, we will see research about the implicit trade-off between financial
stability and economic performance when designing macroprudential policies, a topic
clearly of high value to central banks. The discussion will highlight that setting higher
bank capital requirements to increase the resilience of the banking sector to domestic
financial shocks is, however, associated with a larger reliance on foreign liabilities which
make the economy more vulnerable to external financial shocks.
We will also see a paper on the far-reaching implications of the shift towards digital
banking and the decline in physical bank branches on local economies. All in all, the
findings will show, and in my opinion this is how technology works for the real economy,
that there are mixed blessings of technological disruption: large gains often come at the
expense of some losses.
The last paper of this session explores the increasing reliance on bond financing by
small, private, and unrated firms in the euro area. I understand that this shift has
implications for financial stability and firms' access to credit, especially during economic
turmoil. In a more general context, the global rise of bond financing is of course of
particular interest in Europe, as its financial sector has always been heavily bank-based
relative to the US.
The topics on which the second session focus follow naturally from the first.
We will first see research on the potential of SupTech, the use of innovative technology
by supervisory agencies to support supervision, in enhancing financial stability. This
type of research is of high policy relevance since SupTech initiatives have gained
momentum around the world, but little is known about how the use of SupTech impacts
bank behavior.
Next, we will hear about the emergence of two distinct types of banks-high-rate and
lowrate banks-each characterized by different deposit rate behaviors and how
technological advancements in banking contributed to the divergence between these
two types. Understanding this shift is particularly relevant today, as more banks opt to
operate online and the allocation of deposits across banks has significant implications
for the transmission of monetary policy.
The last session of the day features another three interesting papers.
The first paper looks on how bankers affect the personal finances of their social
connections. This is an idea that it worths examining given that earlier work shows peer
effects play an important role in various financial decisions by households.
The effect that financial intermediaries have on the macroeconomy, has been central to
macroeconomics and has received significant attention from researchers in recent
decades. As such, the session also includes a paper on the causal effects of changes
in financial intermediaries' net worth in the aggregate economy.
Finally, the second day of the conference will end with a paper suggesting a unified
model on how firms should optimally manage emissions through production, green
investment, and the trading of carbon credit. This type of research is extremely
important now since the control of carbon emissions is a pressing issue for both
policymakers and firms.
At this point, let me say that as you know very well, the last few years have been an
incredibly challenging time for monetary policymakers. No one could have predicted the
series of supply shocks that struck the euro area economy and therefore, no one could
have predicted - and no one did before the fact - the rise in inflation that followed.
Nevertheless, we have managed to chart a path through this uncertainty. The challenge
ahead is to ensure that inflation continues to fall and approaches our objective in a
timely way, while at the same time growth strengthens to reach sustainable levels
ensuring full employment.
The nature of the risks we are facing is however unusual. Increasingly, volatility in
growth and inflation will be driven by a pair of major structural forces such as
geopolitical fragmentation and climate change, that we have next to no experience of.
These risks are particularly difficult to quantify and forecast. They present a unique
challenge for central banks - a challenge that calls for a different type of response.
In this new and highly uncertain environment, we look to academics and researchers to
guide us through uncharted waters. It is through path-breaking research, that
policymakers' knowledge can grow. Furthermore, from my perspective, it has become
apparent that aggregate data are not enough, and policy makers need more granular
data. Micro data firstly improve our understanding of the transmission mechanism of
monetary policy and secondly allow us to better understand the aggregate data and
thus better forecast their evolution. The combination of methodological developments
and the increased availability of granular data may facilitate much richer analysis and
more informative quantitative estimation of the impact of various types of shocks and,
crucially, the impact of various types of policy measures.
That said, the European System of Central Banks is actively conducting research with
the aim to deepen our understanding of how monetary policy transmits to the European
economy. The Bank of Greece has an active Research Department which pursues
several avenues of economic and financial research, both theoretical and empirical. In
addition to its own research, the Bank of Greece is involved in research projects carried
out within the wider context of the European System of Central Banks through its
participation in various research networks. I would also like to point out that the Bank of
Greece is one of the first central banks worldwide to engage in climate change and
sustainability issues, having set up as early as in 2009 the Climate Change Impacts
Study Committee (CCISC).
Concluding, a major task of central bank research is to bridge the possible gap between
academics and policy makers and to create occasions for interactions with the
academic community. We trust that research is enhanced by exposure to external ideas
and latest advances in the field.
Once again, it is a pleasure to host today's event at the Bank of Greece and I wish you
an interesting and fruitful conference. I hope that you will have a pleasant time in
Athens, a city renowned for its enduring warmth and hospitality. Not by chance, the
organizers have chosen September for this conference, so that you can all take
advantage of the Athenian climate!
Thank you for your attention.