Mario Draghi: European Systemic Risk Board (welcome address) Speech by Mr Mario Draghi, President of the European Central Bank and Chair of the European Systemic Risk Board, at the first annual conference of the ESRB, Frankfurt am Main, 22 September 2016. * * * Ladies and gentlemen, It is my pleasure to welcome you to the first annual conference of the European Systemic Risk Board (ESRB). We have a rich agenda today and tomorrow – one which reflects the value of the ESRB as an institution. The Board brings policymakers together. We have 80 member institutions, each expert in their own field. This diversity of expertise is our strength. The ESRB is uniquely placed to take a holistic view of the European financial system – to see the overarching risks and challenges that would be more difficult for our members to perceive individually. Sharing knowledge and expertise also permits effective coordination of policy. The ESRB acts as an information hub for the implementation of macroprudential policies for banks, and as a forum to discuss these policies, including their cross-border impact and the possible need to reciprocate them in other jurisdictions. Given its unique Union-wide, cross-sectoral perspective, the ESRB has focused its research on the challenges posed by the structure of the European financial system, and the risks and opportunities arising from ongoing changes to that structure. In that context, let me highlight two themes: the extent of overbanking in Europe and the growth of the non-bank sector.

Moreover, profitability is boosted by a greater flow of lending and lower loan loss provisions than would have occurred in the absence of accommodative monetary policy. Analysis by the ECB suggests that these effects tend to outweigh the impact on net interest income over the short term, but the picture varies depending on banks’ business models.8 In the broader context of generalised overcapacity and technological innovation, some banks will need to review their business models to bolster profitability. Other financial institutions also face challenges to their business models in this environment.9 In particular, institutions providing longer-term return guarantees – notably guaranteed-return life insurers – face a future of weak profitability unless they adapt their business models to a changing world. Macroprudential policy can help to boost the collective resilience of these institutions and enhance recovery and resolution frameworks. Systemic risks beyond banking Let me now turn to the ESRB’s focus on systemic risks beyond banking. As financial intermediation continues to shift from banks to non-banks, we need to adapt our policy framework. We need to identify migrating risks and develop tools to mitigate them.10 With this in mind, the ESRB published its first annual EU Shadow Banking Monitor in July. 11 The report identifies a number of areas that require close monitoring, including rising liquidity mismatches, especially among some bond funds. One measure of liquidity mismatch for openended funds is the share of non-liquid assets in total assets, which was 38% for bond funds in the fourth quarter of 2015, compared with 26% six years earlier.