It is important to stress this: tiering and the particularly attractive pricing – now up to - 1 % – of our TLTROs more than make up, in 2021, for the annual charge  generated by negative interest rates. The path to profitability is now through the continuing modernisation of financial institutions themselves, but also through the emergence of a genuine “single banking market”. We need to take advantage of the size effect and encourage the formation of pan-European banking groups: we must never give up on the goal of a genuine Banking Union, despite protectionist resistance from “host” countries. This integration also requires efficient methods of crisis management. Europe needs to strengthen its resolution framework, to ensure the effective exit of non-viable banks in Europe, without burdening solid banking systems with additional financing – which would mean adjusting the financing of the SRF (Single Resolution Fund). The impact of low interest rates is different, however, for insurers. The integration of PSRs into own funds has already allowed them to offer sufficiently attractive revaluation rates in a low interest rate environment. It should also give insurers valuable time to rethink their offering and shift it towards longer term, more equity-based products that make better use of savings to strengthen our economy. Innovation will be at the heart of the transformation that financial institutions need to make over the next decade. Europe is clearly losing momentum here, just as the crisis is accelerating the adoption of digital technologies, with Bigtechs poised potentially to redefine financial intermediation.

The global experience has shown that the lack of well developed bond markets brings with it vulnerabilities arising from over-reliance on financing from the banking sector. This has often resulted in funding mismatches with adverse implications on financial stability. The development of the bond market allows for access to funding with the appropriate maturities, thus avoiding the funding mismatches. It also allows for the diversification of risks by issuers and investors. The central merit of the sukuk structure is that it is based on real underlying assets. The ijarah sukuk for example – an Islamic bond which applies a sales and leaseback arrangement – is an asset-backed instrument providing continuous security to the investor. This approach discourages over-exposure of the financing facility beyond the value of the underlying asset, given that the issuer cannot leverage in excess of the asset value. In addition, Islamic finance requires that the financing must be channelled for productive purposes, such as for project financing, rather than for speculative activities. The risk exposure is therefore to the project and not to the uncertainties or activities that have no real economic benefits. Islamic financial intermediation therefore has the potential role of contributing towards financial stability. BIS Review 74/2007  1  In the current environment, the demand for sukuks significantly exceeds the supply. Today, the global sukuk market, denominated in international currencies, is estimated to be USD18 billion. If domestic sukuk issuance is included, it has now exceeded USD50 billion.