These efforts to reverse financial exclusion from the global system from termination of correspondent banking relationships can be complemented by greater use of financial technology to promote inclusion. Over the past decade, mobile and web-based payment providers have dramatically expanded access to payment services, particularly in developing countries. Consider Vodafone’s M-PESA since its launch in 2007. It has reached 23.4m customers across 11 countries, many of whom do not have bank accounts. 13 Meanwhile alternative lending models have opened up access to credit and investment. Examples include Faircent in India, which aims to provide credit on demand for all Indians, and Biva in Brazil which seeks to operate in regions traditionally underserved by banks. 14  12  In responding to a recent World Bank survey, whose results are summarised in its October 2015 ‘Report on the G20 survey on de-risking activities in the remittance market’, half of banking authorities, three quarters of large banks and a majority of local and regional respondent banks reported a decline in correspondent banking relations. 13  Data from M-PESA, http://www.vodafone.com/content/index/media/vodafone-group-releases/2015/mpesaghana.html  14  Data from Peer & Social Lending, http://peersociallending.com/investing/peer-to-peer-lending-sites-16-of-theworlds-best/  4  BIS central bankers’ speeches  If fully realised, recent developments – including expanded use of legal entity identifiers, know-your-customer utilities and even potentially distributed ledger technology – have the potential to restore correspondent banking services and remittance flows. Financial technologies can redraw the parameters of the financial system and promote inclusivity and growth.

It is therefore essential to find a solution to the NPL problem, but we must recognise that it will take time and no single instrument is likely to be a “magic bullet”. Rather, it will require a comprehensive strategy involving a panoply of instruments. The ECB is already working on this and has issued clear guidance to the banks it directly supervises. But supervisory action is not enough on its own. The private sector and national and European authorities also have roles to play. Several significant impediments affect the prices of NPLs, to varying degrees across euro area countries. The market for distressed debt can be characterised as a “market for lemons”. This is a situation where investors demand a premium to protect themselves from the uncertainty that better-informed banks will try to sell them assets whose credit quality is worse than it may seem on the surface. This results in limited market activity, as the prices that investors are prepared to pay for NPLs are much lower than the prices banks would be prepared to sell them for. Structural inefficiencies in debt and collateral enforcement also contribute to the lack of market turnover. The legal procedures for collecting a simple claim take too long and cost too much in many euro area countries. On the demand side, investors are also deterred by high uncertainty around recoveries and their timing, and by barriers to entry such as licensing requirements. These symptoms of market failure, aggravated by legal constraints, call for a public policy response.