andreas dombret : the glass is half full – seven years of regulatory reform in the financial sector keynote address by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the euromoney conference “ the public sector financing forum ”, frankfurt am main, 30 september 2015. * 1. * * introduction ladies and gentlemen thank you for inviting me to speak at today ’ s public sector financing forum. it is a great pleasure to be here. the focal point you have chosen for this forum – the low - interest - rate environment – is indeed highly topical, and has been keeping us all very busy lately. a case in point is the survey that the bundesbank and bafin recently conducted among german banks on the challenges posed by low interest rates – more on that later. as you all know, the financial sector still faces a truly challenging environment. while the worst aspects of the crisis and its consequences have been weathered successfully, circumstances remain difficult. in my speech today, i will be discussing these circumstances and also shedding some light on what we have to do to complete the post - crisis regulatory reforms. i will argue that we have come a long way but that we are not done yet. nevertheless, since we have accomplished the majority of reforms, my message is this : the glass is half full, not half empty. 2. a truly challenging environment before i talk about regulation, let me sketch the truly challenging environment that now exists, and let me emphasise four factors. first, after the crisis, banks faced substantial deleveraging pressure. adjusting risk taking and funding strategies was necessary in order to survive and meet new regulatory demands. as the process of phasing in the regulatory reforms will continue until 2019, many institutions still need to deleverage further. second, all financial institutions ‒ but banks in particular ‒ need to adapt to new technological demands for renewal. digitalisation offers substantial challenges and opportunities at the same time. in any event, it has the potential to reshape the banking sector. the third factor is the high degree of investment uncertainty. unfortunately, in the current economic setting, there remains a high degree of uncertainty about the economic trajectory. what regulators can do, however, is pave the way for a sustainable recovery in the financial sector within a strong framework of rules – and combine this with reasonable phasing - in horizons. the fourth factor in the difficult environment is the low interest rate setting in which you all have

the first few months of 2022. this is the assumption the bundesbank economists have based their latest forecast on. 2 if the protective measures continue to be swiftly rolled back, german economic output could make a quick recovery, returning to its pre - crisis level as early as this summer – that would be half a year earlier than anticipated in the december 2020 forecast. in 2021, then, the german economy could see growth of just under 4 %, even increasing to slightly more than 5 % in 2022. vibrant private consumption will be the chief driver of this strong upswing. you see, if hotel and 1 / 5 bis central bankers'speeches restaurant services and recreational facilities, say, gradually reopen their doors to the general public, people will get a chance to consume again in establishments that once were closed. there ’ s also the matter of the additional savings that households have accumulated precisely as a result of the pandemic - related restrictions that have been in force hitherto – by our estimate, these have arguably added up to around €200 billion this year and last. according to a bundesbank survey, the overwhelming majority of consumers would like to use at least part of the savings they have often built up involuntarily to purchase goods or services. this is why the forecast is based on the assumption that around one - quarter of coronavirusrelated additional savings will be channelled into consumption in the next two years. 3 it is therefore likely that the hard - hit services sectors will catch up with industry and that the pace of recovery in the country ’ s economy will converge again more strongly. overall, then, the normal level of capacity utilisation in the german economy could be exceeded as early as the start of 2022. many people are worried that the spectre of inflation might return as the economy gets back on its feet, and that ’ s a concern i take very seriously. however, these inflationary risks should not be overstated – in the same way that i deemed the partly excessive deflation debate to be unhelpful in the years prior to the pandemic. the inflation rate in germany did indeed spike significantly higher at the start of the year, and our economists are expecting it to climb still further in the months to come. inflation rates of as high as around 4 % may even be possible towards the end of the year, as measured by the harmonised index of consumer prices. this will reduce households ’ purchasing power. but let