sabine lautenschlager : european banks - the quest for the best business model speech by ms sabine lautenschlager, member of the executive board of the european central bank and vice - chair of the supervisory board of the european central bank, at the ecb forum on banking supervision, frankfurt am main, 7 november 2017. * * * the banking sector is going through tough times. having emerged from a major crisis, it faces challenges and change. but one thing has not changed, and it never will. a bank needs a sustainable business model. it has to earn revenues ; it has to keep its costs in check ; and it has to keep its risks under control. how all this is done has changed, however. many things that still worked a couple of years ago no longer work today. let me quickly highlight a few points. profitability is low for many banks. first, for a long time, economic growth was low. together with low interest rates, that has put a brake on a traditional source of revenue. banks, in particular those that have not found a profitable market niche, need to diversify their sources of revenue. digitalisation might offer a solution, but it is certainly not the only one. second, some national banking markets in europe are overbanked and therefore overly competitive. so there is a need for consolidation – consolidation which leads to stronger banks with viable business models. third, many banks still have high costs, partly because of their large branch networks. but how large do these networks actually need to be in this age of digital banking? fourth, some banks are still weighed down by impaired balance sheets. they need to get rid of legacy assets such as non - performing loans. fifth, some banks could improve the way they handle risks. they need to establish a strong risk culture, set up adequate risk governance and integrate it into their overall structure. and finally, all banks have to adapt to more stringent rules. it is true that they come at a cost, but in the long run, their benefits are greater. society benefits in any case, but so do the banks. strong rules help to win people ’ s trust, and that is an important asset for banks. a few banks still have some way to go – they still need to adapt their business models ; they need to find their competitive advantage. those banks which want to prosper in the future need to act now. and it is indeed possible to prosper, even in tough

from information available at central banks stemming from their role in the money markets. third, in the area of crisis management and resolution, depending on the nature and feature of the crisis, there is a need for close interaction between the two authorities. provision of emergency liquidity assistance is a clear point in case where central banks need supervisory information for decision - making. in this field, i believe that an important step forward is represented by the recent mou on financial stability arrangement signed by the eu central banks, supervisors and ministries of finance in june 2008. finally, referring more to the supervisory domain but still linked to the central bank interest, the turmoil has evidenced the need for strengthening the macro - prudential dimension of regulation and supervision. this means the regulatory and supervisory requirements should be able to ensure adequate capital and liquidity buffers throughout the economic cycle. in this regard, the actual impact of the new capital adequacy regime under of basel ii will have to be monitored very closely.