speech towards a stronger non - bank financial sector speech by luis de guindos, vice - president of the ecb, at the association for financial markets in europe ( afme ) and official monetary and financial institutions forum ( omfif ) 3rd annual european financial integration conference frankfurt am main, 23 may 2023 in recent years, the global economy has been hit by a series of unprecedented shocks – including a pandemic, the outbreak of war, and an energy crisis. and with geopolitical tensions on the rise, we may see the frequency of such shocks even increase. the prospect of an increasingly shock - prone economy means that it has never been more important to ensure the financial sector is resilient to challenges that come its way. and today, i would like to share some thoughts on financial integration in the euro area, focusing on the important role of the non - bank financial sector in the euro area financial system. the importance of the financial system for the economy a strong and integrated financial system is essential to support the growth and resilience of the euro area real economy. well - developed and broad capital markets can help to efficiently allocate capital to the most innovative and productive companies, thereby contributing to economic growth. market - based finance also allows companies to diversify their funding sources and facilitates increased cross - border funding. this can result in greater risk - sharing across the euro area and contribute to overall financial resilience. investment funds, for instance, play an important role in financial integration. [ 1 ] however, if we are to strengthen the euro area financial sector ’ s capacity to attract and intermediate funding for euro area companies, we must make further progress on the banking union and continue to develop the capital markets union ( cmu ). the cmu seeks to integrate national capital markets into a genuine single market, in turn making financing more accessible to eu companies and transforming europe into an even more attractive place to save and invest. consequently, this means scaling up market - based financing in the eu, leading to a larger role for the non - bank financial sector than is already the case. the changing role of market - based finance in the euro area it has been almost ten years since the financial stability board published its policy recommendations on strengthening the oversight and regulation of the non - bank financial sector. [ 2 ] and since then, we have seen the sector grow significantly. in the euro area, the combined total assets of investment funds, money market funds ( mmfs )

distinguishing between the effects of the app and of forward guidance on the two components of long - term interest rates is less straightforward. the credibility of promises to follow a certain course of action for setting the policy rates in the future is almost certainly enhanced by the asset purchase programmes today, as these purchases are a concrete demonstration of a desire to provide additional stimulus. in other words, there is a signalling channel inherent in asset purchases, which reinforces the credibility of the forward guidance on policy rates via the expectations channel. conversely, forward guidance may affect the term premium component of longer - term yields by reducing the uncertainty about the future path of short - term interest rates and thereby reducing duration risk in the market. accordingly, the net stimulus provided by asset purchases depends in part on expectations of how policymakers will adjust short - term interest rates in the future. but these additional complexities do not alter, and in fact reinforce, the key insight – namely that the different policy tools must be seen as mutually complementary elements of a package. the sequencing between policy tools, as we have described it in our forward guidance since march 2016, with rates expected “ to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases ”, is motivated by this insight. for example : letting the expectations component of longer - term yields float upwards while, at the same time, engaging in asset purchases would be an inefficient conduct of policy. the compression of yields through the asset purchases would be directly countered by an upward drift in the expectations component. by contrast, the established sequencing helps anchor the expectations component and thereby allows the app to exert its full effect. calibrating app while fostering the appropriate interest rate environment is a critical intermediate condition enabling the transmission of our policies, in the end we do not control the yield curve. we can influence the yield curve only indirectly, through forward guidance and, notably, via modulating the size and intensity of our asset purchases. this process is mediated and to some extent difficult to forecast : we change our instruments and let markets determine the asset price implications of our actions. but, importantly, this process preserves the ability of markets to express views about the creditworthiness of the financial assets that are to be priced. indeed the last year has demonstrated that, despite the ecb ’ s forward guidance on short - term interest rates and its continuing presence in the market as a large investor, market prices have tended to reflect investors ’