, nominal interest rates are slightly on the rise since the turning point in august 2016, and nominal rates are the ones – not real ones – which matter for bank profitability, as well as the slope of the yield curve. the second factor putting pressure on profitability is the level of non - performing loans [ slide 6 ]. this is not a widespread issue : the average npl ratio is 5. 4 % in the european union as of september 2016, and in many countries, including france and germany, it is below 4 %. but it is a challenge which seriously affects specific banks in certain countries, mainly italy and portugal. so this challenge is manageable, but it needs to be actually managed : the quicker the better. recent initiatives by italian authorities are a step in the right direction, with the active involvement of european supervisory authorities. third factor : the digital transformation. it is true that digitalisation is disrupting traditional customer relationship models. but it also creates opportunities : for instance, more diverse and accessible financial services, more complete customer satisfaction, greater valorisation of data. yet, in order to succeed in the digital transition, financial companies need first to place innovation at the heart of their strategic management ; and second to examine ways of transforming their business models, mainly in retail. obviously these are difficult choices that need to be made by the companies themselves. the strategic way forward is not up to regulators, and will not be uniform. that said, let me share some thoughts with you. on the income side, the response could be twofold : diversifying the range of services – both proprietary and via partnerships – that are offered to customers ; and adjusting existing pricing policies, with fewer flat - rate prices and more pricing by use. on the costs side, the digital transition involves preparing for shifts in jobs and in skills, through enhanced dialogue with social partners. moreover, it calls for major it investment aimed at providing services that remain aligned with customer needs, reducing structural costs and improving regulatory compliance. it systems will need to be – and this is far from simple – more secure so that they provide strong protection against cyber - risks, but at the same time more flexible and open to interconnectivity. our duty as regulators in this revolution is obviously not to discourage innovation, but to ensure a level playing field with fintechs – taking into account their lifecycle according to a “ proportionality principle ” – and still more tomorrow with bigger data platforms, be they gafas or

francois villeroy de galhau : the future of the finance industry between austerity and innovation speech by mr francois villeroy de galhau, governor of the bank of france, at the suddeutsche zeitung finance day 2017, frankfurt am main, 22 march 2017. * * * i am grateful to marine dujardin and banque de france and acpr staff for their assistance in preparing these remarks. it is a great pleasure to be with you today and i ’ d like to thank you sincerely for inviting me. i am here in frankfurt as a committed european and as a friend of germany ; and not just because i travel here at least once a fortnight for the meetings of the ecb governing council! on a more personal level, i am french but my roots are in saarland. my family has lived there since the end of the 18th century and its porcelain manufacturing company villeroy & boch is part of the german “ mittelstand ”. but today, to discuss the future of the finance industry, i ’ m going to be talking in my capacity as a member of the governing council and president of the french supervisory authority ( the acpr, which i ’ m sure some of you know ). first i would first to say a few words on the eurosystem ’ s monetary policy and our latest decisions. then i ’ ll share with you my thoughts on how to respond to the current challenges facing the finance industry. this is not a side issue for central bankers, as we are now in charge of financial stability as well as price stability. moreover, a robust and profitable financial sector is one of the prerequisites for the proper transmission of our monetary policy. 1. where do we stand in the euro area with respect to monetary policy? i am fully aware of the heated debate here in germany surrounding our monetary policy. a debate that is fully legitimate, but let us try to keep it rational, and avoid getting emotional. “ mehr licht! ” ( more light! ) if you allow me to quote goethe ’ s last words. this is exactly what i would like to do today : to shed light on our reasons and our progress. as you know, the ecb was shaped according to the model of the bundesbank, and i do believe that the eurosystem ’ s collective monetary policy is very much aligned with the german values that i fully share and admire : independence, respect of the treaties, price