23. 05. 2018 25th financial sector meeting : innovation, transformation and reputation deloitte, sociedad de tasacion and abc luis m. linde governor let me begin by thanking the organisers – deloitte, sociedad de tasacion and abc – for their invitation to me to participate in this session of the 25th financial sector meeting, which on this occasion turns on three ideas : innovation, transformation and reputation. in my opinion, these three concepts accurately encapsulate the main challenges currently faced by the financial sector. the new technologies are enabling financial institutions to transform their systems and their business models, but this transformation should not lead us to forget that the keystone of any market, and all the more so financial markets, is customer confidence. the financial sector is faced with a singularly complex setting and this conference provides an opportunity to confer with institutions ’ key decision - makers on the different ways in which changes are being addressed at this time of transformation, which will be crucial for the future of the industry. the new technologies, which have already significantly impacted various sectors, now have the potential also to substantially change the way in which financial services will be provided in the not - too - distant future. i would thus like to take this opportunity to offer my view on the opportunities and risks these new technologies pose. in this connection, i shall first briefly review the innovations i consider most significant and, secondly, i shall address the challenges posed by the new scenario for the authorities, and in particular for a central bank. financial market innovations any list of ongoing financial innovations inevitably highlights the weight of technology. the significance of the technological component in this new phase is such that it has ultimately lent its name to the process of change : fintech. what is involved, however, is a broad and diffuse concept, which encompasses not only new highly technological firms, but any financial institution that is innovating through the application of new technologies. occasionally, it is also used to describe new business models and even to refer to the basic technologies enabling the various innovations. the confusion surrounding the fintech concept is illustrative of the confusion deep - change processes can cause. in these circumstances, it is easy to be swept away by excessive enthusiasm or by unwarranted pessimism, two options with little value added. it is undoubtedly much more useful to focus on separating those innovations with the potential to improve efficiency in the provision of financial services, cutting costs and increasing security, and

exercises. furthermore, last december the council of the european union reached an important consensus after several months of complex negotiations, which, taken together with the aforementioned directive, amounts in practice to the creation of a single resolution mechanism. further to this consensus, a bank resolution board will be set up whose scope of action will be the same as that of the single supervisory mechanism. it will have considerable freedom to act urgently in cases of restructuring or winding - up. it was also decided to set up a single resolution fund which will be progressively endowed with financial resources. the bank resolution board will be entrusted with applying resolution rules uniformly, approving restructuring and resolution plans for banks supervised directly by the ecb and determining how the resolution fund is to be used. the details of the single resolution fund are to be set forth in an intergovernmental agreement of the participating countries before march. however, the consensus reached stipulates that the fund will be financed through contributions from the european financial services industry, although the resources contributed by the banks in each jurisdiction will not be fully merged until ten years have passed. during these ten years the fund will have separate compartments funded by contributions from the banks of each country, which will be progressively mutualised year by year. under this process, the system of burden - sharing among the national and mutualised funds will be gradually adjusted until the national compartments disappear completely around january 2025. the complex agreement reached has yet to be accepted by the european parliament, so there is still uncertainty as to the final design of the mechanism. moreover, the capabilities of the mechanism will foreseeably be limited at first, since the single resolution fund is constrained by its modest size and reduced mutualisation. furthermore, for the time being, the agreement does not include common public mechanisms for the resolution of vulnerable banks after the available private funds have all been used up. bis central bankers ’ speeches in this respect, although the new resolution rules reduce the foreseeable scope of the required external funds, provision should be made for public financial support at eu level to ensure the orderly resolution of systemic banks if necessary. for example, following the example of the us, we could consider an arrangement in which the european stability mechanism could provide the resources needed to the common resolution fund with a charge to future contributions from the industry. otherwise, the single resolution mechanism would, at least in the short - to - medium term, foreseeably be insufficient to prevent banking crises from continuing to be resolved with a charge to national funds