andreas dombret : germany's banks - the moment of truth for decision - makers speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the bain bankers lounge, frankfurt am main, 21 september 2017. * * * 1. introduction : structural change reaches a tipping point ladies and gentlemen banking is necessary, banks are not. don ’ t worry : that ’ s not my view, but that of bill gates. what this bon mot, uttered more than 20 years ago now, tells us is that structural change in the banking sector is not as new as it might seem. in fact, it ’ s something we are almost taking in our stride these days. for years now, there has been constant talk of upheaval and revolution, of banks dying off and structural change. but on the face of it, not much has actually happened. one could be forgiven, then, for thinking that we have more or less accepted structural change as an annoyance – even if it is a bearable one – rather like a visit from the banking supervisor. my view where technological progress is concerned is a different one. annoying though it may be to some, it ’ s no good shrugging one ’ s shoulders at it, nor is there any escaping it. the banking sector has reached a tipping point in its evolution. that is, we have reached a position where even the smallest change will unleash a wave of innovation in the banking world. that is because technological progress always stands for upheaval, for a redirection of society ’ s resources. sooner or later, activities which once created significant value become automated, standard processes. and this trend has now reached the financial sector as well. ever more once - innovative banking operations are being standardised and performed by technology. ladies and gentlemen, i have a confession to make. there are some sides of structural change which i, too, struggle to come to terms with – to this day, i would much rather type on a blackberry than swipe on an iphone. but in my capacity as a banking supervisor, i do wonder that if banking is possible without banks – who, then, will provide tomorrow ’ s customers with the banking services they require? that ’ s not a question i can answer straight up. there are, however, five theories on the future of banking i would like to discuss with you today. 2. reliance on net interest income needs to stop let ’ s begin

2 percent during the first half of the 1990s, 0. 9 percent during the second half and a disappointing - 0. 1 percent on average between 2001 - 2004. in my budapest intervention, i mention the strengths and weaknesses of this body of evidence ( see trichet, j. c., 2007, op. cit. ). nominal wage growth per worker has been remarkably stable since the beginning of emu but also relatively invariant to the cycle. so, the slowdown in labour productivity growth translated into greater increases in nominal unit labour costs in the contractionary phase between 2001 and 2003. see, for empirical evidence, a. arpaia. and k. pichelmann ( 2007 ), “ nominal and real wage flexibility in emu, ” european economy economic papers no 281 ( june ). see f. altissimo, m. ehrmann and f. smets ( 2006 ), “ inflation persistence and price - setting behaviour in the euro area – a summary of the ipn evidence ”, ecb occasional paper no 46, june. see l. benati ( 2007 ), “ investigating inflation persistence across monetary regimes ”, ecb working paper, forthcoming. the very nature of the inflationary process in the euro area. this institutional break has eradicated the “ intrinsic ” component of the inflation formation mechanism, namely the extent to which economic agents – in re - setting prices or negotiating wages – look at the past history of inflation, rather than into the eyes of the central bank. to be sure, this phenomenon is not confined to the euro area. the results of this research, reported in table 2 show that the introduction of clearly defined nominal anchors has been associated with the disappearance of intrinsic persistence in other countries as well. when structural models of inflation are estimated over the full data samples – i. e. including years during which virtually none of these economies enjoyed monetary stability – intrinsic persistence is estimated to be uniformly high. this is perfectly logical and to be expected, since for all these economies the full samples include observations from the great inflation of the 1970s, with its erratic inflation fluctuations. in the absence of guidance from central banks, extrapolation of past experience was a secure way for price and wage setters to protect the real value of earnings and returns. through this mechanism, past inflationary shocks tended to be perpetuated and become endemic. table 2 : estimates of intrinsic inflation persistence by monetary regime full sample european monetary union euro area 0. 855 0