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gertrude tumpel - gugerell : the role of retail finance for financial markets efficiency and stability speech by ms gertrude tumpel - gugerell, member of the executive board of the european central bank, at the eleventh conference of the ecb - cfs research network, prague, 20 october 2008. * * * introduction it is for me a real pleasure to speak here in prague at the european central bank and centre of financial studies research network conference. i would like to thank the organizers of the conference for compiling a very interesting and stimulating program. my special thanks go to our host, the czech national bank, for the very good cooperation and for an outstanding local organization of this conference. being here in prague, i was reminded that joseph schumpeter was born not too far away from prague in a small town named trest. it was joseph schumpeter who once said that “ economic progress in capitalist society means turmoil ”. it would be, of course, unfair and undue reference to associate schumpeter ’ s notion of turmoil with the current period we are experiencing in financial markets. in my speech today, i would like to focus on the retail banking sectors ’ contribution to efficiency and stability in financial markets also in light of the ongoing financial market turbulences. i will also stress the importance of retail payment infrastructures, and particularly the issue of harmonisation and integration as it underlies the single european payment area ( sepa ) project as a fundamental basis for the efficiency and stability of the european retail finance market. 1. the role of retail banking for economic development and monetary policy ( i ) retail banking plays a crucial role in fostering economic activity retail banking is the backbone of banking activities. retail sector banks, in particular, have the expertise to provide credit to small and medium - sized enterprises ( or smes ) and to evaluate the associated risks. as smes are the main engines of job creation and economic growth, they are also important drivers of innovation in the economy. therefore, an efficient and stable retail banking business is needed for the financing of sme activities. as these firms do not have access to global capital markets, they are heavily dependent on banks for their funding. this is particularly true for european smes, as the european market for venture capital remains very small compared to the one in the us. the availability of bank credit is, thus, crucial for sustained investment of firms and, therefore, plays an important role for economic development and growth