ecb, november. 3 see constancio, v. ( 2017 ), “ challenges faced by the european banking sector ”, speech at the risk & supervision 2017 conference organised by associazione bancaria italiana, rome, 14 june. 4 see klaus, b. and sotomayor, b. ( 2018 ), “ bond funding of euro area banks : progress in the issuance of loss - absorbing instruments ”, financial stability review, ecb, november, box 7. 5 see huljak, i., mikkonen, k., more, c. and perales, c. ( 2018 ), “ digitalisation and its impact on banks ’ costs and profitability ”, financial stability review, ecb, november, box a. 6 see ecb ( 2017 ), financial integration in europe, may. the report also provides an in - depth review of the literature studying the costs and benefits of bank consolidation. 7 see andersson et al. ( 2018 ), op. cit. 4 / 4 bis central bankers'speeches

in april with legislation known as olafur's law. prime minister olafur johannesson introduced the bill of legislation under his own name, as the cabinet did not support it unanimously. he said that he had drafted it himself at the kitchen table in his home and then walked down to parliament with the completed document. at that point in time, real interest rates on bank deposits were negative by 20 %, meaning that in real terms, one - fifth of deposits were transferred from savings account owners to borrowers each year, effectively killing off any incentive to save money – to no one's surprise. at that time, powerful stakeholders such as the leading corporate blocs in the country were profiting handsomely on negative real interest rates. the same was true of young people's mortgages and student loans : they simply burned up in the fires of inflation. the ones who lost on inflation were owners of deposits, who at that time were mostly older people. as a result, many people who had worked hard all their lives saw their life savings wiped out in just a few years. this transfer of wealth was probably one of the main causes of poverty among senior citizens later on. olafur's law ensured that inflation would be impartial. it guaranteed that real interest rates would be low but positive, but without liberalising interest rates or resorting to painful consolidation measures to force inflation down. but the law changed iceland's political landscape, as no one profited from inflation anymore. measures to effectively tackle were finally taken but not until later. 2 / 9 bis - central bankers'speeches to exorcise the inflation demon, it was necessary to interrupt the spiral of rising wages and a falling exchange rate and foster faith in price stability among the general public. the first step was taken in 1983, when a new government under the leadership of steingrimur hermannsson discontinued the indexation of wages and then liberalised interest rates. with this, inflation quickly fell to between 20 % and 30 %. nevertheless, price stability did not have the strong anchor it needed until 1989, when the exchange rate of the krona was pegged to a basket of currencies, interest rates were applied to dampen demand, and the practices used for labour market negotiations were reformed. subsequently, it was agreed that the government would stop financing its deficits with overdraft loans from the central bank, as it had done for a long period beforehand. inflation dropped to single digits. but i won