intermediation and payments, help create value and thus enhance welfare. when we focus on this fact, we can finally understand why we are uncomfortable with some past developments in the financial industry. problems seem to have arisen when a product or service is insufficiently anchored in intermediation or facilitation of payments. innovation is useless or even harmful, if financial institutions lose sight of the needs of their clients, or more broadly the society. technology - driven innovations are more likely to be beneficial, because, when the innovator is deliberating on the application of technology, the client cannot usually be ignored. on the other hand, in the case of modality - driven innovations, one can easily lose sight of the client when cutting and dicing existing businesses. for example, securitization now has a bad name because of its perceived role in the financial crisis. nevertheless, securitization is conceptually beneficial, because it aims to bridge the gap between the risk preferences of lenders and the actual risk profile of borrowers. the only condition is probably that the investment bank arranging the transaction must find takers for all the tranches. in this regard, some resecuritized products, which inflicted enormous pain during the recent financial crisis, are suspect because they include unsold tranches of original securitization vehicles, tranches that investment banks could not sell to willing buyers or found too unattractive for their own books. considering that financial institutions enhance welfare through intermediation, relevance of any developments to intermediation should be a good starting point. this perspective is particularly important for modality - driven innovations. iv. dealing with undesirable outcomes unfortunately, the world of finance is complex. as a result, one or two simple tests cannot separate all the wheat from the chaff. in this regard, one of the most difficult issues involves the claim that certain instruments or practices provide a public good, namely the better functioning of markets through enhanced liquidity or more efficient price discovery. for example, in the case of high - frequency trading ( hft ), one can argue that the increase in the speed and execution serves no socially useful purpose, because most of the hft transactions are netted out and, therefore, very little intermediation actually takes place. 2 on the other hand, one could argue equally persuasively that trial and error carried out by hft facilitate price discovery, performing a useful function for market

imagine, this is no easy task and requires the authorities themselves to undertake internal transformation processes so as to be able to appropriately meet these challenges. as a result of this need, the banco de espana has in recent years assigned growing resources to monitoring and analysing financial innovation. the first step was the creation, in february 2017, of an internal group with representatives from different business areas within our central bank to gain a cross - departmental view of the phenomenon and to promote coordination among these different areas. one year on, we have deemed it necessary to take a further step, assigning specific resources to the analysis of financial innovation. to do this, a new associate directorate general was created last march. this new area pursues three major aims : ( i ) to understand the dimension of the changes taking place, ( ii ) to analyse the consequences of the new developments, and ( iii ) to provide for coordination and contact with the market and the other authorities involved, including those from other jurisdictions since, in short, financial technological innovation is a global phenomenon. the ultimate aim is to develop an overview of the main features and challenges facing financial services - providers. by way of conclusion, let me stress that, if duly harnessed and managed, the new technologies and the growing digitalisation of the financial sector may offer major opportunities for increasing efficiency and improving financial services as a whole. they may also be useful in adapting services to the changes taking place in user demand. 5 / 6 as regulators and supervisors, we believe we must be an active part of this process, performing the role assigned to us by society by analysing the developments taking place in the market and promoting, within our remit, healthy, orderly and positive innovation in the financial sector. 6 / 6