. the rationale for a financial union the crisis has highlighted a fundamental inconsistency between the single monetary policy of the euro area and the responsibility of national authorities for financial policies. the single currency needs a single financial system that is not fragmented along national lines. moreover, for the effective functioning of the single monetary policy, and therefore for delivering price stability in the euro area, banks are key in transmitting monetary policy impulses to the real economy. it is important to avoid significant differences in transmission arising from the countries in which banks happen to be located. yet such fragmentation within europe ’ s financial system has occurred as a consequence of the sovereign debt crisis. the relationship between the credit of sovereigns and that of their financial system is well understood ; it runs both ways. divergence in sovereign credit has resulted in divergence in bank funding conditions at the national level. this in turn has brought about differences in lending conditions, which hamper the transmission of monetary policy. banks facing funding pressures react by tightening the lending conditions for firms and households, which ultimately leads to a breakdown in the relationship between lending rates and monetary policy rates that prevails in normal times. the adverse feedback loop between banks and sovereigns also has negative effects on efforts to re - establish fiscal sustainability. countries undergoing fiscal adjustments are increasingly penalised by financial markets because of their additional burden of supporting domestic banks. against this background, the need to break the loop between banks and sovereigns at the national level, by taking responsibility for financial stability to the european level, becomes bis central bankers ’ speeches evident. this is why a financial union is a necessary step to improve investors ’ confidence. by restoring financial stability, it also provides the most effective response to the fragmentation of europe ’ s banking markets. monetary stability, financial stability and defence of the single european market are all closely linked. the principles and key elements of a single supervisory mechanism financial crises differ in many respects, but they tend to have common origins. these include the rapid expansion of credit, increasing leverage, asset price bubbles and rapidly declining credit quality standards. national supervisors were often lenient in the face of these developments, partly because of regulatory arbitrage, partly because they were subject to a variety of constraints and pressures. the single supervisor should possess all the qualities necessary to guard against these risks on a durable basis. it should be rigorous and even - handed, free from local pressures and interests. it should have the vision and take on a broad - ranging approach, independently assessing

yves mersch : yves mersch : lending and payment systems in upheaval - the fintech challenge speech by mr yves mersch, member of the executive board of the european central bank, at the 3rd annual conference on fintech and digital innovation, brussels, 26 february 2019. * * * fintech is nothing new. financial technology has existed for practically as long as the financial services industry itself. the telegraph and the transatlantic cable laid in 1866 to connect north america and europe is a clear example. that technology provided the infrastructure for the first era of major financial globalisation in the late 19th century. 1 and innovations such as the automated teller machine ( atm ), credit cards, electronic payments and internet banking have each changed the face of modern banking. but now we are entering the next phase of the digital age, when the combination of new telecommunications, big data analytics, cryptography and machine learning technologies has the potential to change the whole banking industry in faster and more disruptive ways than ever before. as technology gives new entrants better and cheaper ways to compete for core banking business, banks ’ dominant position could be challenged. and indeed, we are already seeing disruptions in the financial services market : in the first half of 2018, global investment in fintech reached $ 57. 9 billion across 875 deals, a significant increase from the $ 38. 1 billion invested in the whole of 2017. 2 the time span for adopting various banking innovations, such as online or mobile banking, is getting shorter and shorter. many consumers are switching to e - commerce, and more e - retail payments are made from mobile phones. consumers expect pan - european services that are safe, efficient and easy to use. with the recent launch of target instant payment settlement ( tips ), the eurosystem has laid the groundwork for innovative, customer - friendly retail payment solutions that benefit everyone in europe. tips is a truly domestic market infrastructure for pan - european instant payments with settlement in central bank money within 10 seconds and a price fixed at 0. 20 eurocent. 3 technological investment in cash cycles is also strong and helping to make this safe, instant and cheap means of payment resilient. indeed, on average, cash payments take just over 22 seconds and cost around 24 cent per transaction according to a recent study of retail sector cash payments in germany. 4 fintechs could make the financial system more diverse and competitive, offering customers better - targeted, faster and cheaper financial services. but fintech could also