joachim wuermeling : securities management - current challenges finance and collateral keynote speech by prof joachim wuermeling, member of the executive board of the deutsche bundesbank, at the 26th annual securities finance and collateral management conference, berlin, 21 june 2017. * * * 1. introduction ladies and gentlemen thank you very much for your kind invitation to give today ’ s keynote speech here at this high - level conference. for me, the board member responsible for market operations at the bundesbank, this conference constitutes a great opportunity to exchange views on current challenges in the fields of securities finance and collateral management. “ the convergence of liquidity ” is a promising title. to be honest, though : at least with regard to the liquidity the eurosystem injects into the markets, there are – unfortunately – no signs of convergence towards a certain value yet. most of you will be well aware that the governing council of the ecb decided two weeks ago to leave the asset purchase programme ( app ) unchanged for now. the eurosystem will continue to buy securities through the app to the tune of eur 60 billiona month at least until december 2017. hence, mathematically speaking, linear growth is the name of the game – at least for now. excess liquidity, an essential indicator for monetary policy implementation, currently stands at eur 1, 650 billion. i would like to take this opportunity today to elaborate on three issues that are, at least to some degree, interlinked with the eurosystem ’ s activities in the markets. first, i would like to discuss the remarkable upswing in asset prices after the financial crisis and drivers for this development. second, i would like to briefly discuss the shifts in financial markets with respect to market liquidity. i will argue that, whereas some of the factors affecting market liquidity are temporary, others – such as the regulatory environment and innovations in trading – are here to stay. finally i will conclude by presenting my view on the outlook for monetary policy implementation. 2. current drivers of financial markets the financial crisis of 2008 and the subsequent european debt crisis dealt financial markets a serious blow. investors had to reconsider long - held beliefs that were accepted as truths : that large banks were immune to bankruptcy, and that sovereigns in the developed world would never default on their debt. when the crisis hit and the unimaginable happened, prices of financial assets, apart from a few viewed as safe havens, went

reweighted economic factors and developments as well as risks, and continue to weight these factors differently than the majority of ecb governing council members. you will no doubt know that the ecb staff project that the inflation rate will be zero this year, rising to 1. 5 % and 1. 8 % over the next two years. they also forecast that growth will climb from 1. 5 % this year to 1. 9 % in 2016 and 2. 1 % in 2017. this assessment is, in part, also a reflection of expectations placed in the transmission of monetary policy decisions. but my reading of the latest data and the projection is that they are more an endorsement of a restrained monetary policy response. as i see it, the projected path of inflation clearly illustrates that the spell of low or even negative inflation rates is only a temporal phenomenon. the effect of the lower oil price plays a particularly important role in this regard, and it also significantly eases the financial strain for enterprises and households. this in turn stimulates their consumption and investment activity, contributing to the expected economic recovery. and it also reduces the threat of a prolonged phase of low inflation rates possibly sparking a self - reinforcing downward spiral of fallig prices, wages, production and employment. incidentally, i see no signs of second round effects. the collective labour agreement in the metal - working industry is largely in line with our expectation of negotiated wage rates in bis central bankers ’ speeches germany climbing by roughly 3 % this year. and for the other euro - area countries, too, there is nothing at the moment to suggest that the european commission ’ s projection of a 1. 3 % increase in euro - area employee compensation this year is untenable. i am not denying that the announcement of bond purchases has further reduced the likelihood of deflation. that, at least, is what the data on inflation options seem to suggest. but the likelihood of deflation was rather remote even before the measures were announced. that ’ s why, on the whole, i don ’ t think it would have been necessary to further ease monetary policy by rolling out the broadly based government bond purchase programme. all the more so, given that the purchase of sovereign bonds in the euro area harbours specific risks, making it a monetary policy instrument unlike any other. but at least it is worth noting that the decision to largely rule out risk - sharing as part of the bond purchase programme counteracts the direct threat of sovereign credit risks being mutual