yves mersch : making europe ’ s financial market infrastructure a bulwark of financial stability speaking points by mr yves mersch, member of the executive board of the european central bank, for the bank of france / sciences po research seminar “ financial stability in a digital world ”, paris, 7 june 2016. * * * introduction • europe ’ s financial market infrastructure has proved to be resilient through bouts of financial market volatility ; • it has supported the liquidity and stability of financial markets in times of stress ; • the european central bank and the eurosystem, in conjunction with european legislators and market participants, have made europe ’ s financial market infrastructure into the bulwark of financial stability it is today ; • in the first part of my presentation, i will investigate the potential impact of the digitalisation of financial services on europe ’ s market infrastructure ; • in the second part, i will outline how the eurosystem plans to deal with the technological and strategic challenges which affect our market infrastructure. part 1 : the digitalisation of financial services and their potential impact on europe ’ s market infrastructure • technical innovations in financial services will be among the key focal points for the eurosystem over the next few years ; • in my article, i address four key topics where innovation in financial services will have to be tackled in the coming years : a ) pan - european instant payments ; b ) person - to - person mobile payments ; c ) the emergence of new ( non - bank ) service providers ; d ) distributed ledger technology ( dlt ). a ) pan - european instant payments • in 2015, the euro retail payments board invited the european payments council to develop an instant payment scheme for euro payments based on the sepa credit transfer ; • the implementation of this scheme is foreseen by november 2017 ; • by that time, end - user solutions for instant payments in euro should be made available at the pan - european level by the payment service providers ; • this means that by november 2017 the european financial market infrastructure has to be ready to clear and settle instant payments on a pan - european scale ; • as an operator of market infrastructure, the eurosystem is exploring how to support the settlement of pan - european instant payments. bis central bankers ’ speeches b ) person - to - person mobile payments • another innovative service that will impact the underlying financial market infrastructure is person - to - person ( p2p ) mobile payments ; • one key component of pan - european p

not increase dramatically before the crisis ( figure 4 ). ( private debt ratios, and in particular the size of the bank and near - bank systems did increase, but that is a somewhat different story, to which i will turn shortly ). it ’ s possible alternatively that there was a multiple equilibrium here, with the “ good ” or low interest equilibrium ( with a self - fulfilling degree of confidence in the creditworthiness of all the sovereigns ) being selected by the market at the start of the euro, and events during the financial crisis – not least those associated with greece – having tripped the system into the “ bad ” or high interest equilibrium with default risk premia moving a number of sovereigns into a more challenging debt sustainability position. most likely, what we have seen is a combination of factors : ( i ) a sharp reduction in risk appetite resulting in even little - changed debt ratios, as in italy, looking more challenging and in need of a risk - premium ; and in addition ( for most countries ) ( ii ) a sharp increase in debt ratios as governments reacted to the crisis ( including, but not at all confined to, the socialisation in most countries of some private banking losses through their assumption by governments ) ( figure 4 again ). the increased sensitivity of sovereign spreads to ratings, and the increased range of ratings themselves – both illustrated in figure 2 – suggest that both factors are at work. bis central bankers ’ speeches ( as spreads widened in stressed countries, their fluctuations – which would not concern hold - to - maturity investors – added a risk factor for others and probably ratcheted up the average level of the spreads. ) in the specific case of ireland, the depth of the recession and the remarkably high elasticity of tax revenues and the government deficit to the downturn, combined with the unfortunate decision to lock - in a very comprehensive bank guarantee before the potential scale of the banking losses could at all be appreciated, meant that ireland ’ s actual and prospective general government debt made a shocking turnaround from about 25 per cent of gdp in 2007 to 117 per cent just five years later. historians will debate the exact triggers for the market ’ s loss of confidence in the irish sovereign. even as late as april 2010, after the first sampling indicated the scale of the banking losses, sovereign spreads were little more than 1 per cent. by november of that year ( just a few weeks after the deauville statement which persuaded the markets that private sector holders of euro sovereign debt would not be