5 march 2018 the new challenges facing central banks colegio de ingenieros de caminos luis m. linde governor let me begin by thanking the school of civil engineering for inviting me to inaugurate this cycle of meetings with regulatory agencies. many thanks to the president of the school, its management board and all of you for being here today. the international financial crisis that began in 2007 has given rise to various changes and to the emergence of new challenges. central banks are, today, in a rather different and novel situation compared with where we were before the crisis some 10 years back, and we are affected by a debate about our functions in the economy and the thrust of our policies. in the past decade central banks have increased monetary stimuli manifold and there have been deep - seated changes in the monetary and regulatory policy objectives and instruments implemented. we are now emerging from the crisis and this is raising even more the profile of the debate on the role central banks should play and whether the policies pursued in recent years should be maintained, or progressively abandoned, and at what speed and to what extent either alternative should be taken. the challenges facing central banks can be grouped in three areas : first, what is being labelled as the “ new normal ” in the macroeconomy and its implications for monetary policy ; second, the challenge for financial regulation policies ; and third, the new challenges posed by financial innovation and the new technologies. the impact of the crisis on monetary policy but before addressing these challenges, i think it might be useful to take a short step back to remember where we have come from. we can only understand today ’ s challenges if we bear in mind the changes, often far - reaching, that have come about in central banks in response to the crisis. the global financial crisis came about following a build - up of bubbles in the advanced economies, mainly in the financial and real estate sectors, a process to which easy financing conditions proved conducive in a setting in which risks were not appropriately priced. in any event, what was surprising was the intensity and global nature of the crisis that broke in 2008. given highly integrated financial markets and complex interconnections, instability spread rapidly, leading to the most serious financial crisis since the second world war. in the european union the crisis was, moreover, exacerbated by a double - dip recession, which has prolonged the recovery period and has also revealed the weakness of the euro area ’ s institutional framework. the crisis also left

to the resident private sector continued to fall in 2015, albeit at more moderate rates than in 2014, both for households and for non - financial corporations. for the latter the fall in credit progressively eased, with the rate of decline for smes ( - 2. 8 % ) appreciably lower than that for credit to large corporations ( - 6. 4 % ). non - performing loans continued to decline in 2015, falling by more than €37 billion ( against the fall of €24 billion in 2014 ). at end - 2015 the proportion of npls on spanish banks ’ balance sheets was 22 % down on the previous year. this trend has been seen both in credit to non - financial corporations and in that to households. profitability is unquestionably a fundamental challenge facing european and spanish banks. in 2015, consolidated income at the global level for the sector as a whole was close to €14 billion, almost 13 % down on the previous year ; and the return on equity fell from 6. 9 % in bis central bankers ’ speeches 2014 to 5. 6 % in 2015. in terms of domestic business, profitability was worse than for consolidated activity at the global level, with the roe in 2015 standing at 4. 4 % ( against 5 % in 2014 ). the main factor bearing down on the sector ’ s profitability may be said to be the environment of very low interest rates, and this environment might be expected to hold as long as inflation expectations justify the highly expansionary monetary policy stance in the euro area. the spread between the return on assets and liabilities in domestic business is at levels very close to all - time lows. also, there is little room for further downward movement as regards the cost of funds ; accordingly, if asset - side rates continue falling, net interest income may continue declining. but we should mention another two factors bearing down on profitability. on one hand, a stilllow level of banking activity ( as credit continues to fall ). on the other, the significant volume of non - productive assets ( non - performing and foreclosed ) still on bank balance sheets, although it is true that non - performing assets are declining notably, which translates into fewer provisions and an improvement, therefore, in results. against this backdrop, efforts to cut costs and bring about efficiency gains are of particular importance. lastly, it should be stressed in connection with banks ’ solvency that the maximum - quality capital ratio, namely cet1, has increased