claudia buch : introductory statement - public hearing at the european parliament introductory statement by prof claudia buch, chair of the supervisory board of the european central bank, at the hearing of the committee on economic and monetary affairs of the european parliament, brussels, 2 september 2024. * * * thank you very much for the opportunity to exchange views with you, the members of the newly elected european parliament's committee on economic and monetary affairs. providing our perspectives on the european banking sector is crucial for our transparency and accountability. let me begin with our assessment of the state of the banking sector, bearing in mind that the economic environment in recent years has been far from favourable. the pandemic, the energy supply shock following russia's full - scale invasion of ukraine, and high inflation have exposed european economies to unforeseen challenges. in the face of these challenges, europe's banking sector has shown resilience. banks possess capital and liquidity buffers that would enable them to absorb potential losses and adverse shocks. bank profitability has benefited from higher interest rates, which is reflected in higher valuations of bank stocks. however, the effects of this supporting factor are gradually diminishing. improved bank resilience has been driven by two factors. the financial sector reforms implemented in the aftermath of the 2008 financial crisis have strengthened banks without compromising their lending capabilities. in addition, banks have indirectly benefited from policy support which has helped shield the real economy from recent adverse shocks. corporate insolvencies and associated loan losses have thus been contained. as a result, banks currently find themselves in a situation that is markedly different from the early days of banking union a decade ago. in 2015 the average ratio of nonperforming loans for significant institutions was 7. 5 % 1, with some banking systems experiencing ratios close to 50 %. by march 2024, this ratio had decreased to 2. 3 %, with a significant decline in differences across countries. banks'capital ratios have improved, particularly in terms of risk - weighted ratios. the common equity tier 1 ratio for significant institutions rose from 12. 7 % in 2015 to 15. 7 % in early 2024. but we cannot be complacent : the macro - financial and geopolitical environments have changed significantly. banks must navigate new risks and structural changes, and loan losses may increase. therefore it is vital that resilience is maintained. with this in mind, our supervisory agenda focuses on three areas. first,

instruments in the euro area, making those instruments more affordable and thereby promoting financial inclusion. the single euro payments area ( sepa ) is instrumental in this respect. later this week, the ecb will publish the second sepa migration report, which will highlight the progress accomplished and the remaining challenges as we come closer to the sepa end - date of 1st february 2014 for migration to pan - european payment instruments. as recalled by the sepa council at its 23rd september meeting, the sepa migration requirements set by law have to be fully respected without exception. looking beyond the end - date, the ecb will establish and chair the euro retail payments board ( erpb ) as successor of the sepa council to contribute to and to facilitate the creation of an integrated, competitive, innovative and level - playing field market for euro retail payments. the ambition is for the erpb to achieve a wider membership, strengthened mandate and a more output - driven approach. i look forward to an active participation of the european commission. at present, financial inclusion is lower in those countries which make less use of cashless retail payment instruments. 7 giving more people, especially those on lower incomes, access to financial services not only adds to economic growth, but also plays a part in reducing income inequality and poverty. in this way, it can help to achieve higher social welfare. at the same time, it can integrate payment flows that currently exist outside the formal financial sector and strengthen the social role of banks. this matters enormously as europe is emerging from a protracted crisis that has put its social model under strains and shattered public trust in the financial industry. to sum up, i would say that there are strong economic, social and political reasons for retail payment service providers, users and regulators to aim for further retail payments integration. european regulation is essential in paving the way, but there are many other roads to follow for providers and users to reap the full benefits. retail payments innovation as i said earlier, e - commerce and new communication and information media have set new challenges in terms of functionality and security for retail payments. they have also given providers of payment - related services new opportunities to compete. these chances are valuable because, as we know, competition is good for business, i. e. it should provide users with more choices and better services. unfortunately, these opportunities have not yet been fully exploited by the different market players. innovative retail payment solutions in the euro area are still largely being provided by non - bank