margarita delgado : keynote address – 4th annual european financial integration conference keynote address by ms margarita delgado, deputy governor of the bank of spain, at the 4th annual european financial integration conference, organised by the association for financial markets in europe ( afme ) and the official monetary and financial institutions forum ( omfif ), frankfurt am main, 28 may 2024. * * * first of all, i would like to thank the association for financial markets in europe ( afme ) and the official monetary and financial institutions forum ( omfif ) for inviting me to the 4th annual european financial integration conference. i am sure that in today's agenda will hear very interesting ideas regarding european financial integration from different perspectives, including technology, innovation, the capital markets union, sustainability and so on. all these thoughts will need to be set in the context of the current uncertain macroeconomic and geopolitical environment. i will start with an overview of the european macroeconomic situation, followed by an analysis of the current state of the banking sector, as well as the main challenges it faces in the medium term. additionally, i will discuss the bold decisions that european policymakers must make during this legislative cycle to promote greater market integration. global economic activity was more buoyant than expected in late 2023 and in the early stages of this year, compared with the figures envisaged in the ecb's latest macroeconomic projections exercise of march 2024. 1 at the same time, economic activity has evolved differently across geographical areas, with a clear contrast between the improvement observed in the united states and china and the relative weakness observed in the euro area. in this context, the global disinflationary process has continued amid declining energy prices, a reduction in supply disturbances and the ongoing impact of restrictive monetary policy in the main advanced economies. finally, international financial markets are being shaped by the recent delay in the expected path of interest rate cuts by the fed. in this context, economic activity in the euro area has remained weak since mid - 2023 and only more recently has it shown signs of improvement. the ecb's most recent projection exercise predicted an average annual gdp growth rate of 0. 6 % in 2024, 0. 2 pp higher than the figure observed in 2023. however, in early 2024 the euro area has shown signs of a stronger recovery than initially expected. indeed, according to eurostat's flash estimate, quarterly gdp growth stood at 0. 3 % in the first

##ed by households due to the robustness of the euro area labour market, which reached historically low unemployment levels ( 6. 5 % in march ). however, as i mentioned before, according to the ecb the economy remains weak, especially in the manufacturing sector and particularly in energy – intensive industries. over the coming quarters a gradual economic recovery is expected, led by the services sector and exports growth, in line with the global economic rebound. but we must remain prudent. the geopolitical situation is still a factor to consider and could generate uncertainty that affects the economy. for this reason, caution is necessary, and monitoring should be reinforced in specific sectors within certain regions, such as the commercial real estate sector, which is already coming under scrutiny by supervisors. additionally, other pockets of npls could emerge in more vulnerable sectors that have been heavily impacted by prolonged higher interest rates. highly targeted portfolio monitoring is essential to spot any early warning signs that might trigger targeted supervisory actions. under these circumstances, entities should capitalise on their current positive results to strengthen their solvency and ready themselves to face the upcoming challenges in the coming years. the first challenge is digitalisation. financial institutions will need to continue making significant investments in new technologies to adapt their business models to the evolving digital landscape. like other sectors, the banking industry is putting customers and their expectations at the core of its strategy. these expectations are unquestionably evolving in step with technology and banks will have to keep pace if they wish to remain the predominant players. responding fully to the needs of customers will be crucial for the future of banking, given the threats and challenges looming over the financial system. digitalisation opens doors to expanding the range of clients that an institution can reach and increasing the number of channels for product distribution, while also laying the foundations for enhanced financial services. however, it also requires substantial investments to reinforce operational resilience. there is no such thing as zero risk, and it is evident that expanding the technological ecosystem in which banks operate will significantly increase the attack surface and the risk of system failures. banks will need to have strong operational frameworks to mitigate these risks and to be able to respond to incidents quickly. supervisors remain 3 / 6 bis - central bankers'speeches vigilant of this risk due to the severe negative consequences that system failures or cyberattacks could have not only on trust in the specific institution, but also on trust in the entire system. additionally, the use of technologies such as cloud