and rising asset prices. all this came against a background of light - touch regulation. the financial crisis has led to much - needed and far - reaching reform of the regulatory framework and a redesign of the supervisory architecture. but while we may have left the ‘ old normal ’ behind us, the “ new normal ” is still surrounded by substantial uncertainty. i see three challenges or drivers of change in the banking sector that will ultimately influence the shape of the “ new normal ”. opinion of the european central bank of 12 january 2016 on a tax for certain financial institutions ( con / 2016 / 1 ). bis central bankers ’ speeches first, the current economic environment poses a challenge to banks ’ business models and their profitability. abundant savings are not sufficiently absorbed due to timid investment activities of cash rich corporates. at the same time households and governments still need to repair their debt - contaminated balance sheets. moreover, although very low to negative interest rates aim at stimulating investment and consumption, a ricardian reaction cannot be excluded, i. e. households are hoarding even more as they need higher saving ratios to build up the same amount of wealth over the same time span. for some banks, a particular challenge is compounded by a legacy issue, namely nonperforming loans ( npls ), which remain a serious obstacle for these banks to provide new credit to the real economy, and a more general impediment for some banking sectors. second, banks face increasing competition from other actors in the market for financial intermediation. these actors include peer - to - peer lenders and technology firms offering financial services, but also to some extent insurance companies or investment funds. while more competition is surely welcome, market funding should complement, not replace, the role of banks in financing the economy. but further consolidation in the banking sector could improve its overall profitability by increasing cost and revenue synergies, thus make banking more competitive again. third, banks are confronted with potentially disruptive technologies such as distributed ledger technology ( dlt ) in the payments field. a distributed ledger is essentially a database that is shared across a network to record and validate transactions in different locations. as with all innovations, this new technology brings both challenges and opportunities. while it could increase pressure on some bank activities, dlt also has the potential to lower backoffice costs significantly and make market infrastructures more resilient and efficient. as i highlighted in a speech in frankfurt in april 2, i see three

. the latest observations in the left - hand panel are for december 2023 and january 2024 for total retail sales, and in the right - hand panel, for march 2024 ( flash ). weak domestic demand and the unwinding of supply shocks are reflected in the current account balance, which returned to surplus last year. this surplus is projected to increase further to 3. 2 % of gdp in 2024 and stay at that level subsequently. this points to domestic savings continuing to significantly exceed subdued demand for investment over the entire projection horizon. moreover, the euro area fiscal stance [ 18 ] is projected to further tighten in 2024 and in the following years, notably on account of the new fiscal rules and the continued withdrawal of support measures adopted in response to the energy shock. overall, fiscal policy has been more restrained in the euro area than in other major economies ( chart 11 ). chart 11 general government net lending / borrowing ( percentages of gdp ) source : imf ( 2023 ), world economic outlook, october. lacklustre demand has repercussions on economic activity. the latest european commission business survey cites insufficient demand as the most common factor limiting production. in fact, this constraint has been on the rise, just as other factors – including labour shortages – have been receding ( chart 12 ). industrial production was flat in the fourth quarter of 2023, decreased strongly in january and remains well below its pre - pandemic level ( chart 13 ). chart 12 euro area pmi indicators and factors limiting production a ) composite pmi b ) limits to production ( diffusion indices, standardised ) ( percentages ) sources : s & p global market intelligence, european commission and ecb calculations. note : panel b ) is based on aggregated sectoral survey data using gva weights. pmi stands for purchasing managers ’ index. latest observations : panel a ) : february 2024, panel b ) : march 2024 ( flash ). chart 13 euro area industrial production ( excluding ireland ) ( indices : 2019 = 100 ) sources : eurostat and ecb calculations. note : the latest observations are for january 2024. coupled with restrictive financing conditions, weaker than expected economic activity was reflected in the downward revision of euro area growth for 2024 to 0. 6 % in the latest ecb staff projections. but as inflation continues to decline and households ’ real disposable income increases, we expect a recovery to ensue, with the economy growing