##2s ) settlement platform. in doing so, they are providing efficient and secure payment systems and ensuring that payments throughout europe can be made smoothly. one thing is for sure : the joint operation of complex systems such as these can only succeed if all parties trust one another and pull together at all times. and that ’ s exactly what we ’ re doing! in addition, we ’ re working on making payment systems fit for the future. just last week, for example, experts from the bundesbank and the banca d ’ italia came together to exchange ideas on the possibilities for settling securities in central bank money using innovative market solutions based on distributed ledger technology ( dlt ). 1 ladies and gentlemen, payment systems are just one example of the especially close cooperation between germany 1 / 3 bis central bankers'speeches and italy within the eurosystem. for this reason, i am delighted that we are now sending a representative to the german embassy in rome to strengthen our ties even further. this is because europe and the eurosystem are undoubtedly facing significant challenges. first of all, we need to tackle the coronavirus pandemic and its fallout. how can we ensure a successful economic recovery? how do we roll back the emergency measures? and what structural changes will the pandemic bring about over the medium and long term? furthermore, we must continue to develop european economic and monetary union. how do we deal with the sharp rise in public debt in the euro area? how can we reconcile the single monetary policy with different national fiscal and economic policies? will we be able to strengthen the capital markets union and complete the banking union? and, finally, we must grapple with the pressing issues surrounding the megatrends of demographic change, decarbonisation and digitalisation. above all, digitalisation is making waves in the financial sector and presenting challenges to central banks like the bundesbank and the banca d ’ italia. what will the digital financial system of tomorrow be like? who will play what roles within that system? and how will we make payments in the future? with cash? book money? digital money? or with central bank digital currency? as different as all of these questions are, they do have one thing in common : they all require a joint european response. in this regard, it is absolutely clear that the need for international exchange, consensus and collaboration will continue to grow. for this reason, we at the bundesbank believe that it is vital to redouble

to get into shape to successfully comply with these new rules is a demanding task. so, if we take a panoramic picture of the sector in europe, what does it look like? well, first of all, we see how the landscape has been cleaned up and dangerous areas secured. the european banking sector has made progress in improving both its solvency and its governance. yet, when we zoom into the picture, we see that the landscape is still dotted with contaminated spots. obviously, the reform progress is not over. a politician would probably stop now – thereby dodging the question on everyone ’ s mind : what on earth does that mean? unfortunately, i have too much time left to stop just now. 3 what to do? what to do, then, to complete the reforms in the european banking sector? what should banks do? what should policymakers do? for one thing – many, if not most institutions must retool their business models. until the financial crisis of 2008, the credit bubble allowed banks to inflate their income to unsustainable levels. this led them to build up capacities which, from the perspective of the real economy, were not fully needed. moreover, bubble - driven profits spared them from making their organisations lean and efficient. a study recently found for the us financial market that productivity gains in the financial sector from 1900 onwards were mostly concentrated in the area of secondary trading – while the productivity of primary market activities stagnated. 1 in other words, banks need to fundamentally rethink their business models. their goal should be to achieve, over the long run, a steady stream of sustainable profits with a minimum of volatility. for this, banks need to compete with fintech companies for customers with different demand patterns on the one hand, and open up new sources of income on the other hand. at the same time, they need to increase their operational efficiency considerably. these changes to business models and operational efficiency are likely to bring about further cuts in the sector. we have seen this trend in europe for some years now. moreover, recent data and news releases on banks ’ plans to cut resources and reshape strategies indicate that this trend is ongoing. thus, the sector is on a path towards a size and structure that will be sustainable in terms of the real economy ’ s needs. yet to be clear, this can take many forms. we should not reduce this debate to a simple “ we need fewer small banks ” – more market