claudia buch : finance and growth – guidelines for financial sector reform speech by prof claudia buch, deputy president of the deutsche bundesbank, at the frankfurt finance summit 2015 : “ the last word ”, frankfurt am main, 17 march 2015. * * * ladies and gentlemen it is my pleasure to share a few thoughts with you at the end of this year ’ s frankfurt finance summit. given the challenges that lie ahead, the summit ’ s key question : “ how to foster growth in a new regulatory framework? ” could not be more timely. at the moment, economies worldwide are still struggling with the adverse effects of the financial crisis. the average loss of potential output resulting from the financial crisis has been estimated at 8. 4 %. and these output effects can be very persistent. crises reduce an economy ’ s capital stock – and the catch - up process via investment takes time. constrained credit supply in times of financial crisis can lead to inefficient capital allocation. investment in innovations is postponed. this shrinks potential output and productivity, thereby slowing down long - run growth. in order to weaken the negative effects of financial crises on growth, many new regulations have been designed. in europe, the banking union and, more recently, the capital markets union feature prominently. at an international level, the regulation of globally significant financial institutions has been at the core. overall, these reforms are headed in the right direction. yet concerns are being raised that the regulatory system is becoming too complex and thus less transparent. this makes it necessary to focus on the key principles of regulatory reform. in the next 15 minutes, i would like to step back and ask • what is the relationship between finance and economic growth? • and is there a “ double dividend ” in the sense that financial systems which are conducive to growth are also more stable? to answer these questions, we can draw on a large body of empirical ( and theoretical ) evidence that can give us guidance for financial sector reform. let me start with the evidence we have on the link between financial development and growth. 1. financial development and growth in the 1990s, there was a widespread consensus that financial development fosters economic growth. developed financial sectors stimulate entrepreneurship, innovation, investment, and productivity. many of these beneficial features of financial markets arise through equity finance. through venture capital finance, for instance, new start - ups obtain not only financial resources but also management expertise. yet, in much of the academic and policy debates,

said, it's still essential to find some common ground and establish a global baseline for taxonomies, disclosures and other measures to increase transparency. greater harmonisation will enable the necessary funds to be raised for our climate agenda by enhancing interoperability and comparability. with more comparable information at hand, investors can better assess risks as well as the impact of their investments across countries and projects. central banks and supervisors also stand to benefit from increased transparency. more transparency allows for more detailed and realistic risk assessments, which in turn bolsters supervision and financial stability analyses. the ngfs has identified best practices around the world and provided guidance for supervisors on how to account for climate - related risks. and it has developed scenarios that help assess risks to the financial sector and the economy at large. these scenarios, our flagship product, have been put to use in climate stress tests by central banks, supervisors and the private sector worldwide. the ngfs recently updated the scenarios and is striving to further improve their sectoral and regional granularity. this will give a clearer picture of regional adaptation and investment needs. at the same time, new risks may become apparent, which might prompt investors to refrain from investments in emerging and developing markets. in other words, transparency can be a bit of a double - edged sword. however, the solution is not to turn a blind eye to these risks. in my view, the benefits of boosting transparency by far outweigh the potential downsides. as central banks and supervisors, we have to ensure that financial institutions take all relevant risks into account. at the same time, scaling up private investment in emerging and developing economies is imperative to drive the green transition. blended finance could be one way to reduce investors'concerns. this can be a powerful means of unlocking private investment in projects or regions that are associated with high risk. the world bank has been a true trailblazer in this area. the ngfs will start work on blended finance as well. collaboration with all stakeholders will be crucial for our success. the ngfs stands read! 1 international energy agency ( 2022 ) world energy outlook 2022. oecd publishing, paris. 2 songwe v, stern n, bhattacharya a ( 2022 ) finance for climate action : scaling up investment for climate and development. london : grantham research institute on climate change and the environment, london school of economics and political science. 2 / 2 bis - central bankers '