luis de guindos : opportunities and challenges for the euro area financial sector opening speech by mr luis de guindos, vice - president of the european central bank, at the 22nd euro finance week, frankfurt am main, 18 november 2019. * * * i am honoured to open the 22nd euro finance week. we gather here every year to discuss the recent financial and economic developments in the euro area and beyond. as we are going to publish our financial stability review in two days ’ time, today i will focus on the health of euro area financial institutions and the opportunities and challenges they face in the current environment. i will also offer some policy considerations. opportunities and challenges for euro area banks let me start with euro area banks, which have been reporting persistently low profitability in recent years. the aggregate return on equity of the sector slightly declined to less than 6 % in the 12 months to june 2019. this weak performance is broad - based, with around 75 % of significant banks generating returns below the 8 % benchmark return demanded by investors for holding bank equity. poor profitability of course reflects both cyclical and structural factors. the current macro - financial environment in the euro area is challenging for euro area banks. the recent softening of the macroeconomic growth outlook and the associated low - for - longer interest rate environment are likely to weigh further on their profitability prospects. many market analysts are concerned about the drag on bank profitability that could result from the negative impact of monetary policy accommodation on net interest margins. and net interest margins are indeed under pressure. just focusing on this one aspect is misleading, however. importantly, it neglects the first - order effect of monetary policy in supporting economic activity. without this, bank lending volumes would have been significantly lower and provisioning costs substantially higher. these factors, together with the increase in asset values, have broadly offset the negative impact of low rates on net interest margins. in addition, the introduction of the two - tier system for reserve remuneration will help mitigate the cost of negative interest rates for banks. structural factors are at the heart of weak bank profitability, however. in particular, euro area banks face challenges linked to the sector ’ s overcapacity. there are too many banks. many of them have low market shares and so are under high competitive pressures, also from outside the sector, for example from fintech companies. another important dimension of overcapacity in the euro area is persistent cost inefficie

public spending, together with the cost of labour, would be a fundamental part of the fight against inflation ’. he said that ‘ regrettably, in finalizing the budget, its contents were first affected by the conflicts that emerged within the government and among the economic ministers, and then by the modifications made during the parliamentary debates which, in large part, tended towards easing the budget ’, adding ‘ the gap between the budget ’ s results and its objectives was particularly wide. the deficit - to - gdp ratio, which had already increased from 9. 3 per cent in 1980 to 10. 7 per cent in 1981, jumped to over 13 per cent in 1982 ’. lastly, he recalled that ‘ at the end of may 1982 [ … ] i deemed it necessary to make a ‘ 1981 : emergenza economica e nuove vie per il risanamento ’, in scritti nella nuova antologia, vol. 1, p. 68. ‘ per la riconquista della stabilita e la creazione dell ’ europa ’, in scritti nella nuova antologia, vol. 1, p. 121. ‘ italia e germania : un comune impegno europeista ’, in scritti nella nuova antologia, vol. 1, p. 252. public comment on the gap between the acknowledgment of the problems and the inadequacy of the proposed solutions, expressing with great clarity the risks and concerns deriving therefrom ’. 18 24. in his writings ciampi expressed his constant concern that ‘ growth [ could be ] disrupted by fiscal disorder ’. 19 nearly 15 years later, at the end of 1995, speaking from a medium - term perspective he complained again about ‘ the prolonged lack of consistency between the consolidation and convergence objectives set out by parliament and the government in connection with the process of european integration, and the manner in which the public finances and wage negotiations were actually managed ’. 20 25. shortly afterwards, however, it fell upon ciampi to reorganize the accounts, a requisite for italy ’ s entry into the european monetary union. the success of this endeavour hinged upon three characteristics which marked ciampi ’ s entire career : his insistence on an accurate diagnosis of problems ; his urging of clear objectives ; and his awareness of his personal responsibilities, an indispensable precondition for mobilizing the energies of