sabine lautenschlager : banks business models - keeping pace? statement by ms sabine lautenschlager, member of the executive board of the european central bank and vice - chair of the supervisory board of the single supervisory mechanism, at the seventeenth annual conference on policy challenges for the financial sector, washington dc, 1 june 2017. * * * ladies and gentlemen, there are 19 countries in the euro area. they all share one currency, but differ in many other respects. their economic structures, tax codes and legal frameworks differ. their macroeconomic characteristics, such as growth, inflation and employment, also differ. this mix of economies requires a mix of banks. and in the euro area, banks are indeed varied. there are large banks that operate on the global stage and small ones that focus on domestic business ; there are banks which are profitable and there are banks which have not earned their cost of capital for several years now. all these banks face similar challenges. first, they have to deal with geopolitical risks, that is, with higher uncertainty. second, they have to deal with a challenging macroeconomic environment ; and that includes low interest rates. hence, banks have to adjust. they have to become more costefficient and diversify their revenues. third, they have to deal with overcapacities in the european banking market ; many banks compete for the same customers. fourth, they have to deal with technological change, such as digitalisation. that change attracts new competitors to the market, the famous fintechs. this makes the market even more competitive. and fifth, they have to deal with tougher rules. that includes higher capital requirements, more reporting and higher demands with regard to the scope and quality of risk management – just think of the bcbs 239. so banks are important, and they face challenges. that ’ s why we take a very close look at how banks in the euro area make profits and how their business models work. that is a core element of our annual supervisory review and evaluation process, or srep as we call it. when we assess business models, we combine two things : an analysis of hard data and the judgement of experienced supervisors. this helps us to be unbiased, holistic and forwardlooking. and we benefit from our european viewpoint, of course. unlike national supervisors, we can compare and benchmark 125 banking groups across the entire euro area. that is a big advantage. altogether, we have

for all other sources of risk that we supervise. an approach that will be here to stay. our interactions with the banks we supervise show that they are also making progress, and they have finally started to put in place the basic infrastructure needed to identify, monitor, assess and control climate - related and environmental risks. 1 / 2 bis - central bankers'speeches all progress should be celebrated. for the banks under our supervision, we are contributing to this by proactively sharing the good practices we see. but let me be clear that all progress is ultimately a means to an end. and that end can be one thing only : practices and policies that are fully aligned with a paris - compatible transition path. this is why, when taking the first set of climate - related actions in our monetary policy, we committed to regularly reviewing all the relevant measures to ensure that they continue to support the decarbonisation path to reach the goals of the paris agreement and the eu's climate neutrality objectives. this is also why last week ecb banking supervision communicated deadlines by which we expect banks'risk management strategies to be fully aligned with our supervisory expectations in the area of climaterelated and environmental risks. this is why, despite the progress we have seen, i will continue to stress that the banks under our supervision need to step up their game and truly manage climate - related and environmental risks in the same way we expect them to manage any other material risk. this is why we support the european commission's proposal that banks should be legally required to put in place prudential transition plans which enable them to assess their risk exposures and the effectiveness of their risk controls in a world that is transitioning to net zero. this is why we ourselves will soon start to disclose data on climate risk exposure and the carbon footprint of our own asset portfolios, a commitment that covers all national central banks in the eurosystem. and this is why we urgently need to continue moving ahead. our road to sharm el - sheikh has been productive. but we cannot assess the success of our actions based on our point of departure. we need to judge our progress based on what is necessary to reach our destination in time. and we unfortunately cannot say that we are ahead of schedule. droughts, floods, heatwaves, and biodiversity loss are undeniably on the rise as very real manifestations of the climate and environmental crises. at the same time, in the eu, we are seeing that governments are all