gertrude tumpel - gugerell : business models in banking – is there a best practice? speech by ms gertrude tumpel - gugerell, member of the executive board of the european central bank, at the carefin conference on “ business models in banking : is there a best practice ”, bocconi university, milan, 21 september 2009. * * * ladies and gentlemen, 1 it is a real pleasure for me to speak today at bocconi university. founded in 1902, bocconi was the first italian university to offer degrees in economics. as one of the oldest economics departments in europe, bocconi leads the way in intellectual thinking on economic progress and innovation. it therefore seems the perfect place to host today ’ s conference on banking business models and to discuss their future. given that the worst financial storm since the 1930s is only gradually calming down, the topic chosen for this conference is very apt. banks have taken centre stage in the ongoing financial and economic crisis, and any definitive resolution to the crisis essentially hinges on banks regaining financial health and public confidence on the basis of sustainable and welfare - enhancing business models. however, not all banks have been equally affected by the crisis, nor have they been equally responsible for it. the main players have mostly been large international investment banks or banks that had moved away from traditional retail banking activities. this movement towards a presumably more “ modern ” business model relied principally on the origination, distribution and trading of often complex securities, on other fee - income generating activities, as well as on a funding structure more dependent on wholesale markets. many factors have contributed to the current financial crisis, namely excessive risk - taking, the emergence of a shadow banking system, the exponential growth of innovative financial products, inadequate corporate governance incentive structures at banks, the lack of proper regulation and an environment of abundant liquidity at low interest rates. but my speech today is going to focus on excessive risk - taking and banks ’ creation of innovative financial products, which has led to the transformation of their business models. to a large extent, this shift towards a new business model was based on innovation in the structured credit market, particularly in respect of securitisation instruments, such as credit default swaps, asset - backed securities and collateral debt obligations. a common feature of all these financial innovations is that they transform, transfer and trade credit risk. one of the main consequences of the use of such instruments is that large amounts of credit that were previously predominantly illiq

the implications of these choices may be for the diversification of our portfolios. second choice : finding the right people and creating the right processes to make this work. that means recruiting the appropriate capacity and competences and reorganising our organisations. that means defining new or additional kpis to also reward decisions that contribute to impact goals and put less emphasis on classical views, like the markowitz modern portfolio theory. third choice : being more transparent about what you do and the results you are aiming for. that means : moving away from the short - term focus that keeps you locked in the past and present, towards a sustainable, long - term future. 2 / 4 bis - central bankers'speeches however, it's not only the financial sector that has to make choices. like i said : it's undeniable that policymakers, regulators and the financial sector are mutually dependent. these upcoming national elections are therefore important. because to make the transition to a sustainable future a success, or even a possibility, we need a government with a clear long - term vision of sustainability. not only at the national level, of course, but also at the international level, where global standards and a unified approach to the big issues are sorely lacking. a global setting investors can have confidence in and build on. policy stability and a clear destination are key conditions for financial institutions to embark on the road towards sustainability and of course, central banks and supervisors have their role to play, their responsibility to take, their choices to make. we may not sit in the driving seat ; we are definitely part of the team : as a supervisor and regulator and as a watchdog over monetary and financial stability interests. the latter will clearly be threatened by a disorderly transition. today i want to elaborate on these roles in a more holistic and integrated way. in our role as supervisors and regulators we make sure that financial institutions identify, recognise and mitigate climate and nature - related risks, and – should risks materialise – prevent them from having serious consequences. risks that – we must acknowledge this – not only involve the mitigation of climate change and nature degradation or risks stemming from sudden transition policies, but that also require us to adapt to risks and realities that can no longer be avoided. risks our planet is already facing every day, like extreme heat and drought that cause wildfires, or torrential rains that cause floods. risks that have financial consequences for our food supply, health and housing ; for insurance and