jean - claude trichet : the current state of the eu banking sector speech by mr jean - claude trichet, president of the european central bank, at the annual congress of german savings banks, frankfurt, 5 may 2004. * * * ladies and gentlemen, it is both a pleasure and an honour to be invited to speak here today at the annual congress of german savings banks. being in front of such a distinguished audience of representatives of the financial community, i would like to present some views on the current state of play in the european banking sector. i will in particular analyse the factors that have contributed to its resilience over recent years. since 2000, eu banks have been confronted by an extraordinary combination of adverse financial market shocks against the backdrop of a slow - down in the economy. some commentators have even been surprised by the few banking problems in the euro area during this period, given that earlier episodes of slow growth often went hand in hand with severe problems in the sector. for central banks and banking supervisors, the resilience of the eu banking sector is, of course, very good news. at the same time, it raises a number of questions. what is now so different compared with the stressful periods that banks experienced in the past and what factors have contributed to this resilience? a turbulent period for eu banks but before addressing these issues, let me start by briefly recalling how challenging the environment has actually been for eu banks over recent years. without a doubt, the most momentous technical and strategic challenge was the introduction of the single currency, now more than five years ago. the very smooth transition that followed the adoption of the euro almost makes us forget the uncertainties, and sometimes even concerns, expressed before 1999 about the structural implications the euro might have on the euro area banking sector. the second challenge faced by banks in recent years was that not long after the banking sector had begun to adjust to operating with a new currency - including all of the efforts that this entailed - an exceptional series of adverse events followed in quick succession. after an almost uninterrupted stock market boom since 1995, a severe stock market correction set in in march 2000 and investors faced three consecutive years of negative returns. investor confidence was also badly shaken by unprecedented episodes of serious corporate malfeasance. although most of the main abuses took place abroad, europe also had its fair share. over time, we have observed that banks have increasingly diversified into securities trading, investment banking and asset

approved by the european commission. this ensures that we will have an effective regulatory environment to make the most of this investment. that said, it is clear that the digital and green transition cannot only be led from the top down – it has to be driven by businesses and their ability to be leaders in innovation. the global innovation and technology landscape is evolving rapidly and is characterised by the winner - takes - all tendencies of digital technologies. in many areas, europe is doing well. at the green - digital nexus, for instance, european companies are among the frontrunners : nine of the top 20 global players developing green - digital patents are european. 5 but europe ’ s relative weakness in overall digital innovation – due to slower adoption and lack of size – mean that it could easily lose its advantage. in 2020 only 63 % of eu firms had implemented at least one digital technology, compared with 73 % in the united states. 6 and so far, european technology companies have largely been unable to achieve scale. taken together, the five biggest us technology firms have a larger market capitalisation than the sum of all dax 40 and cac 40 companies. so we must support the huge innovation potential of european businesses by improving the conditions for investment in technology and enabling businesses with ideas to scale up quickly. and thanks to our collective size and strength, all the answers we need are within our reach. we already have the world ’ s largest single market. extending it to the digital sphere would allow businesses to expand faster, reach european scale and increase the returns on innovation. and we also have the world ’ s largest green finance market, with around 60 % of all senior unsecured green bonds issued here in 2020. this can be a stepping stone for achieving a fullyfledged capital markets union that could act as a catalyst for the overall structural transformation of europe. if we took these steps, it would automatically put us in a stronger position to deal with a less predictable global order. it would enable us to be fully open to the world, but resilient to shocks elsewhere, since we could rely more on our own internal growth. 3 / 4 bis central bankers'speeches conclusion i am confident that this adjustment is possible. the pandemic has shown that, when put to the test, there is a deep, shared commitment to europe among its member states. and this crisis has also shown that – contrary to some popular narratives – europe is able to adapt quickly and reorient itself towards the most pressing challenges