swifter and fairer way. banks directly supervised by the ecb have built up strong capital positions in recent years, with a common equity tier 1 ( cet1 ) ratio of 14. 3 % in the first quarter of 2019 compared with 11. 3 % at the end of 2014. they have also substantially reduced their non - performing loan ratio, which stood at 3. 7 % in the first quarter of 2019 compared to 7. 5 % in the second quarter of 2015. these are important steps forward as euro area firms rely heavily on bank credit to finance growth and investment. so what more should be done at the european level? first, the ability of the financial sector to contribute to economic stabilisation should be strengthened. during the crisis, financial integration in the euro area reversed and it has only gradually recovered over the past few years. the creditworthiness of banks remains linked to that of national governments. unlike in the united states, cross - border investment is not a significant buffer against economic shocks. the euro area still lacks genuinely integrated capital markets, which hinders the efficient allocation of european savings, private cross - border risk - sharing to smoothen consumption during idiosyncratic shocks and the use of the euro as an international currency. recent legislative steps are commendable but do not measure up to the initial ambition of the capital markets union project. brexit will further accentuate the need to develop and integrate the eu ’ s capital markets. a large number of banks and investment firms are in the process of establishing or expanding their euro area presence, possibly resulting in the development of a multi - centric european financial system. while the landscape may evolve further in the future, in a financial system with a number of increasingly important hubs, as opposed to one dominant hub in london, it will be more important than ever for these hubs to be able to efficiently interact with one another and to avoid differences across member states providing opportunities for regulatory arbitrage. second, the banking union needs to be completed. in particular, a fully fledged european deposit insurance scheme ( edis ) is a key missing element. in this context, the ecb has proposed that edis could be accompanied by risk - based contributions by banks linked to their sovereign holdings. third, further efforts are needed to deepen fiscal union in the euro area. european fiscal rules are complex, opaque and plagued with exceptions and exemptions which have accumulated over time. they rely excessively on measures of cyclical

vitas vasiliauskas : central banking in the age of financial innovation – what does it take? speech by mr vitas vasiliauskas, governor of the bank of lithuania, at the conference " living without globalization? ", session 8 " digital transformation and innovation ", organized by the hamburgisches weltwirtschaftsinstitut ( hwwi ) and the reinventing bretton woods committee, hamburg, 4 july 2017. * * * good afternoon, ladies and gentlemen, firstly let me thank the other panelists for their insights. i would like to add some thoughts on financial services and central banking – their new mission in the age of innovation. i guess, some of these thoughts may sound unusual or even controversial. especially for a representative of a central bank that also holds the role of financial system supervision. however, this is our goal for today – to have a productive discussion, frankly sharing our thoughts and offering outside - the - box views. needless to prove the obvious : financial markets are changing. and they are doing so swiftly and fundamentally. in this light, central banks – being the guardians of financial stability – must alter the way they operate. to respond to new challenges, they need to become more flexible. otherwise – you see the poor guy in the picture – central banks and supervisors will stand with their hands tied, while the financial sector is moving forward, fueled by technological advance. yet while saying “ a ” we must say “ b ”. despite a surge in innovations, there still exists a vast unused potential. in practice, private actors may be held back by unfavorable market structure and regulatory environment. what these actors often need is a gentle push – a supportive stance from the authorities. on the other hand, authorities – and consumers as well – also face challenges. firstly, fintech developments formulate the need to balance innovation on one side and – stability on the other. adding to this, certain sectors – such as payments – may be ready for innovation. but they are hampered by high entry barriers, preserving relatively inefficient and costly systems. what is more, technological advances – like automated trading and investment – alter market structures. this calls for upgrades in regulatory frameworks. conventional wisdom and tools are often insufficient. central bankers and supervisors are thus facing a choice. they must either opt for an unconventional path, which requires broader outlooks, or risk lagging behind the markets. now let us look past the