peter praet : remarks at the fibi annual lunch speech by mr peter praet, member of the executive board of the european central bank, at the federation of international banks in ireland ( fibi ), dublin, 23 september 2015. * * * in recent years the global economy has witnessed a set of economic and financial conditions that were considered barely possible in the years of the “ great moderation ”. interest rates across advanced economies have fallen to very low levels. in the euro area we have even seen negative yields out along the yield curve : at one point in april 2015 up to about 36 % of euro - denominated government bonds were in negative territory. and inflation in most advanced economies has remained subdued : in our case it has followed a prolonged downward drift since late 2011 and still remains stubbornly low. what i would like to explain in my remarks is how we arrived at this situation, and how we can return to a situation that, looking retrospectively, would be considered “ more normal ”. my main message is that the euro area is still going through the correction phase of a pronounced financial cycle, and while monetary policy has a vital to role to play in supporting demand through that transition, it must be complemented by other policies to achieve a strong and sustained recovery from the crisis. the causes of the current situation the low growth and low interest rate environment we see in the euro area today is in part a secular phenomenon. the growth rate of total factor productivity ( tfp ) has been slowing in the euro area for decades. population growth has also declined from about 0. 7 % in the early 1970s to around 0. 3 % in recent years. this has been mirrored in the long - term decline of real interest rates, as lower tfp and population growth implies lower demand for investment and for loanable funds. but secular trends do not explain fully the current situation. cyclical forces also lead to fluctuations around secular trends, especially when driven by the financial cycle, and such forces are still at play in the euro area today. demand conditions, while improving, appear relatively weak for the early stage of the business cycle. this is largely explained by the legacy of the financial crisis. specifically, the euro area is coming out of a “ balance sheet recession ”, where a build - up of excessive debt set the conditions for a sharp downturn, which in turn created the need for substantial deleveraging and balance sheet repair, prolonging the length of the slump

premium which should translate into lower interest rates. third, enhanced awareness among borrowers through simplified factsheet and no pre - payment penalty on microfinance loans would enable them to easily switch between lenders. fourth, a reduction in the minimum threshold of microfinance loans for nbfc - mfis from 85 % of net assets to 75 % per cent of total assets is expected to lower their concentration risk and cost of funds. fifth and finally, an increase in the maximum threshold on microfinance loans for other nbfcs from 10 % to 25 % of total assets should increase competition. all these five elements should collectively help in bringing down the credit cost for the borrower. addressing regulatory arbitrage and operational inflexibility 4 / 7 bis - central bankers'speeches in 2011, microfinance sector was still evolving and there was a need to introduce a rulebased regulatory framework to bring some order in the sector. over last decade, the sector has come a long way. the prudent practices in the microfinance sector are well laid out and are better understood now. therefore, product specific requirements for microfinance loans such as an absolute limit on loan amount, limit on number of lenders, minimum tenure of loan, etc., which were anyway applicable to only nbfcmfis, have been withdrawn. the new framework provides the flexibility to lenders to customize their products and services to better meet the needs of microfinance borrowers. while the harmonization of regulations between the two largest contributors to microfinance loan portfolio viz., nbfc - mfis and banks has been deliberated extensively, harmonization of regulations between nbfc - mfis and other nbfcs has not received the required attention. i would like to highlight one significant change that has been introduced to address the risks in the business models of some nbfc - mfis. earlier, the threshold on microfinance loan portfolio of nbfc - mfis was calculated as a percentage of net assets which meant that nbfc - mfis could potentially have a significantly large share of their total assets deployed in the form of'bank balances '. it was observed that some of the nbfc - mfis were largely acting as the business correspondents of the banks thus subverting the entire premise of the business of a financial institution as provided under the reserve bank of india act i. e