sabine lautenschlager : caution should be the life of banking introductory 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 association for financial markets in europe ( afme ) board meeting, frankfurt am main, 22 march 2017. * * * ladies and gentlemen, taking risks is at the heart of any healthy business, including banks. after all, it is the job of banks to take and allocate risks. but as walter bagehot said : “ adventure is the life of commerce, but caution is the life of banking ”. i agree with him. banks are far too important for the economy to indulge in adventures. they enable business by providing loans to companies or by helping them to tap the capital markets. and they also facilitate business by providing services in fields such as payments, mergers and acquisitions, and global trade. banks help the economy to grow and prosper. but they can also badly hurt it ; we saw that in the financial crisis. that ’ s why banks need to be cautious. in practical terms that requires, among other things, sound risk management. and this sets the scene for my short statement today. the topic is risk management. i will begin with some smaller, or rather bank - specific, risk management topics and end with a few big issues. sound risk management depends on good data. it also depends on firm - wide risk aggregation and reporting. those who take decisions must be in the picture. but are they? well, in the crisis we learnt that decision - makers often were not. it systems, data architecture and related processes were not up to the mark. against that backdrop, we assessed how banks aggregate data and report risks. the yardstick was a set of global best practices that were defined by the basel committee on banking supervision. these are known as the bcbs 239 principles. the result of our review : many banks do not meet the global standards. as usual, we will therefore be very explicit on how these banks should improve. and we will closely monitor the progress made by the respective banks to ensure that they meet relevant standards. ladies and gentlemen, good risk data is one thing. but processing such data is another matter. and that leads me to my next topic : internal models. many large banks use these models to calculate their risk - weighted assets, which then serve as a basis for calculating capital

one indeed. 2. 5 billion adults, just over half of world ’ s adult population, do not use formal financial services to save or borrow. 2. 2 billion of these unserved adults live in africa, asia, latin america, and the middle east. of the 1. 2 billion adults who use formal financial services in africa, asia, and the middle east, at least two - thirds, a little more than 800 million, live on less than $ 5 per day. ( source : “ half the world is unbanked ”, 2009, financial access initiative ) however, some of the critical indicators for access to finance in india along with benchmark indicators for selected high - income oecd member countries ( table 1 ) reveal that while there have been improvements during 2001 – 08 but it is still very adverse as compared to oecd economies. ( ii ) non - availability of appropriate banking technology till a few years ago. lack of proper physical infrastructure, digital connectivity, etc. in some parts of the country. if financial inclusion is to take place, it can only be through information and communication technology ( ict ) based models. ( iii ) lack of proper business models. banks still perceive this as a burden and an imposition and not as a viable business model. ( iv ) lack of cost effective scalable delivery models. there is no facilitating and effective delivery model especially when problems are encountered. business correspondent ( bc ) based delivery model is still in the evolutionary stage. ( v ) the costs of administering low value transactions and of financial intermediation are perceived to be on the higher side. ( vi ) planned, strategic and concerted efforts were lacking. it requires massive efforts from all stakeholders. strategy 11. what has been our broad strategy for achieving planned, sustained and structured financial inclusion? it is through a planned approach to the entire gamut of issues whose detailed steps are enumerated below : ( i ) we have advised banks to formulate a board approved financial inclusion plan ( fip ) for the next three years. we have not imposed a uniform model so that each bank is able to build its own strategy in line with its business model and comparative competitive advantage. ( ii ) fips must be integrated with the normal business plans of the banks. we have freed interest rates and have also allowed banks to charge their customers for other transactions. we believe that banking to the poor is a viable business opportunity but a cost - benefit analysis needs to be done by