What we have seen is that there is a pressure on banks‘ unit margins, but that’s been compensated by volume effects – as there is more activity in the banking sector thanks to the support of monetary policy to the recovery. Nominal GDP has been better and NPLs have started to go down, and as a result banks have been able to reduce provisions. Globally you would see that the net effect of those measures so far has been positive on bank profitability. BIS central bankers’ speeches  3  Inflation has repeatedly undershot your forecasts… It is key for a central bank to keep inflation expectations anchored, especially in a period of slack in the economy. And we have some signals that these inflation expectations are still fragile. Is that still the case? I think it’s still the case. Long-term inflation expectations remain fragile. I never said they are de-anchored, I don’t think they are, but there are risks and this is why we are considering further action. A possible de-anchoring of inflation expectations together with a lot of slack is a dangerous cocktail. A lot of the latest wave of commodity price declines is demand related. At some point in the recent past you had a supply side issue, which is a windfall for consumers, but now a significant part is also coming from weak global conditions. Global growth this year will be the weakest since 2009. 4  BIS central bankers’ speeches
Because they are so closely linked to monetary policy, they had shown signs of almost full integration right after the introduction of the euro. But with the crisis, a degree of re-segmentation took place again along national borders; and the Eurosystem had to step in to take on the intermediation role that these markets play in normal times. Another set of issues relate to banking. Banks expanded both across borders and financial sectors, often combing commercial banking, investment banking and insurance business in one and the same group. The two groups whose CEOs are in the panel are clear examples of this evolution. But cross-border integration of rules and prudentials, including the institutional framework, has not proceeded with the same speed and there continue to be clear differences according to the activity type. Banking consolidation also raises sensitive moral hazard and crisis management questions, as painfully illustrated by the crisis. The securities markets showed strong growth in the years before the crisis and clear signs of integration, though not to the same extent as observed in the euro money markets. With the crisis, bond price indictors showed signs of more dispersion across countries in Europe, but the question is whether this points to more segmented markets or rather increased risk awareness on the part of investors. Very topical in this respect is also the CDS market and its interaction with the underlying (sovereign) bond market. Finally, the integration of a securities market depends to a large extent on the integration of the supporting market infrastructure.