Looking forward, we should remain vigilant ahead of any potential unintended effect of low interest rates on the banking system. My third message is that banks, especially European banks, should step up their efforts to adapt their business models in order to become more profitable. For instance, banks need to improve their efficiency, whether through cost reductions, further consolidation and restructuring, or digitalisation and the adoption of new technologies –all of which are factors rather disconnected from monetary policy. They must also diversify their income sources. As an example of the latter, the successful geographical diversification pursued by some Spanish banks prior to the crisis not only helped them cope with the downturn, but still represents an increasing source of revenues. Banks can also achieve revenue diversification by relying less on net interest income and more on other non-interest income sources. Finally, they should also accelerate the reduction of non-performing loans. -  Excessive risk-taking  Global financial stability is not only threatened by developments in the banking sector. Insofar as non-bank intermediaries are playing an increasingly relevant role in the financial  5  sector, the risks associated with their activities are gradually becoming more systemic. Indeed, the process of bank disintermediation has accelerated in the euro area since the global financial crisis and, today, non-banks have more financial assets than banks. Likewise, around 50% of all cross-border claims in the world now involve a non-bank as a counterpart, while the figure was only about 35% in 2008.
European securitisation issuance (EUR billion)  Source: European Securitisation Forum  9  See “Report of the Financial Stability Forum on Enhancing Market and Institutional Resilience”, FSF, April 2008. 8  BIS Review 68/2008  Chart 2. Funded issuance by collateral (EUR billion; by month)  Source: JP Morgan  Chart 3. European ABS spreads (relative to 3-month Euribor)  Source: JP Morgan  BIS Review 68/2008  9  Chart 4. Evolution of collateral held with the Eurosystem by asset type  Source: ECB  Chart 5. European securitised products: Publicly placed or privately retained? (EUR billion)  Source: Citi. European Secutitised Products. Strategy Analysis. Securitised Products. Europe 7 March 2008. Secondary Source: Bloomberg, International Insider, Informa GM, IFR, Citi. Note: Publicly-placed issuance includes only deals that have been publicly marketed. Private/Retained issuance includes deals that have been privately-placed or retained by the originator. The Private/Retained issuance figures include all such deals to Citi’s knowledge, but may not include such deals where there is no public information available. For some deals priced since August 2007 it has not been clear whether the deal has been fully placed. 10  BIS Review 68/2008