It is fair to say that the task of addressing risks to financial stability fell between the cracks. The rapid expansion of debt and accumulation of risks in the financial sector ended, as we all know, in a damaging and painful crash – for the financial sector and for the economy as a whole. There is a substantial body of international evidence that recessions are deeper and more painful when they follow a sharp run-up of debt and a banking bust. The UK recession in 2008–9 was a case in point. The costs of mopping up afterwards are still very clear today. Despite interest rates being effectively at zero for over five years now, the economy is only just now back to its pre-crisis level. There are still over half a million more people unemployed in the UK than before the crisis. The amount of net public sector debt has pretty much doubled relative to GDP. On current plans, the OBR expect it will take a further five years until the public sector deficit is eliminated. I think, knowing what we now know, we would be more prepared to use monetary policy to address financial stability risks. Indeed the MPC’s latest remit letter from the Chancellor notes the MPC might wish to allow inflation to deviate from the target temporarily to avoid the development of imbalances that pose a potential risk to financial stability. But it is not without cost.
A variety of fintech solutions are being offered, which can be broadly clustered in three groups: a) financial services, as business that offer internet based applications for instance for managing personal finance, trading securities, automating financial services (robotization); b) financing, via platforms that directly match investors and lenders, such as crowdfunding, or peer to peer lending; c) payments, via more innovative and customer tailored payment solutions. No doubts we have that fintech offers wide-ranging opportunities. It holds the promise of reducing costs and frictions, narrowing information asymmetry, enhancing efficiency and competition, and increasingly important, broadening access to wider set of financial services – especially in low-income countries and for underserved part of the population – although it may take time for the benefits of technological change to fully materialize. Against this background, ongoing innovations and technological advances can support stronger growth dynamics and higher inclusiveness of the growth, thus speeding up the real convergence process through a number of channels. For small economies, such as ours, fintech innovations can play important role in facilitating trade integration. More convenient and cheaper instruments for digital payments can set basis for easier cross-border trade, including e-commerce that currently plays a marginal role in the region. And there is a wide consensus that small country cannot become rich without accelerating its exports and deepening its integration into the international economy. Yet, national authorities should be mindful of the potential risks posed to the financial system and to its customers.