I say this as a central banker not only because one of the ECB’s statutory tasks is to ensure the smooth operation of payment systems. I say it because, ultimately, trust in payments means trust in money as a reliable medium of exchange. For a sound currency, consumers must have 100% confidence that their money can be exchanged safely. 2. The markets challenge Non-banks are not only increasingly entering the retail payments market in the euro area, however; they are also entering the lending business. This brings me to the second challenge for euro area banks: the markets challenge. For some years now, we have been witnessing a trend towards more capital market-based financing in the euro area, driven by both deleveraging among banks and the very low cost of market finance. Looking forward, the Capital Markets Union (CMU) project promises to  1  Deloitte (2015), “Payments disrupted: the emerging challenge for European retail banks”. 2  Ibid. 2  BIS central bankers’ speeches  further deepen market finance in Europe by, among other things, making it easier for young firms to access risk capital and smaller firms to issue bonds, as well as deepening markets for high quality securitisation. So what will this mean for European banks? In the long run, deeper capital markets may lead to more competition in the provision of financial services and hence weaken banks’ market power.
Retail activity, which was buoyant in May, fell back in June partly due to poor weather conditions. In aggregate, activity was up over the last two months. The construction and civil engineering sector1 recovered in the second quarter of 1997 primarily as a result of seasonal factors. Employment levels held steady in industry, except for the automobile sector, where there was a further contraction, and the building, retail and market services sectors. Wherever possible, companies sought to enhance workforce flexibility via temporary staff and overtime, in order to cope with fluctuating demand and organize themselves for the summer vacation period. __________________ 1  Unadjusted data. BIS Review 70/1997