BIS central bankers’ speeches  Besides these fundamental goals, Banking Union also involves two practical aspects of more immediate concern that I will now address: (i) the repairing of banks’ balance sheets to unclog the impaired credit channel and consolidate the on-going mild economic recovery; (ii) the reduction of the bank-sovereign loop in order to further mitigate the remaining financial fragmentation6. I will complete my remarks by addressing the role of the SRM as the necessary complement to the SSM in the Banking Union and finally, by dwelling upon the broader implications of Banking Union for European Integration. I will only briefly touch upon the SSM as my colleague Danièle Nouy will elaborate on SSM issues during her speech later today. Bank recapitalisation and the economic recovery In the past few years, one could hear many voices urging European policy makers to repair the balance sheets of banks so that these could again lend to the real economy and jump start GDP growth. There will be no growth without finance, the narrative goes. In this vein, the fact that the U.S. has returned to robust economic growth faster than Europe has been, to a large degree, attributed to policy-makers acting quickly to repair the balance sheets of U.S. banks. This narrative, while intuitively compelling, is missing two crucial points. The first is that euro area bank balance-sheet repair has started for some time already.
BIS central bankers’ speeches  13  Figure 10 Nominal rates on 10-yr government bonds  Chile: Interest rates by type of loan (2)  (percent)  (index, 2006-2016=100)  18 15  Brazil  12 9  Colombia  6  14  175  175  15  150  150  12  125  9  100  15  125  Housing  100  Consumer  Perú Mexico Chile (1)  3  18  6  75  3  50  75 Commercial 06  16  08  10  12  14  50 16  (1) Considers Central Bank and Treasury bonds. (2) Weighted average rates of all operations performed each month. Sources: Central Bank of Chile and Bloomberg. Figure 11 Total debt of non-banking enterprises (*) (percent of GDP)  125  Domestic  125  External  100  100  75  75  50  50  25  25  0  09  10  11  12  13  14  15  16  0  (*) Based on firm-level information with the exceptions of factoring and leasing, securitized bonds and commercial papers. Preliminary estimate for March 2016. Source: Central Bank of Chile based on Achef, SBIF and SVS data.