Jon Nicolaisen: Challenges for the payment system Speech by Mr Jon Nicolaisen, Deputy Governor of Norges Bank (Central Bank of Norway), at the annual conference on payments systems, hosted by Finance Norway, Oslo, 16 November 2017. * * * Please note that the text below may differ slightly from the actual presentation. Introduction The payment system is changing along a number of dimensions. These changes will not only have an impact on the way we make payments, they will most probably also contribute towards promoting and even accelerating the structural changes we have already seen in the financial industry. Today, I will briefly outline some of the most important challenges we are facing. We can perhaps call the sum effect of these challenges a change programme. For this programme to succeed, cooperation is necessary, both within the financial industry itself and between the business community and the authorities. The authorities and the financial industry largely have coinciding interests. We all share the same aim: that Norway will continue to have an efficient, robust and modern payment system. PSD2 and new payment service providers In recent years, the EU has issued a number of regulations which we must adhere to. The revised Payment Services Directive (PSD2) is particularly important. The purpose of PSD2, together with other regulation, is to secure cheap, modern and efficient payment services. PSD2 will enter into force in the EU in two months’ time. A consultation process has been initiated on proposals to implement the directive in Norwegian law.
That is why economists sometimes sound a bit like St Augustine who famously noted in his confessions “Make me chaste and continent, but not yet”. This apparent tension between the medium term and the short term is evident in the banking sector. One lesson of the last 18 months has been that in the medium term banks need to work with lower leverage and higher buffers of capital and liquidity. I have argued elsewhere that we need in future to relate these buffers to the state of the economic and financial cycle so that they expand in good times and are sufficient to cover the inevitable losses in bad times. In a sense the purpose of the recapitalisation in October was to put banks capital up to the level it should have been had such counter cyclical measures been in place. But, at the moment we are in the downswing and we need to allow the banks to use those cushions and reduce their capital ratios from the new and higher starting point. The third point I want to make is about the breadth of the policy response. Long experience has shown that interest rates are the most powerful and effective instrument for managing the economy. As a result other regulatory and fiscal measures have taken a back seat in macroeconomic management in the last 15 years.