It goes without saying that these changes in the structure of financial markets, in combination with the emergence of new technological advances, pose a challenge for banks. Particularly so against the current background of low profitability of the banking systems in Europe. The arrival of new technologies has reduced the barriers to entry in certain traditional banking activities, creating the possibility for new competitors to banks, such as the FinTech companies, to access bank customers in a highly dynamic manner for a relatively modest investment outlay9. But the new technologies do not only pose threats for banks, they also offer opportunities for them in terms of potential efficiency gains. One example is the application of artificial intelligence and the systematic use of large databases with real-time information and a high degree of disaggregation (commonly known as big data) for both their commercial business and for regulatory compliance. Apart from the potential efficiency gains for banks and for the financial system as a whole, the application of some of the new technologies in the financial sector could bring other 7  Arce, O., Gimeno, R., and Mayordomo, S. (2017) “Making room for the needy: The effects of the Eurosystem’s Corporate Sector Purchase Programme”, Banco de España Working Paper No. 1743.
The damaging effects of activities such as deforestation, over-fishing and excessive emissions on the environment, have wide-ranging implications not just on the future quality of economic activity, but on the quality of life itself. Progress has been made both in terms of regulations and the increased sensitivity of corporations to their environmental footprint. However, the progress is relatively small and developing economies are particularly vulnerable to being made the choice location for the so-called dirty industries. The pursuit of profit is a powerful motivation for corporate existence and unfortunately, it often leads to short-sighted behaviour. The ongoing Volkswagen scandal is a clear example of this. Again, it reinforces the need for sound government regulation in ensuring that financial decisions taken by corporations are not only good for those corporates but also for society as a whole. Let me now move on to the last part of my speech, which relates to the governance of finance. After all, the availability of finance is a key constraint for economic agents and therefore, a key determinant of economic activity. Governance of finance: anchoring finance in the real economy The need to maintain sound financial governance of financial institutions is best demonstrated through the impact of its absence. The recent crisis is a stark reminder that weak financial governance of financial institutions can result in unsustainable levels of leverage, excessive maturity mismatches and underpricing of risk within the financial system, ultimately leading to widespread wealth destruction and economic dislocation.