Indeed, I would subscribe to the idea that, by and large, the crisis does not provide clear arguments with which to question a particular business model or line of activities, such as retail intermediation, wealth management or investment services. It does however encourage us to analyse whether those banking activities are conducted in a sufficiently efficient way by specific institutions so as to make them profitable. That said, pure European retail banks admittedly face specific challenges in the current environment, which need to be effectively addressed in order to preserve the social function that those institutions provide. Let me mention three of the most obvious challenges. First, the low interest rate environment, which is putting heavy pressure on financial margins, particularly for institutions –such as most of those belonging to the ESBG - with little investment in securities that could be revalued as rates go down, and with much funding obtained from retail deposits, which impedes a full transmission of very low or negative market rates to funding costs. Second, the accumulation of non-performing loans in several regions of the euro zone. This is particularly a challenge for banks, again mostly retail banks, with a significant concentration of exposures in a single country or even a single region subject to a subdued macroeconomic performance in the recent past. Third, regulation. Banks are now facing new requests to raise more and better-quality capital. More importantly, significant institutions will have to hold on their balance sheets substantial volumes of liabilities that could be subject to bail-in.
We have often referred to the benefits of having a floating exchange rate regime in an open economy like Chile, which is regularly subject to shocks in its terms of trade and external financing. Preserving the float during good times provides exchange rate flexibility to address situations like the present one and thus promote a more efficient adjustment of the economy. It also plays a key role in preventing currency mismatches that have been so costly in other countries in the region and in Chile in the past. Thus, the period of favorable financial conditions that we have seen in recent years has not resulted in higher short-term debt or currency mismatches in the banking system or in the non-financial sector. The credibility of the inflation target of the central bank is another important asset, which provides room for monetary policy action, as are compliance with the fiscal rule and the soundness of our banking system, which is well-regulated and supervised. Free trade and diversified target markets for our exports also play a key role in ensuring that the transition to the new macroeconomic configuration is smooth. One example of its usefulness is the way in which non-mining exporters have managed to avoid the appreciation of the local currency in recent years and weather the international crisis. Despite the difficulties they have faced in some markets such as Europe and the United States, they have been able to retain global leadership positions, maintaining or increasing their shares in world trade.