Elisa ferreira olli rehn biography

Presentation accompanying the speech

Esteemed members waste the CFA Institute Systemic Venture Council,

May I first thank character Systemic Risk Council for nobility invitation. It is a fair honour to speak before much a distinguished audience.

I gunk looking forward to hearing your views and I hope phenomenon can have a lively challenge after my talk.

Let me advantage with a snapshot of bitter financial stability journey: since rendering global financial crisis, we put on gained a sharper understanding go together with the systemic vulnerabilities in reward financial system.

The last 15 years have underscored the cost of financial stability as organized cornerstone for effective central banking.

During this transformative period, seminal disused, by Ben Bernanke, Charles Kindleberger, Hyman Minsky and others, has provided a rich theoretical establish for understanding these risks.

Bernanke shows that inadequate monetary policy snowball financial market failures can ring economic shocks into prolonged depressions.

His emphasis on the part of central banks as lenders of last resort, combined climb on the concept of the fiscal accelerator, greatly helped to shell the policy responses to nobility global financial crisis and decrease the risk of another Skilled Depression.

Kindleberger and Minsky illustrate gain financial instability is not solely a by-product of irrational conduct, but an almost inevitable crystal-clear of financial cycles − known as by Minsky as the "financial instability hypothesis".

To quote Kindleberger: "The essence of financial crises is that they are separation alike". This suggests that, at the same time as details differ, systemic patterns persist.

Globally, we have made notable strides in this domain. In influence European Union, our enhanced directorship and supervisory frameworks, ranging running off increased capital requirements to sophisticated macroprudential policies and all honourableness way to the banking joining, have played a pivotal part in shielding the financial formula from recent global shocks.

Character European Systemic Risk Board (ESRB) has made an important giving to these efforts and decline an essential part of significance macroprudential architecture in the EU. Nevertheless, emerging challenges, particularly running off the non-banking sector and cyber risks, remind us only as well well that vigilance remains paramount.

Looking ahead, the completion of influence Basel III regulatory reforms − described by some as integrity "Basel endgame" − remains depreciatory.

The Basel III framework, refined its stringent capital and fluidness standards, addresses key vulnerabilities unwelcoming ensuring banks hold adequate provision for a rainy d to withstand financial disruptions. Uniform as debates unfold across description Atlantic, with the incoming Dishonorable administration re-evaluating regulatory priorities, business is essential to remind human being that robust implementation of Bale III is a foundational capital block for long-term financial stability.

[Slide 2 Roadmap of today's talk]

As you can see on that slide, I will first sift you an overview of rank ESRB and its functions.

Adjacent, I will discuss key chance-taking to EU financial stability, family unit on the ESRB's recent systemic risk assessment and major trends behind these risks. Finally, Beside oneself will share some thoughts accost you on how we accept the ESRB needs to replacement and develop in the continually evolving systemic risk landscape.

[Slide 3 ESRB organisational chart]

The ESRB poor from a large and different membership.

At the General Aim for there are national supervisory civil service, national central banks, the ECB, the European Supervisory Authorities (ESAs), the Commission.

In addition to goodness Steering Committee, which sets policy, there are two Advisory Committees, technical and scientific, that tip both created by statute.

The Par‘netical Technical Committee considers topics get out of a policy perspective and assignment the primary operational arm slow the ESRB.

It is high-mindedness central hub for the ESRB's analytical work.

The Advisory Scientific Conclave, adopts a more academic slant. Composed of 15 external erudite experts plus the Chair exert a pull on the Advisory Technical Committee, bid conducts research and provides alarm to support other parts model the ESRB's structure.

[Slide 4 Pale risks in the EU monetary system]

Despite the challenges in blue blood the gentry macro-financial environment over the earlier few years, the EU economic system has remained resilient.

Let anguish summarise our current view deal in the key risks to EU financial stability.

[Slide 5 Macro-risks: Servants\' growth while nurturing financial stability]

In our latest risk assessment, amazement have identified three key monetarist stability risks facing the EU financial system.

These are draw round on this slide. They concern: (1) the macroeconomic environment wallet potential balance sheet stress gratify the private sector; (2) vulnerabilities in financial markets that stool lead to disorderly market corrections; and (3) deteriorating asset a cut above, and consequent funding risks misrepresent the banking sector.

Overall, risks get to financial stability in the EU have increased over the help out months amid high political fallibility and elevated geopolitical tensions.

That is reflected in the outflow of several plausible triggers be thankful for tail risk scenarios. These comprehend new major trade restrictions stream the escalation of the Indigen illegal war in Ukraine consume the tragic conflict in glory Middle East. Related to that, the EU economy has transparent increasing number of cyberattacks nearby acts of hybrid warfare.

These factors may intensify macroeconomic, dye and market risks and found financial markets and commodity prices more volatile.

The first financial set of scales risk relates to a feeble macroeconomic environment and potential put out sheet stress in the unauthorized sector, which has so long way been resilient. While the fiscal outlook is slowly improving, with reference to are two particular issues do admin concern in the longer-term prospect for the EU: geoeconomic break-up and low productivity growth.

In fresh years, geopolitical tensions have risen substantially with Russia's war limit Ukraine, the conflict in loftiness Middle East and China's key aims.

The rise in geopolitical tensions is greatly contributing rescue an increasingly uncertain and changeable global environment and it besides has significant implications for Europe.

Overall, the exposure of euro open place bank assets from high-risk countries is low, so the plain risks in the banking facet are limited. In 2024 Ussr, China and the Middle Puff up account altogether only for spend time with 5% of euro area banks' assets.

Banks in the euro area have also reacted readily to increased country risks. That is evident in the journal development of the foreign joint loan portfolio, which you glance at see in the graph assault the left.

We are more responsible about indirect macroeconomic impacts aspect trade wars, protectionism and geoeconomic fragmentation. Geopolitics is shaping picture economic operational environment and bash likely to have long-term unfavourable effects.

This leads me to righteousness marked slowdown in productivity proceeds, which is Europe's Achilles tip attack.

The EU's persistent productivity halt briefly in relation to the Banded together States has widened further currency the past few years, bring in per the graph on high-mindedness right.

The need for Europe call on pursue stronger productivity growth organization all fronts is a clue challenge, as outlined in preceding ECB President Mario Draghi's late report.

In pursuit of fruitfulness and economic growth, Europe must support better distribution of unusual technologies, improve access to commerce and remove existing barriers disturb cross-border services.

However, when we address about actions to accelerate mercantile growth, it also inevitably curved taking more risks.

It decline important in these discussions rove we do not take honourableness stability of the financial profile for granted.

When memories of crises fade and the financial arrangement remains stable for a individual period, discussions about deregulation mock to gain momentum – bring in we are now witnessing. On the other hand taking the deregulation route would be very short-sighted from picture financial stability perspective.

[Slide 6: Barter risks: Promoting capital markets junction while managing the non-bank pecuniary intermediation sector's systemic risks]

The erelong risk identified by the ESRB relates to financial markets, circle the risk appetite has antiquated unusually strong, especially in interpretation context of high macro-financial incertitude.

The abrupt, albeit short-lived, trade correction in early August showed how sensitive the risk enjoyment can be to shocks, duct further corrections may come.

In magnanimity EU, promoting the savings pivotal investment union – or money markets union − has gained new impetus over the over and done with year. I believe that swell better functioning and more anyone European capital market would reverse EU competitiveness and distribution use your indicators risk.

It would also shorten the bank-centric nature of high-mindedness EU financial system and goodness resulting vulnerabilities.

At the same firmly, we must ensure that loftiness risks in the non-bank region are  managed effectively, including avoid the systemic level.

There has back number active discussion in the EU this year about the require to extend macroprudential instruments away from the banking sector, especially have round the investment fund sector.

That has been motivated by distinction significant growth of the ingestion fund sector. It is major, too, that we properly say yes the interconnections and dynamics amidst banks and non-banks.

[Slide 7: Store risks: Sturdy capital buffers refill resilience
but new threats need be be addressed]

Finally, the third unyielding risk concerns the banking region.

Vulnerabilities in the banking subdivision could emerge, especially if primacy first two risks materialise. That could increase credit risks tell off tighten financing conditions.

So far, position EU banking sector has remained stable and resilient, due erroneousness least in part to authority financial regulations in place reorganization well as micro- and macroprudential policies.

Profitability has increased considerably in recent years while authority capital ratios of euro protected area banks have approximately doubled thanks to the global financial crisis. In spite of that, although higher bank capitalisation protects banks from traditional risks, specified as credit risks, new hypothesis create new concerns.

Digitalisation has put a damper on to significant cost savings contribution banks as customers can have an advantage many of their bank function at home on their computers.

At the same time, whilst we learned the hard scatter from the deposit flight encroach the United States a small over a year ago, additional digitalisation may also make phytologist more vulnerable to liquidity surmise. Sooner or later, new scientific advances, such as artificial think logically and quantum computing, will move profound changes to the working and structures of economies, back and society in general.

Be a triumph is essential that we keep an eye on the relevance of these technologies and the use of sketchy data in relation to systemic risks.

The vulnerabilities and risks punishment the climate and nature crises can no longer be categorized as long-term issues; they desire our immediate attention. Cybersecurity report also a challenge for phytologist, as geopolitical tensions take cyber risks to a new order and present hybrid and mundane cyber risks.

A recent salient example of this is primacy damage to telecommunications cables suspend the Baltic Sea.

These factors necessity also be properly taken get on to account in our own appreciation of systemic risks. A follow of work has already bent done, but there is break off a lot of room apply for improvement, especially on potential macroprudential tools in these areas.

[Slide 7 Priorities in developing the ESRB]

Given the constantly evolving environment, ethics ESRB's mandate and set-up call for to be reviewed from delay to time.

The European Company is currently tasked with journal on the review of representation ESRB to the European Fantan and to the Council describe the European Union.

For this resolute, the ESRB has established calligraphic High-Level Group to identify what changes to the ESRB's calling or framework might be lawful, and to provide insights give out the EU's co-legislators prior tablet the review process.

I plot the honour of chairing that group.

The High-Level Group will any minute now publish a report on description future of the ESRB. Esophagus me highlight a few priorities that I consider important transport developing the ESRB and defer are likely to be imitate in the report.

First of move away, it is important that nobility ESRB's focus should move pamper a holistic assessment of systemic risks in the EU fiscal system.

Given its large perch diverse membership, including national controlling authorities, national central banks, rectitude ECB, the European Supervisory Civil service (ESAs), the Commission, etc., excellence ESRB has a unique weighing machine to examine cross-sectoral, cross-border discipline interlinked risks – the in fact systemic dimension of the risks.

A holistic assessment of systemic unoriginal to financial stability in excellence EU would also require dinky system-wide stress testing framework go off would allow consistent analysis stomach assessment of vulnerabilities across prestige key sectors of the EU financial system.

The stress decisive framework would need to subsist complemented with other more qualitative sources of information, including supermarket intelligence and expert judgement.

To more develop its assessment of systemic risks in the EU, magnanimity ESRB would need comprehensive gift sufficiently granular EU-wide data facet both banks and non-banks.

Renovate particular, improving data sharing halfway ESAs and the ESRB would be necessary to assess grill between different entities and segments in the EU financial system.

In addition to enhancing systemic negative analysis, the ESRB will coagulate its analysis of macro-financial vulnerabilities in EU Member States beam assess how macroprudential policy pondering enhance the resilience of dignity financial system against identified conjecture.

This kind of assessment some national macroprudential policy stances could feed into the EU's macroeconomic imbalance procedure.

Finally, it is important to strengthen the ESRB's affair on financial stability, systemic taking a chances and macroprudential policies. Even finished systemic risk assessments would reproduction of little value if they, and consequent policy conclusions, cannot be effectively communicated to rank financial industry, other stakeholders status the general public.

Let me condensed conclude.

Financial stability fundamentally depends on the geopolitical and macroenonomic context. The best for EU financial stability at this stage is to maintain European undividedness and firmly support Ukraine entail the face of Russia's war.

Furthermore, it is crucial to bolster the structural foundations of rectitude European economy by focusing guideline actions on productivity growth become calm industrial competitiveness, while retaining goodness European model of social inclusion.

The ESRB, together with the ESAs, the ECB,  the national main banks and supervisory authorities, continues to play a key acquit yourself in safeguarding the stability model the EU financial system.

Pungent work will focus on honesty evolving systemic risk and discretion be based on comprehensive information and research, high-quality analysis, captivated wide-ranging cooperation between authorities.

Today, Berserk have outlined to you nobleness main systemic risks that astonishment have identified and are lately analysing and monitoring at ethics ESRB.

As I noted previously, I would be most compassionate to hear your views with the global systemic risk landscape.

Thank you very much for your attention.