Check against delivery
Good afternoon fellow panellists, and hello to all those connected today. I want to be brief, so I’ll touch on a few points, just to give food for thought, and we might pick up on some of these topics in more detail in the discussion after.
[Impact of working from home]
Certainly, we have come through a year like no other. If you asked me 14 months ago about having all of the SRB’s staff working remotely for even a day, I would have been sceptical. And yet it has worked, thanks to our IT infrastructure and the positive attitude of the staff. And in principle this holds true for the banks, too. We have been able to continue our work in making all of the major banks in Europe’s 21 Banking Union countries resolvable. What does this mean? It means that each bank should have a plan, so that, should it be required in a time of crisis, it can be activated at short notice. Resolution planning is a way to manage banks that get into difficulty. The aim is to protect taxpayers’ money and promote financial stability. The banks were able to provide the necessary information and we could keep – with some flexibility – to our work programme. So far, so good. I think we can truly say that 2020 meant a big step forward in digitalisation.
However, I’d be the last to believe that remote working will be the Holy Grail going forward. I know that there are many people who want to get back to the office sooner rather than later, but I know that others also have appreciated the better work – life balance and the fewer distractions and noise that come from working from home. Increasing flexibility is probably one lasting impact of the meeting of a pandemic and the digital age. Successful remote working has also given organisations more options for business continuity plans. For example, what would we do in the case of unavailability of the building because of a fire or flooding? Well in the past, the plan would have been to put staff on a bus and work from another building, but now we may consider simply sending staff home.
It remains to be seen what the impact of remote working is on our cities, be it for commercial or residential space. Will people want to live in cities if they only need to go to the office once a week? How will offices be organised in the future? Will banks need to have large office blocks in the heart of the financial district, or will it be a scaled down set of meeting spaces in the future? It’s probably a little too early to tell, but I think it’s safe to say that the impact of working from home is going to change things in the coming years.
[Impact of Covid on digital banking]
In terms of banking, the traditional ‘bricks and mortar’ banks have been able to use the pandemic to up their game and compete, finally, with the ‘virtual only’ banks. This of course had a cost in the short term, but I think in the medium term, this is going to make banks more resilient. It is clear that the digital offerings of traditional banks had to be accelerated, with some projects that might have been expected to take years being rolled out in a matter of months. There are a number of points I would make:
- Digital banking offers the possibility for a far more consistent experience when interacting with the bank;
- Some strands of banking will always require a face to face, personalised approach;
- Some customers will not adapt easily to the digital world and how can this issue be dealt with?
Remote or digital working comes with increasing risk, be it data protection for any cloud based services or be it cyber security. I would simply state that we need to adapt, including digital identification or digital signature. It’s doable and perhaps this is the part were the pandemic really worked as an enabler.
[Challenges and Opportunities]
Certainly there are challenges associated with all this disruption such as significant staff retraining. We may also see challenges emerge in the regulatory environment as digitalisation blurs the lines between sectors. Where is a bank really based? What services do they provide and how can they keep control of outsourced services/ their data? Who should be responsible for regulation? What skills do we need for managing money, and what skills do we need for managing IT infrastructure, and where will the overlap lie for the next generation of staff?
What is clear is that banking resolution will be a part of the regulatory landscape into the future. No matter how banking services are delivered, the goal of protecting taxpayers money, from bailing out banks deemed ‘too big to fail’, remains. The SRB will therefore continue its work on resolution planning to make sure every SRB bank is resolvable. The irony, as I have often said, is that the more a bank is resolvable, the less likely the resolution plan will be needed.
If I could use the analogy of fire safety in a modern building: the more care that is taken to plan the layout of the building, using high quality materials, ensuring the practicing of fire drills and so on, the less likely the evacuation plan will ever have to be used for real.
In the long term, this digital disruption provides the possibility for banks to become more efficient and possibly even expand into new markets. We will also be the creation of new types of jobs, with IT support playing an increasingly central role in banks operations. Customers should see a better and more convenient offering from banks thanks to all of this change. Of course, it is not just customer facing apps or websites that will improve in the future. Banks will also be able to become more efficient by investing in their internal management and control IT systems. Having a comprehensive and correct overview of all the key figures are critical for the successful management of banks.
The area is fintech is rapidly evolving. For regulators, the question will be how to regulate, and who should regulate? Given that new legislation at EU level can take 2 or 3 years to get into place, will we be able to keep pace? It is going to be a challenge to encourage innovation on the one hand – and we do want Europe to be innovative – but on the other hand, keep a good handle on regulation to ensure financial stability. That is the key challenge going forward.
Are fintech companies internet companies, or are the finance companies, using the internet? What challenges will fintech pose for traditional banks and will fintech mean the erosion of profits for the traditional banks? These are other challenges ahead of us.
We have seen in recent months the statements from the European Commission and the ECB on a ‘digital euro’. They are now reviewing at technical level a broad range of policy, legal and technical questions emerging from a possible introduction of a digital euro, taking into account their respective mandates. The results of this will be keenly awaited.
Those are just some ideas. I might stop there to allow for discussions later on.