Keynote speech by Mr Benoît Cœuré, Head of the BIS Innovation Hub, at the European Stability Mechanism fourth research seminar of the Regional Financing Arrangements.

The year 2020 will go down in history as one of the last century’s most serious health crises and global economic contractions.

The swift response of governments, central banks, and supervisors to mitigate the immediate impact on the real economy has stabilised what could have been catastrophic for global markets.

With mass vaccinations in sight, the policy focus is now shifting from liquidity provision and stabilisation to addressing the long-term scars of the crisis: enabling capital and labour reallocation across industries, and avoiding permanent output losses. For such reallocation to happen, and to address longer-term sustainability challenges, we need a financial system which is fit for purpose. Could Covid-19 give us the chance to strengthen it?

In my remarks today, I will argue that we first need to draw the lessons of the crisis, and I will focus on two dimensions.

First, there are the known challenges. The reforms after the Great Financial Crisis (GFC) had the effect of pushing risks outside the banking system, as non-bank financial intermediaries (NBFIs) started to fill in the gaps. We knew it before Covid-19 and the crisis has confirmed it. What does this tell us about the resilience of this new system?

Second, there are the unknown challenges. The crisis has speeded the digitalisation of our economies, accelerating shifts in how companies and individuals work, save and spend. How can technology support the digitalisation of the financial sector post-Covid-19, and can it help regulators make the sector safe and sustainable?

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