Interview with Helsingin Sanomat

Interview with Pentti Hakkarainen, Member of the Supervisory Board of the ECB, conducted by Anna-Liina Kauhanen of Helsingin Sanomat and published on 15 April 2017

How is the current situation affecting banks’ activities?

The worst is over, the repressive grip of the financial crisis is now loosening and banks can invest more resources in developing their services.

You have recently started work at the ECB [as ECB representative to the Supervisory Board]. What are your first impressions?

Working as a member of the Supervisory Board is one part of the job. The other consists of participating in the management of banking supervision activities. Currently we have more than 1,000 employees working in ECB Banking Supervision.

How would you characterise the timing of your post at the ECB?

I served three full terms at Finland’s central bank. During that time, from 2012 to 2014, I was already involved in building the banking union and European banking supervision. Now I get to see what has been achieved.

What was it like back then? How have things evolved?

We have come a long way. We now have 338 million citizens, 19 countries and around 4,000 banks with assets worth some €22 trillion. This is the biggest banking supervision area in the world. Supervision is now carried out at the European level, i.e. the same level on which the banks operate.

Is the metamorphosis of the banking sector now complete?

With the continuing strengthening of competitive potential and economic growth, I would expect more mergers.

The exceptional situation has become the new normal. What does this period of low interest rates mean for banks?

Net interest incomes have been under a lot of pressure, but they have generally remained at a reasonably solid level, provided that banks were able to reduce other expenses.

What are the risks and the challenges facing banks right now?

Some banks will obviously find it challenging as more cost-effective actors enter the market, putting them under pressure.

Fintech is changing the financial landscape. How does the banking sector respond to such competition?

Finland became a glowing example of strong profitability growth in banking, even at the global level.

Banks can offer new operating models to their customer base. What is absolutely essential is that consumers have trust in the banks. This trust enables banks to move in new directions.

Finnish fintech start-up Holvi was bought by the Spanish bank BBVA. All banks are doing this: they are investing in advanced information technology and looking for new modi operandi.

The market is becoming increasingly integrated. Products are also becoming more and more similar, be it consumer credits or loans for house purchase, or payment and business services. This makes it easier to offer services across borders.

The digitalisation and harmonisation of services opens opportunities for small players as well.

Officially, financial start-ups that want to enter the market become banks, because they need a banking licence. If their operations do not fulfil set criteria, they do not get a licence.

Which innovation makes your heart beat faster? What has really made a change?

Here we are not talking about taking risks or about introducing complex products with, for example, a myriad of derivatives. We’re talking about real innovation and changing the modi operandi – things that will benefit the consumer.

You only need to go back some 15 years – when I was trying to get an online bank account in France, they offered me a cheque book.

Can authorities keep up with technological advances?

This is why both central banks and supervisors not only monitor the fintech industry; they are part of the change, providing advice and guidance for start-ups.

What is the situation now? Do you see light at the end of the tunnel?

There were major uncertainties, and the financial sector had to prepare for all eventualities. That tends to dampen the verve for innovation. Now that the verve is back, things are really moving.