Interview with Jornal de Negócios

Interview with Pedro Machado, Member of the Supervisory Board of the ECB, conducted by Diana Ramos on 13 October 2025

21 October 2025

How would you assess your first six months of working for an organisation of this stature?

The past six months have been very interesting and, overall, I would say rather positive. This is my second experience in a European institution. After serving my five-year term as a Member of the Single Resolution Board, I moved to the Supervisory Board of the European Central Bank (ECB) following a competitive, Europe-wide selection process – incidentally, much like the one for my previous role. And it is proving quite exciting, because it’s a chance to get to grips with topics related to the first pillar of the banking union. Until February this year, I was working on the so-called second pillar, which is the pillar for managing banking crises – also known as the resolution pillar – where I dealt with all the resolution planning and preparation banks do for crises, applying resolution tools, and assessing banks’ resolvability and whether there are potential impediments to resolution. I have now moved to the supervisory pillar. In essence, I have switched my focus from what we generally call “gone concern” to “going concern”.

So more focused on the issue of capital stability.

Exactly. And that transition has been very exciting, not least because of the timing. The Single Supervisory Mechanism (SSM) turned ten in November last year. The last ten years have been a time of building and consolidating European banking supervision. But this milestone also marks a turning point because there are a number of reforms being put in place at the moment, one of which is the pivotal reform of the annual Supervisory Review and Evaluation Process (SREP). The SREP reform is being implemented following a review carried out by independent experts at the request of the former Chair of the Supervisory Board. This gave rise to a report, which was published around two years ago, and we have been implementing the findings.

This is the first time we have had a Portuguese ECB representative to the Supervisory Board. What does this say about supervision in Portugal and the Portuguese financial system?

I would not frame it in personal terms of me being Portuguese, but in institutional terms, i.e. that the ECB recognises how much supervisory work has been done at the Banco de Portugal level, especially since the start of the Economic Adjustment Programme for Portugal in 2011. The adjustment programme had three pillars, one of these being financial stability, which gave rise to the promotion and adoption of measures directly related to the banking system. The first of these – and perhaps the broadest in scope – was the public recapitalisation of banks in 2012, which I view as a decisive step in the recovery of the Portuguese banking system. But there was also a lot of work done to restructure supervision. The Banco de Portugal’s supervisory arm was restructured significantly in 2013. This restructuring was also done in the context of the adjustment programme.

In my view, this restructuring was extremely well done, and even anticipated much of the structure that was later welcomed in the first phase of the SSM. And it was a very deep restructuring in terms of methodologies and intrusiveness – it was a sort of empowerment of supervision itself. Supervisory frameworks were revamped by very talented people who were recruited at that time and whom I expect are still at the Banco de Portugal. And if we look at how the Portuguese banking system has changed, I would say that it has been extremely positive, notwithstanding a very difficult starting point, where we had a significant deterioration in asset quality – as reflected in the very high non-performing loan (NPL) ratio. We also had an undercapitalised banking system which lacked buffers to cushion the impact of the crisis and had relatively low liquidity ratios and unbalanced loan-to-deposit ratios, having suddenly been left with limited market access. The starting point in 2011 was also made much more difficult by the strong link to the sovereign rating, which had been downgraded in the meantime. So, the banking system had to follow an asset repair path, with significant recognition of losses, while recapitalising and transforming its funding system and carrying out extensive reforms of internal governance and risk management systems.

The ECB’s supervisory reform comes as external risks are at their peak. In July, it was announced that the 2026 thematic stress tests will focus on geopolitical risks. In the face of this challenging new international context, is this in any way indicative of the risk of another global financial crisis? Are European banks prepared for the possibility of another global crisis?

We continue to encourage banks to identify and manage their risks in the most appropriate way, and we also want to raise their awareness on the most critical sources of risks that we have identified, whether they stem from the geopolitical situation, climate change and nature degradation, or other areas like cybersecurity. The current geopolitical risk is the result of an escalation of global geopolitical tensions. These tensions were evident in the Russian invasion of Ukraine, with ramifications and effects in other areas, such as the energy crisis, to some extent the supply chain crisis and, most recently, even the tariff war crisis. That, together with other conflicts that have emerged. Geopolitical risk and climate and environmental risks are what we call risk drivers. They are not new risk categories. What happens is that, given their materiality, they can amplify traditional risk categories. With regard to geopolitical risk, the scenario that was chosen for this year’s stress test was actually a geopolitical scenario that simulated a tariff war, with levels of NPLs very close to the average during the euro area financial crisis and losses even higher than those recorded in the last system-wide stress testing exercise in 2023. But given the starting point of European banking this time round, with capital ratios much higher than those used as the basis for the 2023 exercise, the level of capital depletion recorded was lower. This puts the aggregate Common Equity Tier 1 (CET1) ratio – which is how much of the highest-quality capital a bank holds – in a range of 12-16% in a three-year horizon, which basically means that banks comply with their capital ratios under this stressed scenario, despite some banks doing so somewhat less comfortably.

Geopolitical risk is an issue that Claudia Buch, the current Chair of the Supervisory Board, has highlighted since the very beginning of her term, because we see that this kind of risk is transmitted through different channels, ranging from transmission to the real economy – typically through firms that operate in conflict-affected areas or are directly affected by the tariff war – to the financial system itself as well as through physical and digital security. Particularly in the latter case, it even translates to cyber risk, because we’ve seen an increase in cyberattacks on banks, especially since the invasion of Ukraine and in certain regions. We’ll see how it develops from here and the effect it has on banks’ balance sheets in the various traditional risk categories.

Are financial institutions beginning to feel the effect or are there any concerns about, for example, the financial systems in Germany and France? In one of those cases we have a struggling economy and, in the other, a political crisis associated with public debt pressure.

So far we haven’t seen this reflected on banks’ balance sheets, which is where we would typically see indicators of economic stress.

The indicators haven’t deteriorated?

Not that we’ve seen so far. Of course, we always have to say this with caution, because we need to remain vigilant to any risks that may emerge, but we haven’t seen any increase in defaults by debtors, nor in levels of NPLs, which have been quite stable. What we have seen is that banks, given the rather solid starting point from which they were operating, have been able to continue financing the real economy. They are not amplifying this risk but rather absorbing it to some extent. This is an interesting dimension because it is the reverse of what we saw during the financial crisis, when banks became risk amplifiers at a certain point. Now we are seeing that banks have the capacity to withstand these impacts, these economic shocks that are obviously being felt in the real economy. We can see a decline in industrial activity in certain sectors, such as the car sector in Germany, which is being hit hard, and we also have some political tension in France, but ultimately we have not yet seen any evidence of a deterioration in the indicators that we monitor. From this perspective, we are not currently seeing any warning signs. But as I said, we are still at an early stage where we cannot consider these shocks, notably those stemming from tariffs or even other potential shocks to be fully absorbed or fully defined. I would describe the current situation as particularly unstable and highly uncertain, despite the resilience of the banking system.

You said that the financial system has amplified crises in the past, whereas now it is absorbing the shock. When you look at what supervision was like in 2008, what are the differences compared with now?

There are a lot of differences. Supervisory methodologies have changed a great deal in terms of the risk indicators that we monitor.

You were saying supervision is more intrusive...

It is more intrusive. There has been a step change in terms of not only the regular presence of teams on-site in the banks – there is constant monitoring – but also the fact that this exercise is complemented by on-site inspections and horizontal thematic reviews. Another aspect that has changed a lot is benchmarking analyses. Benchmarking is a tool where we take a more holistic view of the banking system to understand any vulnerabilities affecting banks, or even to compare business models or countries. So from that perspective, supervision is more intrusive and more proactive, and also works with a range of data that were not previously available. It is much more risk-focused, which is what supervision should be at its core.

But there has also been criticism, for example from some domestic banks, which say that they feel more of a burden from these inspections because of their smaller size, and that the associated costs are high. Does it still make sense for the ECB to have such a big presence in the banks?

This is a complaint that we often hear from banks, which to me seems to be directed at specific areas of supervisory activity. Banks tend to believe that the on-site inspections are too burdensome and too frequent, and that the findings identified often have excessive long-term implications. We have to look at the nature of the supervisory action and the context before deciding whether it is too burdensome or too bureaucratic. I don’t think such labels are helpful for understanding where supervisory action should be targeted. In the first ten years of the SSM, supervisory action had to reflect the overall risk profile. We assessed the risk profile of all banks while ensuring a level playing field, that is to say a fair and equal treatment of all banks. Like I said, this foundational supervisory approach started out as quite an intrusive activity, which was aimed at covering a very comprehensive array of risks, and relied not only on the direct actions of the Joint Supervisory Teams (JSTs), but also on the actions of inspectors, whether in the context of on-site inspections or thematic reviews. Of course, this involved a great deal of work for the banks, but it was important to understand where the vulnerabilities were. We had an extremely complicated context of deterioration and a certain degree of fragility in the European banking system in many countries, and we needed to understand the causes and identify and address these vulnerabilities. Ten years later, we can say that we have a consolidated set of findings and a much deeper knowledge of banks. This is also reflected in resilience indicators.

Hence the need for the SREP reform. When signalling this change, the ECB said that it would implement a set of more flexible, streamlined, processes and operate on a shorter timeline. What does this mean in practical terms?

We have determined that, after ten years, and having acquired an in-depth knowledge of the banking system and made significant progress in identifying vulnerabilities, we can slightly shift the supervisory approach in a direction that is an evolution, not a revolution.

Does that mean a lighter touch?

We are becoming more agile and streamlined, while keeping in mind what it means to be risk-focused. We continue to look at banks on the basis of their individual risk profile but we now focus more on the most material risks affecting each bank and take a multi-year perspective.

Is that the “shorter timeline”?

Above all, it is a process that is more focused on specific risk areas, which allows JSTs to focus on the most material risks affecting the bank, and also enables a tiered approach depending on the findings. So we will prioritise the most severe findings – we have four categories according to their severity and urgency – and leave banks to address the other, less severe, findings over time according to deadlines set and checked by the JSTs.

What is the feedback from banks on this reform?

As far as I know, banks are pleased to see many of the reforms we are introducing. For one thing, we will now communicate SREP decisions in October, which is a very important step for banks in terms of their budgetary planning. And we are also making SREP communications leaner and much more focused.

You mention improving clarity and focus. Were your communications to the banks unclear before?

I’m not saying we weren’t clear, but the scope of our SREP decisions was too broad. They were quite extensive communications aimed at covering the full range of risks. We believe we should focus on the most material risks and, in the same vein, have a shorter and more focused SREP decision. At the same time, we have been developing a set of suptech tools...

Is that where AI comes in, and the projects in which it is most directly involved?

Exactly.

How do these projects change the way you supervise or monitor banks?

AI has a lot of potential to enhance the assessment capacity and critical judgement of our JSTs. It will free the JSTs from the more repetitive tasks that they still have to do today. It will also improve the quality of their assessments. And it allows a level of data management, processing and access that is better than what a JST can achieve with traditional tools.

But will the ECB have more access to more information from financial institutions to better analyse bank-level data?

It is not so much the access, because that is already relatively comprehensive; it is more the quality of data processing. In view of the new approach we are planning to implement, we want teams to be available to work on assessments, which are much more critical – and discretionary in the sense that they require teams to use their qualitative judgement about the banks’ risk profile – and to focus on the most material risks. But this is only possible if we unburden them of some of the tasks that can be done by these new tools and strengthen their analytical capacity. And so, from that perspective, we improve the quality of supervision and also ensure even greater consistency. In many cases, this will also allow us to reduce the time taken to issue the decisions themselves.

This will also force the ECB to make a huge investment in data processing. Will it entail a transformation for the ECB?

The ECB has already been investing quite heavily in technology for a few years, which has led to the introduction of an expanded set of suptech tools. We are now moving to a second phase, which involves the use of these AI-based technological tools. As you know, AI is an area that is constantly evolving through the language models that are being developed. The focus of our investment is to try to harness AI, where relevant, to allow these tools to better serve our JSTs and supervisory actions. I’ll give you an example: the majority of the supervisory decisions we take are fit and proper decisions on whether members of banks’ management bodies are suitable for their roles. According to the European Banking Authority and European Securities and Markets Authority Guidelines, the recommended time frame for these decisions is 120 days. With the help of the so-called Heimdall tool, we are averaging 97 days. That gives you a good idea of what AI can achieve and the positive impact it can have for banks. We also want to apply this to capital decisions, which are the requests banks submit for share buybacks, debt instrument replacements, or early redemption of debt instruments. Securitisations, an area in which we are implementing much shorter decision-making processes for certain standardised transactions, can also benefit from these tools. There are a number of cases where we believe these tools will help our staff – not replace them, because this isn’t about replacing our JSTs and their supervision with technological tools. Rather, it’s about increasing the technical capacity of JSTs and speeding up our decision-making processes.

Why has it been so difficult to make progress on cross-border mergers and acquisitions?

It makes sense that in an area with a single currency and a single monetary policy, which also has a Single Supervisory Mechanism and a Single Resolution Mechanism, there should be cross-border consolidation, because certain risks are offset when operating in an integrated monetary area with free movement of capital. The reason why cross-border mergers are lagging behind expectations, taking these euro area characteristics into account, is undoubtedly because the third pillar of the banking union, corresponding to the creation of a European deposit insurance scheme, is missing. This often acts as an obstacle to mergers because deposits are not seen to be equally protected across the euro area, which shouldn’t raise doubts. The absence of this single deposit insurance scheme stops mergers from even being considered, and therefore creates a degree of resistance to certain cross-border acquisitions for certain banks.

But isn’t there also some form of national resistance, of national governments preventing these types of deals?

There is definitely some resistance at national level in some countries still operating and existing as part of the euro area, which has to do with how banks are viewed at the national level.

As instruments of domestic policy...

Not necessarily as instruments of domestic policy, but as something that has very close ties to the country. These national or regional ties are often given more importance than the actual terms of the deal itself, and this often contaminates the decision-making processes.

From a supervisory viewpoint, would it make more sense to create these cross-border giants?

We are agnostic when it comes to specific market operations and to mergers and acquisitions. From a supervisory perspective, there are some advantages to having cross-border consolidation. One advantage is that we have banks that are more resilient to shocks, or banks that can take advantage of synergies and improve their profitability levels, or that can benefit from liquidity being managed at group level. Access to financing in certain markets also becomes much easier, in addition to diversification itself. Geographic diversification is also a good way of managing banking risk. These are all positive features for business, profitability and banking viability. From that perspective, we can see benefits. But in reality, we are completely agnostic about the merits of specific transactions.

European Commissioner Maria Luís Albuquerque has also called for deals of this kind. Do you think it will be possible during this European Commission’s mandate to make more progress on the deposit insurance scheme? Will it be easier to complete cross-border mergers once this mandate is complete?

It is very difficult to anticipate whether or not we will see any significant changes on that front during the current term. I would say that, in spite of everything, the Commissioner and the current European Commission have been at the forefront of making highly transformative proposals, including one to create a savings and investments union. In terms of optimising the allocation of citizens’ savings, and also from the banks’ perspective, the capital markets union can be a very important component. When it comes to issuing debt, in a more integrated capital market banks have access to financing under much more favourable terms and conditions. For cross-border transactions, the Commission has been doing the work required on competition and the Single Market. And no specific obstacles have been raised to these operations taking place. Having the third pillar of the banking union and a deposit insurance scheme are obviously important, but that is beyond the Commission’s control and depends on the will of the Member States to revive this project. Under the Danish EU Presidency, we are now finalising – and I think it will succeed – reform of the bank crisis management and deposit insurance (CMDI) framework. A political agreement was reached before the summer, under the Polish EU Presidency, and is currently being finalised at the technical level by this Presidency. Although it is not as far-reaching as it could be and falls well short of the Commission’s initial proposal, we still have to see it as a step in the right direction for fine-tuning the banking union. We also hope that it will generate some positive momentum to revive the discussion on a European deposit insurance scheme.

Why has it not been possible to make more progress on banking crisis reform? Has fear been a factor?

This is a Catch-22 situation, as the saying goes. Through this reform, it is envisaged to use national deposit insurance schemes to enable banks, especially the small and medium-sized ones, to have access to the Resolution Fund in crisis situations. At the same time, we have to bear in mind that the ideal solution would be for the European deposit insurance scheme to finance this access for these banks. If we use national deposit insurance schemes, we are to a certain extent amplifying the link between the risk and the sovereign, the Member State; in so doing, we would restore the very same nexus that the banking union was trying to break. So this means there is clearly some concern about activating national deposit insurance schemes, which justified the imposition of a very significant set of conditions in the context of the CMDI reform.

Does the sale of Novo Banco to the French BPCE Group fit into these cross-border mergers and acquisitions models in terms of the advantages you mentioned earlier?

I have a more holistic view of this process. It is a process that clearly reflects the level of continuity between managing a bank’s crisis and the solution found to manage the bank, and the ability to stabilise and restructure it to sell it on successfully. In the case of Novo Banco, which was created from the resolution of Banco Espírito Santo (BES), and which was an extremely difficult case in terms of how the bank came about and the way in which the solution was designed and required a long period of stabilisation and restructuring, it is clear that the sale is a big plus. The bank will immediately become part of one of the largest banking groups in the euro area, and the deal was extremely favourable in terms of price; we’re talking about somewhere around 1.7 times the price-to-book value. In that sense, it was a relatively positive financial deal and was also a cross-border operation. To sum up, I think that if this cross-border operation was so successful, it was also thanks to the well-executed, well-implemented and even well-designed process to stabilise and restructure the bank.

The time taken for this restructuring was criticised, as was the recourse to a contingent capital agreement. If I understand correctly, you said that it would have been difficult to clean up, stabilise and restructure the bank more quickly, is that correct?

I can only give you a distant view because I don’t have access to details of the actual sale. If you compare the Novo Bank deal in terms of the public funds that had to be made available – essentially loans to the Resolution Fund which will be recovered through contributions from the banking sector – as I was saying, if we look at the amount that was channelled (net of the sale), we’re somewhere in the region of €7 billion, which is around 11% of the net assets the bank had at the time of resolution. If we look at the public funds made available in Banif’s resolution, we are talking about roughly 21% of the assets and even an irreversible loss in value of the Portuguese government’s shareholding in the bank at the time of resolution. We can also look at BPN, whose allocated public funds corresponded to approximately 93% of the bank’s assets when it was nationalised. In this respect, I think this operation was favourable. On the other hand, and because it is also important to be able to draw comparisons with other similar cases of bank crisis management, if you compare the bridge bank that was created from the resolution of BES, Novo Banco, with the creation of another bridge bank, such as IndyMac in 2008 in the United States, you will see that the costs were substantially lower; in the case of IndyMac, a bank with a balance sheet which was half that of BES, resolution costs were equivalent to 41% of assets.

However, we must not forget the opportunity cost of allocating public resources to financing bank resolution, even if these funds will subsequently be recovered – over a long period – through banking sector contributions. Without the availability of state funding in this case, it would obviously not have been possible to resolve BES or restructure Novo Banco in the way it was done. That being said, the counterfactual shows that the alternative would have been much more expensive. If, when liquidating BES in 2014 or Novo Bank in 2017, guaranteed deposits had had to be reimbursed, the cost of doing so would have been in the region of €14 billion. This would have been the cost borne by the deposit guarantee scheme, which would have had to resort to state funding to pay the deposits that had been under guarantee. Not to mention the financial and economic impacts, which would certainly have been very significant, which would have occurred in the event of liquidation, as well as the risks to financial stability arising from the potential contagion to other Portuguese banks.

In 2014, you were Deputy Director of prudential supervision at the Banco de Portugal. You were there when BES failed and attended many of the meetings during those months in the run up to the resolution. What stood out most for you during that period?

That period was marked by a series of steps that we took, which became increasingly intrusive, and as they did, we unfortunately discovered things that were worse than we had hoped.

Is it fair to say that between September and November 2013 the Banco de Portugal became more intrusive and discovered more problems?

The intrusiveness had already started with a series of sweeping inspections carried out by the Banco de Portugal since 2011, culminating in the horizontal inspection known as “ETTRIC 2” to analyse the business plans of important banks, which led to us discovering discrepancies between what was reported and Espirito Santo International’s (ESI) actual balance sheet. But then there was a series of management actions, which have since been proven in court, some of which were termed catastrophic, that we discovered as and when we increased our level of intrusiveness and deepened our knowledge of the bank. And we went well beyond what was methodologically done at the time. But those acts, some of which were in breach of what had been agreed upon and some of which were catastrophic from a management perspective, made it impossible to reverse the situation. Management had everything it needed to turn the bank around, but unfortunately there was no backing or desire to do so in real time. Surely, the degree of blame cannot be attributed equally to all members of the board, much less when we are talking about criminal or other legal liability. Nor can the lack of diligence or inability to implement the measures recommended by the supervisor be attributed equally to all members of the board. The truth is that the conditions existed to reverse the situation, as had been determined, were it not for a series of behaviours, acts and omissions on the part of those who managed the bank, which, from a certain point onwards, made its failure inevitable.

When did this lack of desire become apparent to you? Between May and June of 2014?

Yes, I think that around that time, there were a number of things that were starting to take place, including an acceleration in the bank’s buyback of its own bonds at a significant loss. As acts of disastrous management go, the “letters of comfort” sent to the Venezuelan government are also very revealing. It seems clear to me that there was no desire to reverse the situation when it could have been reversed. The BES board was primarily responsible for turning things around, not the Banco de Portugal. Public opinion often gets this wrong. Supervisors take all the measures required, and all management bodies take every measure required to remedy and repair a bank's weaknesses.

There is actually an escalation framework that European banking supervisors also use. But ultimately, it is always the responsibility of the bank’s board to conduct these measures faithfully and diligently.

On the weekend of 3 August 2014, you were the go-between between the legal side, the European Commission and the Directorate General for Communication. What do you remember of that weekend?

It was a very complex process. I remember in particular how complex it was, but also that there were very skilled teams involved. We managed to act swiftly in a very flexible way in terms of the various areas and aspects of work that had to be implemented. We had to set up several workstreams and manage information as and when it became available. We were working with information being produced dynamically. So what I remember is the capacity required, at any given moment, to process and analyse the information in a very dynamic way and maintain a high degree of flexibility about the operation’s design. Coordinating with the European Commission – and, incidentally, also with the ECB – was another aspect of this complex process, but interactions with Directorate-General Competition (DG COMP) in particular were smooth and constructive.

This also happened before European banking supervision existed. Could things have been in any way different if you had had access to European banking supervisors a few months earlier alongside national supervisors?

I don’t think so. The steps taken, especially from May 2014 onwards, would have made it impossible to reverse the situation, so I don’t think an alternative outcome would have been possible.

Looking at that period in particular, and at the restructured bank which was subsequently sold, do you feel it’s a chapter that ended well?

It ended well thanks to the sales process. The bank actually went through two sales processes, each of which was relevant. The first sale to Lone Star was especially relevant in terms of the restructuring that was supported by the contingent capital agreement. In addition, there was the second sales process. I think the whole process, from the creation of the bridge bank and the final sale, made it possible to maintain financial stability and the bank’s ability to continue providing critical services in its role as a systemic bank for the country and its real economy. In addition to how important it was in maintaining financial stability, it was undoubtedly a success in that a disorderly liquidation was avoided and taxpayers did not get landed with a significant additional financial burden. Thanks to this sale, and in spite of everything, the process was well executed.

Jornal de Negócios was one of the media outlets that suggested you had been asked to become Governor of the Banco de Portugal. Were you ever nominated? Did you turn it down?

In accordance with the Statute of the Banco de Portugal, management of the process for appointing the Governor is the responsibility of the government. The government will have followed a process – I don’t know how it’s designed – which resulted in the appointment of Professor Álvaro Santos Pereira, whom I hold in very high esteem. Thanks to his professional and academic background, he is someone who has all the credentials and requirements for the job. I think he will also bring an international perspective to the position, especially given his very relevant experience at the OECD.

Do you therefore expect good things from this new Governor and his mandate?

Of course. As I said, I hold the new Governor in very high esteem in light of his academic and professional achievements. But above all else, I have always had a high opinion of the Banco de Portugal, because its cooperation at either the level of the Eurosystem or within European banking supervision has always been top-notch; and based on my most recent experience, this also holds true within the framework of the Single Resolution Mechanism. The contribution made by the Banco de Portugal to all of these areas has been quite important and positive, so I am confident that this will continue under the new Governor. But the Banco de Portugal is also its people: its technical knowledge and cumulative experience and its employees, whom I believe are the best in the country in many areas.

The Governor said that one of the objectives of his mandate was to carry out reforms. Will it be easy to reform a longstanding institution like the Banco de Portugal?

That’s an excellent question. I always think it’s possible to reform any institution, regardless of how old it may seem. We are talking about a very important institution in terms of its history and its significance for the country. Moreover, throughout several organisational processes – the last of which was the introduction of the euro and its integration into the Eurosystem and the banking union at a later date – the Banco de Portugal has carried out a number of significant reforms. There is proof of this in several areas, from monetary policy and the payments system, and from statistics to economic studies, financial stability, supervision and resolution.

Looking at the Portuguese economy from abroad, from Frankfurt, how do you feel it is positioned in relation to the economic challenges the euro area is facing? Is it in a better position than before?

The economy has been quite resilient. I think the country is better prepared based on its starting point for coping with external shocks. I think a consensus has been built since the economic adjustment programme it went through, which is still having an effect.

The public finances have been balanced...

Exactly. I think that this is an asset which must be preserved and which has resulted in successive upward revisions to Portugal’s credit rating. It is therefore a bastion of stability and robustness. This obviously doesn’t mean the economy isn’t vulnerable to certain risks. It is an open economy, which depends on certain sectors, notably tourism but also others. One of the main changes the Portuguese economy has undergone is the very significant increase in the share of its exports in GDP since 2013. Of course, being a more open, more outward-looking economy, it is affected by trade tensions that may have an impact on its main economic partners. But the fact that Portugal has been running a government budget surplus in recent years, that we’ve been running down public debt and that we have a relatively sound banking system places the country in a very different position to the one it was in when it was hard hit by the sovereign debt crisis in the euro area.

How would you describe the current Portuguese financial system?

The Portuguese financial system has undergone a fairly robust and consistent process in terms of restoring the quality of its assets, which is reflected in the extremely low level of non-performing loans. The Portuguese system is operating with an average level of non-performing loans which is very close to that of the euro area, which places the banking system on fairly solid ground and gives it the capacity to free up capital to finance the real economy instead of retaining it for impairments and provisions. On top of this, of course, its capital and liquidity ratios enable the Portuguese banking system to continue to finance the economy, even when faced with risks that may materialise in the economic environment the country is operating in. Profitability levels have also recovered significantly, either through increased financial margins resulting from higher interest rates or through cost reductions, the latter having been helped significantly by the digitalisation processes of Portuguese banks. In this respect, it seems to me like a system that can help cushion shocks rather than amplify them.