 Welcome to the fourth edition of the Banking Supervision Forum. The title of our conference this year is Tomorrow's Banking, Navigating Change. Now the banking sector as well as regulators and supervisors have been facing many changes over the years. Some ongoing such as digitalization and some unexpected such as the pandemic. We have a great program for you to discuss how the industry has managed through these challenges and what tomorrow will bring. Now to open the conference let me welcome President Lagarde who is joining us remotely from Brussels. Following her remarks we will have a discussion, we will have a conversation between Maria Tadeo of Bloomberg and the chair of the supervisory board Andrea and Ria. But first let me give the floor to President Lagarde. Well thank you so much Coni and it's a pleasure to participate in the four ECB forum on banking supervision and to welcome all participants. The coronavirus pandemic has been by all accounts a most unusual crisis. We saw the sharpest contraction in output ever recorded and one of the steepest recoveries ever observed. The response from policymakers was bold in terms of both the support provided and the alignment between policies. But an often underestimated yet exceptional features of this response has been the role played by the banking sector. Unlike in past crisis banks were not part of the problem they were part of the solution. Banks were not only in a strong financial position to withstand the pandemic shock but they could help strengthen the common response to the crisis. This role reversal is partly attributable to the contribution of European banking supervision. Back in 1999 Tomaso Padua Chopa one of the fathers of the euro much missed said I am convinced that in the future the banking industry will need a true and effective collective euro area supervisor and it will have to be enhanced to the full extent required for banking supervision in the euro area to be as prompt and effective as it is within a single nation. The pandemic was the first real test of whether European supervision could act as effectively as a national authority and more and it was the crisis that proved Tomaso right. Of course looking beyond the crisis it is crucial that banks adapt to the challenges of the future to ensure that they remain fit to support the economy and those are the three key themes that I would like to touch on briefly in my opening remarks. So European banking supervision proved valuable to the crisis response in my view in three ways. First of all European supervision ensured that the entire banking system built resilience in the run up to the pandemic crisis. Having a common European rulebook enabled European supervision to hold the entire banking sector to a higher common standard. Since 2014 core equity ratios have increased from around 12% to more than 15% now and the stock of non performing loans has decreased by around 50%. This focus on resilience meant the sector entered the pandemic in a much more robust position. Second European supervision supervision leveraged banks strong financial positions to unlock lending across the banking union when the economy urgently needed it. Supervisors removed prudential barriers preventing bank from maintaining the credit flow to the economy allowing them to maximize the funding made available via the ECB's targeted longer term refinancing operations the TELTROS. The combined response allowed banks to rapidly funnel liquidity to the economy between March and May 2020. Bank lending to companies in the euro area rose by almost 250 billion the largest jump on record in any three months period. At the same time European supervision recommended suspending dividend payments notably to ensure that capital was not flowing out of the banking sector but was instead used to support the economy and absorb losses. Banks that did not distribute dividends increased their lending by around 2.4% and their provisions by around 5.5%. The third way in which European supervision was successful was by ensuring the consistency of these measures across the whole banking sector. Having a single supervisor meant that bold collective action could be taken to reduce banks natural incentives to retrench and cut lending to the economy during a recession and crucially that action could happen in all countries simultaneously and at breakneck speed. In many ways this would have been unthinkable before the banking union however incomplete it remains today and it helped ensure that the ECB's monetary policy which is largely transmitted through banks could be delivered more evenly across all parts of the euro area. Through these actions European supervision was decisive inverting a much worse outcome for the economy but its actions also showed that the post financial crisis reforms are working as intended combining resilience with flexibility. Higher capital and liquidity buffers did not constrain credit they allowed banks to act as shock absorbers and we saw that the prudential stance across the banking union can be adjusted when needed to support economy wide stabilization. So thanks to this exceptional crisis response banks are not playing their role in supporting the economic recovery. They have started releasing loan loss provisions which is creating welcome leeway for maintaining credit supply as the recovery matures and the ECB's most recent bank lending survey showed that credit conditions were being supported by a reduction in banks risk perceptions for the first time since 2018. However as successful as this crisis response has been we now need to prepare for the post crisis challenges which have multiple facets but I would like to focus on two components the first is addressing the long run consequences of the pandemic for asset quality the full impact of the pandemic will become visible only gradually which poses challenges for the management of credit risk. Public support and regulatory measures may have blurred the underlying credit worthiness of borrowers. As those measures are lifted and the true financial health of companies come to light asset quality could be affected at this stage it is too early to predict the trajectory of asset quality. Fast moving indicators such as the change in the share of foreborn loans and stage two loans are already showing signs of deterioration but the ultimate impact on non-performing loans will only occur with the delay of several years and will crucially depend on the strength of the recovery banks should have robust risk controls in place to be alert to these risks and address them early on. Second the pandemic has triggered more fundamental changes to the environment in which we all operate banks as well it has accelerated the digital transformation and underlined the urgency of tackling climate change both of which inevitably have an impact on banks. In terms of digitalization consumer preferences are changing rapidly new players from fintechs to large technology companies are increasingly are increasingly driving competition in the finance service market. This creates an opportunity for the euro area banks which have struggled for low profitability and cost efficiency to refocus and maybe redefine their business models. The banking sector has seen a 23 percent increase in first-time digital users since the start of the pandemic. Maintaining this focus on digitalization could allow banks to reach customers without having a dense branch network or extension of it. New products and services could be introduced at very low marginal cost and pricing could be improved using advanced data techniques. In Europe a number of digital only banks are already leading the way in showing how digitalization can generate higher returns and help improve cost efficiency. The impending risks associated with climate change and environmental degradation much talked about at the moment also call for banks to adapt how they do business. The ECB's economy-wide stress test revealed that the default probabilities of the corporate loan portfolio of the most vulnerable banks could increase by 30 percent in a scenario in which climate change is not addressed. Currently few banks have integrated such risks into their existing strategies or risk management. There are all still a long way of meeting the supervisory expectations we have laid out in our guide on climate-related and environmental risks published a few months ago. We all know that time is running out so banks need to act now to be fit for a carbon neutral economy by 2050. They need to adapt their strategies and risk management practices to ensure that their business models are resilient in the short, medium, and long run. So to summarize and conclude the pandemic has been an exceptional crisis. My colleague and friend Mr. Andrea as mentioned I think this turning point of the pandemic. But the combined response of policymakers was just as exceptional as the crisis was. European supervision has ensured that unlike in the last crisis banks acted as shock absorbers rather than shock amplifiers. This common response reflected the realization that all policy areas needed to act together to combat this unprecedented shock. Even more fundamentally it reflected some core lessons from the great financial crisis. Let me mention two of them. First systemic perspective is needed in situations of stress to avoid excessive prosyclicality in the financial system. Second common rules are needed to prevent regulatory arbitrage. Now that the recovery is underway European supervision is keeping a close eye on the build-up of risks. However for banks to thrive in the post-pandemic world they must also embrace the changes that the pandemic has triggered. I'm confident that this is possible. Just as the banking sector has contributed to a successful solution to the crisis it can also provide one to our next challenge. Facilitating the transformation of our economies towards a greener and more digital future. And I will quote Sir Winston Churchill by way of closing who once said success is not final it is the courage to continue that counts. Thank you very much.