 So it's a very big pleasure to be here, and the big thing I learned when I did the IMF exercise on Ireland is about water charges in Ireland. And I really, there's now my third time in Dublin, and I have one thing on offer for you. So if Brexit is going to happen, we can talk a long time about it, but I have at least one thing on offer. We have a very nice union in the Netherlands. We call it Benelux. At one time in 1830 Belgium and the Netherlands were together. But then we had a war and it split, but we were once together. So you're very welcome to join the Benelux. And we keep the euro, so that will be handy. Okay, coming to firmer foundations for a stronger banking union. There is an underlying paper at Broiqel. And please ask questions if you can go along, because I like to do it interactive. And what I plan to do, and that's also based on this Trilemma book, is really go back to the theory of policy coordination, if we make that clear, then we also know what we have to do at the banking union. So it is really, why do we have a banking union to understand how to complete the banking union? Then a bit of landscape, and then the real talk, what do we need to complete the banking union? And there are always two reasons for the start of banking union. Of course, in 2012, and most of you will still remember it, it was like the 2008 crisis, you see share prices drop, and also as a policymaker you just don't know what to do. And banking union has been the game changer at the time. And then after banking union, the ECB started to buy government bonds, but the real thing was the political decision for banking union, which was the way out of the crisis. And we were desperate at the time, remember, a euro falling apart, if you read any US or UK newspaper like the Wall Street Journal or the Financial Times, then already ten times the euro would have been fallen apart. And if you read the memoirs from Mervin King, the Alchemy of Banking, he's still predicting that the euro will fall apart. But that was really at the height, and then banking union decision was taken. I would argue that underlying long-term reason for banking union is really cross-border banking, which has been related to cross-border integration in the European banking system. That's the long-term reason for banking union. And what is the problem? And then I come to politics and at the end I will also come back to politics because banking is politics. So if a bank fails, the national authorities only take care of the national externalities, not because he doesn't like foreign countries, because they are meeting in Basel every month and they meet everywhere in Brussels and Frankfurt, but your minister of finance or your parliament will always only allow you to give money to your national depositors and does not allow you to give money to foreigners. That's life in parliamentary democracy. So that's the legislation and the accountability to parliament. So there is no way out of this. You can wish a lot of things, but if you have not arranged for a super national bailout, a super national arrangement, this will happen in a crisis. Even if the supervisor of two countries know each other very well, we had Fortes, Belgium, Netherlands, presumably very close. We make a lot of jokes about each other so that means you're close. We didn't tell each other anything. Fortes had to tell the Dutch authorities what was happening and they had a huge fight in solving it and then they broke it up and then they nationalized both parts. So even good neighbors will make a fight. So that's inherent in a national setup. In a political, democratic society, if parliament is ultimately in charge, they will force the ministry and the supervisor to take a national stance. So this picture, you know, my home is my castle and everybody withdrew in his own little castle. And the big one on the right, the European castle was empty. Only the ECB was there at the crisis, trying to do whatever it could, but they were on their own. So what I always find useful is to use game theory to study behavior because if you talk to central banks to supervise it, but any policymaker, they will say, oh, we know each other and if there's a problem, we talk to each other and we solve it together. That's what everybody always says. And then as an academic, you have to study it and what I found useful and what has been borne out after the crisis, I developed this before the crisis, but game theory is quite useful to use. And if I make one comparison with the SSM today, you know, the ECB is now in charge and then the national supervisor still has some role, but the legislation, the regulation for the SSM is written in such a way that if the national supervisor is not cooperating, the ECB can overrule it. So in this game, it is not smart for the local supervisor not to cooperate because then they will be sidelined. So there's been very smart drafting of the European Commission. So if you want to have a unified system, you need to give the power to the central guy. And the regulation has been, with the game theoretical model in their mind, written down. And the same for this. If public funds, resolution funds are at stake, then cooperation will not happen, as I just explained. And then I come to the trelema, that, like the monetary policy one, where you have fixed exchange rates, for capital flows and national monetary policy. And we all know that two of the three are only possible and China is now trying to work between these two. What to do to make their currency convertible. And the same here in financial stability. Because before the crisis, we had international banking and we had national supervisory policies. So that meant that stability broke down. And I've been often asked about it. There is no way out. So if you want to have financial stability, you'll either have cross-border banks, but then you have supranational policy. Or if you want to keep your national policy, then you only can have subsidiary banks and still do ring fencing on a national level. So you have to make a choice there. If you furnish the two, you get nasty surprises because these things only play out at crisis time. In normal times everything is fine. Because then supervision does not matter. Only at crisis time it matters. And then you will find out, like we found out to Dutch and the Belgians with Fortes, that we had to split the bank and get it back into financial stability organization, crisis management. And if you take this logic, which is hard-wired, we have an underlying model to it, is two stable outcomes. Either you go supranational, and that's banking union, or you go national. And then New Zealand is a good example. You know New Zealand. All banks in New Zealand are subsidiaries of Australian banks. And New Zealand has required that if you have a significant operation in New Zealand, then it has to be a subsidiary. So it gets a New Zealand license. So they can ring fence in a theory, which I don't believe, but in theory they should have their own IT, their own risk model. So if Australia called bankrupt, apparently they should keep on operating. That's a theory. It won't work like that. But you ring fence and you try to get it going if it goes wrong. And the same in the U.S. is now, if you do a big operation in the U.S. you need to have an intermediate holding company, because then the U.S. can ring fence that part, and if the parent calls bankrupt in Europe, the U.S. operation can run further. So if you look at the outcountries, which is not a topic today, then the Nordic region, like Sweden and Denmark, where they have lots of operations in Eastern Europe, they will benefit a lot from risk-sharing in the bank union. And like Nordea is moving to a branch bank, so the head office is in Sweden, with branches in Denmark and Finland and Norway. That's currently happening. If that would be completed, if Nordea is a problem, then Sweden, the parent has to pay on its own because it's part of the Swedish deposit insurance fund. And the Swedish Ministry of Finance is behind it. That's, I think, a very dangerous... If that would happen, that would play up. Then there will be questions about the Swedish deposit insurance fund, and there will be questions about the Swedish Ministry of Finance behind the whole of Nordea. The UK is a special case because the UK is often used as a hub and spoke model. So the US banks have a passport in London, and then they come to Dublin, or other European countries to do their business from their UK offices. So the UK is really... Although it is an international financial centre with the third countries, they are extremely interlinked in Europe. What will happen with their passports after Brexit? Will they go to Dublin? Will they go to Frankfurt? We don't know. So, now the underlying apparent. If you accept that cross-border banking is one of the reasons for banking union. The red line, red is the colour of Broglie, so that's why I took it in the red. The red is the cross-border banking. And you saw it increasing till the crisis. And if you are not impressed by this number, I have a new picture for you where you will be impressed by. That's Ireland. So this is Blue is Domestic. So development of credit bank assets compared to 2002. Blue is Domestic. Green is from outside Europe, and red was cross-border in Europe. So you really saw a steep inflow of credit, of banking assets from other EU countries. Then the thing, of course, went wrong, and you know more about it than I do. But still, you are asked to solve it on your own. Of course, the government got some money, which had had to repay. But in the end, the Irish budget had to bear the full brunt. But it was clearly a cross-border issue. And that's the benefit of banking union. If you would complete it, that you can do risk sharing. We are together in the same ship. Because by rescuing the Irish banking system, we brought stability to the European banking system. That's why Trichet asked you not to bail out bondholders. But in the end, you had to pay it on your own. And that's not a stable arrangement. So my thing is, if we are on the same boat, then we should really have an European deposit insurance resolution, bail out mechanism rather than national. And in the Irish case, that has been very clear. And I'm amazed that you've been so courageous to took it on your own. Now you have recovery, but there was no real risk sharing. You got a budget line from Europe, and you had to repay it in full. Looking a little bit. So now we have banking union. Is it helpful? I'll help you a little bit through this difficulty. Can you see it as well? So the big banks, I can stand here. If the top 10 banks, then these are their assets. And the market share is of course only the assets which you have in the home country and the other banking union countries. And in non-bank union, so for example for you in the UK or Denmark, Sweden, or in the other out, and outside Europe. And the basic thing is now we move to banking union. In the supervision, you add to the 58%, you add the 16%, so the consolidated supervision, you can now do up 74%, rather than 58%. And that's the advantage of banking union if you want to do it on a number base. You find questions, can I ask a question? You don't see another advantage of banking union in respect of the home business. So that if some of these banks, maybe not these ones, but the next year, are politically protected from supervision by the home regulator. The banking union regulator can come in and say, no, you don't allow this. Banking can be run like that. We're in charge here. I'm together with Nicolas Ferron, my colleague at Brojko, we're doing an exercise on monitoring the first 18 months of European banking supervision. And that's exactly what we find. One is, we have increased capital required in the first year already. And the second thing is, we were amazed ourselves that I think it is 30 or 40 out of the 100 large banks in the significant institutions in Europe, 30 or 40 are government banks. Either nationalised, like here, or public sector banks, or like we have, you know, the Netherlands is below sea level, so we have a special water bank giving money to the Polders to build high dikes, as well as a public sector bank, and we have municipality banks, and seven are also government banks. So we have a long history in Europe of government banks, and you know, because they are all low risk weights, they want to get out of the leverage ratio, but now the ECB says these are the rules. So I think a big advantage, I agree, is also that the political connection is far less, because the ECB just has no line with, of course, the government will talk to the local supervisor, the local supervisor has to talk to the ECB, but if the ECB just says no, that's the end of the story, because at home a minister can tie your arm, but they cannot tie the arm of the ECB, and I think that's a big advantage, more generally also for the commercial banks, that you have less regulatory capture because you're at a bigger distance. So these are the non-political, the numerical benefits, and that's really where you integrate this cross-border thing, and in a separate exercise we did that also for the outs, like Sweden, Denmark and the UK, and then you find similar numbers, numbers on the non-political, the scientific case for banking union is also quite strong for these countries, you know you can join banking union even if you don't have the euro, because there's been a long-standing debate whether financial stability is related to the currency and I've been arguing already for a long time, of course there are always currency uses, but financial stability is not a currency concept, it's really about stability of cross-border banks, look at Lehman, he had his dollar returning, that was not the issue, because do you solve one bank part of the bank and not the other part? So if I look at your case your two Irish banks, the large commercial banks then you see that the cross-border business is really in Lehman in the UK so in that respect you don't came from banking union but you came, I think, from the credibility of the ECB and if, for example, tomorrow the US investment banks really okay to Ireland which would be a problem for the Irish supervisor because you get these big eyes the good news is if they are picking up 30 billion they will automatically come to the ECB so the ECB can help you if needed in that respect now coming to the real part of the talk this is a picture which is designed by my wife when I was writing the book the dilemma was on a Sunday afternoon that I need a picture for this because the key thing is and she has been a consultant that if you think about banking banking is about the physical backstop what is the quality of the government behind the banking system that gives the credibility to the banking system so that's you know the electricians, the Bellman equations the UK guy during the war and the second world war very complicated computations then he started to solve it backwards so from the outcome backwards and that's the way to think about the banking system and Patrick has been around the IMF for a long time on these issues to think about the banking system is thinking about the physical backstop that determines all other things and that's why I put these arrows that way but this is the crucial thing if you don't have organized that well then this will be weak we've seen it with Cyprus we've seen it with Iceland and we've seen it also here that the government needed a lifeline for the banking system so where are we today so we have rulemaking is more or less okay we have some recordations still some directives and we try to get rid of the options and the national distractions in all these rules so we will get more recordations in Brussels so we get more harmonized rules the ECB is clearly in charge the local supervisors help out but ECB is really in command no doubt about it but then it starts to become wobbly like you remember Greece last summer ECB gave permission but the bank of Greece was accountable and at risk for the lender of last resort loans to the Greek banks not the ECB the ECB only had to allow a ceiling they could say you are allowed to do less but the risk was locally like you had to risk locally when your system blew up and that still the case because I asked the ECB in 2013 I asked when will you have your public lecture when the emu started in public lecture on the loans which I attended where he was telling that we have now emu but banking superficial lender of last resort is still at national level because supervision is at national level so I have asked the ECB when are you giving the public lecture but now you have supervision that you do ECB lender of last resort and my note has been discussed in the ECB board but then it already stopped so it's even not going to the Coventry Council to stop that exact import because people were not prepared to sign up to it and that's a pity so the bank of Greece is supposed to be a European system but then at the lender of last resort and at the post insurance and at the backstop halfway and that's a design problem and if you have a framework which design problem so half of the system is national half is European what will happen during the crisis at the national level then the prime minister or the minister of finance can pull people together and force them to take a decision before you leave the room even if you are an independent central bank the minister or the prime minister forces you then you threaten a little bit to resign but in the end you get to a solution but who can force a national deposit insurance fund and the European resolution board or the ECB who solves if they have a fight because the national depositure does not have to listen to the European Commission or to the European Council so I think there if a next crisis happens when the country is medium sized or small so the credibility of the fiscal arrangements are at risk and the discussion with rating agencies we will get a nightmare scenario again so your spread on the government bonds will co-op and there will be a lot of missed about what will happen because it's not clear who's in power and that's partly an institutional problem and we have lunch and we discussed it and when the lying is the issue is there is no political counterpart at the European level so any central bank has a minister of finance where it can have in the Netherlands we have our weekly lunch between the minister and the president of the central bank when I was at the ministry I had to prepare them you have one form of cooperation if you don't have it like in Germany if you don't speak too much to each other then you get lots of problems as you know the few covenants left in a short time but normally you have an interaction between the minister and the covenant even if you are independent but there is no minister of finance to talk to for dragging is that the chairman of the Eurogroup the Dijsgroup is it Tusk, is it Junker or is it Schoublech or Merkel and that's the big thing about banking union that the political part is missing having a prime minister of finance and you can only have a minister of finance if you have a prime minister behind it like any CFO in a company is only powerful if he is supported by the CEO the minister of finance is only powerful if he has a prime minister behind him or supports him on being tough on the budget so an elected president for Europe together with the minister of finance will be the finishing part of a banking union and we all know in the Netherlands we had a referendum in the Ukraine but it was about Europe so we had 60% no vote so the population is quite clear across Europe is not in for this that's extremely clear so we as technocrats if I would hold a vote here probably we get the majority for a political union but if you go to the streets outside Dublin, not here but outside Dublin you get a no vote everywhere in Europe so that's where we are so we have not the ECB resolution is fine but we have national deposit insurance and the ESM you can only give money from the ESM to a bank if the country is bankrupt so you first call through nightmare scenario in the financial markets with high spreads and bankruptcy of the country then the ESM will come in so after the damage is done and the proposal to complete is give the last resort of the European level to the ECB put the resolution more diverse together with European deposit insurance in this and without any condition let the European stability mechanism it's basically the war chest the European, the non-existing European Ministry of Finance let that condition be allowed to recapitalize or close that's also fine banks but don't do it from the national official anymore that would complete the banking union on the technical side and I agree we also need them to have the European Ministry of Finance Ministry of Finance without that we still keep a stable banking union so I'm the first one to say there is a lot we achieved doing a great job and also less political interference so that's good news but if we get to a crisis again then we will find out part of the crisis management February that the dark side is the crisis management is not yet finished and then the question is do we await another crisis and solve for them or knowing the problem do we solve it today and the political outlook in Germany and the Netherlands like you feel sometimes part of the UK while we are part of Germany in that respect you are extremely conservative well in the early days of the banking crisis more German and Dutch banks built than southern banks but we still think not only the south coast bank but a lot of government body in Germany and in the UK the Netherlands went to banks so reality is different but the public thinks the south is not to be trusted so it should not be in European and Boston shoulders so that is really a dead issue now but if you don't address it we will see it coming back at the next banking crisis so do we await the crisis or do we act in advance a good start of the SSM and that is really good news that even a better job than to be expected but we need to make a choice here remember the dilemma we cannot fridge between national and European either we are European or we are national but you cannot be half way married are you married or not but then we need to do a risk reduction that southern banks publish on the bank bank but that is not a good issue