 Hi everyone. I'm Francine Lacqua from Bloomberg TV and I'm absolutely delighted to host this next panel for the next 45 minutes. So now you'll have a chance to ask of course questions to the panelists directly. So welcome from everyone watching us from the four corners of the world at home or in the office. You can just send questions directly through this chat. As we all know 2020 has been quite a year. Governments responded swiftly to the COVID-19 pandemic by providing fiscal and monetary support as well as by loosening certain regulatory requirements on financial institutions. This leadership panel will really try and assess the current health of the financial system what we can do better. Hopefully what we can do to avoid getting worse and of course some of the potential emerging financial risks resulting from these historic interventions. We also try and reflect on how industries and governments can now work together to make key financial institutions more resilient in 2021. Now we'll have of course some great perspective from central bank private equity and the banking system. I am absolutely delighted to be joined by Mary Airdo's chief executive officer assets and wealth management and J.P. Morgan. François Villarrois de Guerlot governor of the Bank de France just daily chief executive of Barclays and Q. Song Lee chief executive of the Carlyle group. So very warm welcome and thank you so much for joining us. Maybe just a broad question to get us started and just start this one with you. Where do you see the dangerous fault lines for the financial system? There's an understanding that actually we're in pretty good shape that this is not like the last crisis but is the system anywhere less resilient than we think? Well I think you have to give credit to the regulators and to the changes that were made to the financial system post the financial crisis of 08 and 09. The banks were really the catalyst for the financial crisis and I think the clear path that was laid after that crisis was to shift the burden of financing economic growth away from bank balance sheets and into the capital markets. And I think what we're witnessing now demonstrates that that in fact has happened and so the government response to this pandemic and its result in economic crisis is much much different than what we saw in 2008 and 2009. And the monetary policy and fiscal policy response to the pandemic has been unprecedented. Central bank balance sheets are twice the level that they were at the height of the last financial crisis. And they have taken that liquidity and also they are using instruments that quite frankly were against the law 12 years ago. Whether it was buying corporate bonds whether it's the Federal Reserve or buying mortgage backed securities that has injected an astonishing amount of liquidity which has kept the financial markets going and allowed corporations in very difficult situations to contain your finance themselves. So I think that perhaps the greatest case and point is the airline industry which has obviously been one of the most directly hit has been able to fund itself both in the public equity markets and public debt markets because of that degree of liquidity. So I don't you know I think we're showing a financial resiliency on the back of central bank activity which is quite remarkable given the scope of the pandemic. Governor talk to us a little bit maybe about how you saw you know March 2020 you know suddenly the pandemic is hitting you're suspending these economies. What was it like as a central banker having to take these difficult and delicate decisions. Hello to everybody and thank you to Jess for what he just said and which I share obviously we tried to be efficient as central banks in monetary policy and we probably come back to monetary policy later and as regulator to and this was a major difference with the previous crisis we had Basel free fortunately and it's very important that we stick to Basel free for the future. If you remember one year ago there was some music on both sides of the Atlantic saying it's time to relax Basel free or to change the rules. I don't think it's time to forget about Basel free it's time to implement it completely and it was an excellent protection. Perhaps to answer your question Francine about the risks there are still risks so we must remain very vigilant. There are many outside the banking sector at present if I can mention briefly three of them the first one is part of the non-banking sector money market funds some open ended short-term funds which had liquidity problems last March and we shouldn't forget this lesson central banks had to intervene exceptionally and to create some more and as out so we should change draw the lessons and change the rules for the future. We draw the lesson for the banks for the previous crisis we should probably draw the lessons from some short-term funds from this crisis second the possible overvaluation of financial markets or to put it differently a possible discrepancy between the level of valuation and the economic prospect. We know there are many uncertainties when will the vaccines come and be fully successful so it remains a potential source of volatility and fragility and third and most obviously the main vigilance we must have is about the solvency of non-financial corporates and this could be a risk in the month to come for the financial sector. Mary how do you see thank you governor and we will talk a little bit about monetary policy a little bit later because I do have questions on that too. Mary how do you see the resilience right now of the financial system. Do we need to do more. Have we been complacent in any part of the market. No I think jazz's comments and the governor's comments were exactly right. I mean this is the first time we've had a recession in the last 40 years where the immediate question wasn't about bank insolvency and so all that work that's been done not just by the regulators and the central bankers but by all the governments and the banks in terms of liquidity and capital it you know it worked just talked about how fast it was it would also happen in record time. We used every acronym we invented back in 2008 and we used new ones and the liquidity and the capital was just not not the question. The question was really there's this joke that a regulator sort of brought up to us in a comment that you're always nervous when a regulator comes up with a bank but he said banks are like the Scottish taxi joke and the guy gets off the train station at 3 a.m. in a snowstorm and he goes and he looks and there's one last taxi sitting there and he says oh thank goodness and he tries to get in and the taxi says oh no you you can't get in I'm I'm just the taxi that's supposed to be here so there's always one taxi here and it takes a minute to digest that but I think what what they're saying is with all of these buffers that are around the banking system how do we make sure that we are using them in these times of stress because the central banks are the ones that made up for the the the short-term pressure and the issues and we have to find a way to help the banking system if and when it was a banking crisis or is a banking crisis next time that you can tap into those buffers you can tap into those central bank fed window as a for instance and not have the stigma that's normally attached to it and not have the risk that there's future consequences and so I think that the focus as the governor said is really not so much on the banking system but maybe could we refine it so that it helps in the next crisis and then really turn our eye to the areas of places like unregulated entities perhaps fintechs and the like and I think that's that's where the next area of focus should be in terms of those regulations and making sure we don't have the next future problem thank you son you agree with that are there parts of the market you know away from banking that needs structural reform yeah and and look I would concur that uh that I look I think our banking system is is is very healthy right now and I think the the central bankers by and large have done a terrific job with a crisis that none of us could foresee and and and still we're working through it um but if you take a step back the bigger issue I think is how do we get the economy going again and how do we start growing and and where do we find the ability to invest the dollars into the companies that need capital uh and that's where I think you see private capital come into the equation to make loans to the small and Denmark companies that that can't get access to capital right now or to grow uh help partner and grow companies that are trying to uh create new business models new systems uh to deliver products and services that uh that that uh that people want and businesses want uh and so to me it's less an issue of of systemic health in the banking system and whether the regulars have done a good job or a bad job I think they've done a good job I think we're at the limits of potentially what central bankers in and of themselves can do because the type of issues that we're all needing to think uh focus on are structural in nature you know it's our infrastructure it's how do we fix health care uh our educational system these are not issues that that the governor can solve or that a bank can solve uh these are issues where you need government policy leaders politicians fiscal uh smart fiscal uh leadership uh smart regulatory authority we got to all work together to figure out how to solve these really tough structural problems um so I think that the issue of of the last crisis uh the system uh the the health of the system and the banking sector etc I don't think that's the issue really it's a different set of more structural issues uh that are at play but Q song do you worry about zombie companies so we haven't really quite figured out what kind of recovery we will see because of this stop and start with lockdowns because there are questions about vaccines and so what happens to companies when central banks pull away what are we left with sure I I think is a really good point friend seeing I would say if you go back to the last financial crisis and this is just a very high level commentary I would say you had a situation where you had a lot of uh solvent companies that were actually illiquid and so we had issues in the economy I would say right now we may have the opposite problem you may have some insolvent companies that are actually liquid because of what's happened over the past year I think these are real issues that are going to have to be worked out um uh counterparty to counterparty do I think they pose uh systemic risk no do I think we're seeing rotation occurring in the economy uh and changes where certain sectors are growing uh and others are facing structural decline absolutely uh that's what happens in vibrant economies as you see rotation as you see new technologies as you see new disruption and unfortunately unfortunately you're seeing because of this dislocation the effects of greater inequality you're seeing polarization and these are the fundamentally difficult issues uh that that that that that our leadership needs to help solve yes what do you see in the real economy yeah so uh on the economy and and and as we were talking um uh before the step session started let's see what happens with the new variations on on the virus uh let's see the effectiveness of the vaccines those are those are big uncertainties which seem to be growing by by the day but if in fact we can start to wrestle the pandemic down um um I think there's a chance in our current view at at Barclays is you could have quite a robust second half to this year um you know if you go back to this you know to the Spanish flu which is probably the greatest pandemic of uh uh of the century you know what that led to when it finally got um uh arrested was the Rory 20s and there was just an explosion of demand uh coming out of that uh and when we look you know you look at the balance sheet of a JP Morgan or a or a Barclays it was just enormous stored up uh purchasing power uh consumers are are are are are decreasing their borrowing and and increasing their deposits small you know small corporates are doing the same thing and there's just a huge amount of pent up uh potential consumer and business demand which once the backs uh once the virus begins to be dealt with uh could in fact actually do pretty strong economic growth I'd go back to what Q song said I think the challenge is it's very unequal in terms of how uh how the economic response both fiscal monetary policy is hitting different parts of the economy and different parts of society and perhaps the greatest risk is not an economic one but a social one and those that are being left behind um um for all sort of structural reasons um I think that's that's where the perhaps the greatest risk is and the service that I think you've seen signs of that particularly in the United States over the last couple months may I when you talk about it yes go ahead governor yeah no uh about economic policy I tend to think that we need probably to reconcile the two greatest economics of the last century Keynes and trumpeter and they're often opposed but uh we need to be at once kinesian and trumpeterian kinesian obviously to give general support through fiscal and monetary policy and we shouldn't pull away the support too soon no clear for fact uh I'm not especially worried about that but it's obvious and including the welfare state and speaking from a european perspective I think the welfare state is an asset in this crisis referring to what just just said we will see what happens in the united states but there are interesting lessons also from the european model but we need also to be shumpeterian and let me stress that uh on the corporate side as q1 said we probably go from a liquidity phase uh which was across the board an emergency situation to a more solvency phase which must be selective the recovery cannot be a mere restart the reconstruction must be a transformation uh and we will have this question of equity we will go from loans state guaranteed loans which had massive amounts in my country and many many other ones to selective equity injections with probably a public private partnership there will be public guarantees or public injection also for this equity which is a bit of paradox but which is necessary but I would plead against the 100 public funded or guaranteed equity it would be very dangerous we need some private skin in the game in order to be selective we must focus on firms which have an economic sound base but which are financially fragile due to the crisis and this will be very difficult for politicians um governor a reminder to everyone you can send questions um governor overall I mean you warned about also bubbles in financial markets just minutes ago we heard it many times for central banks do you feel like you're listening to as a central banker so you've done so much in 2020 as a central banker are politicians are market participants listening to your warnings this is a good point we are not responsible for the whole economic policy we are responsible for monetary policy with one single objective which is price stability we care about financial stability I could elaborate somewhat about that but on the level of debt on structural reforms we can only give advices we are not the deciders and it's the right thing it belongs to democracy I can elaborate a bit more later about monetary policy which is again our core business let me say one thing about fiscal policy you remember Francine that for years we as central bankers have asked not to be the only game in town and it was a case especially in Europe but also in the US and elsewhere we asked for fiscal policy to play a greater role and also reforms what we have seen thanks to the crisis is some kind of re-capling of fiscal and monetary policy and both of them acting in the same direction stimulating the economy this re-capling is a good thing if you allow me an image I am in favor of permanent marriage in my private life it happens to be so but this is only I wouldn't say a personal accident but a personal occurrence in the case of fiscal and monetary I am in favor of flexible couple today it's necessary but we shouldn't take it for granted for the next decade we must be able if there is an inflation of risk to be independent from fiscal policy our role is not to sustain and support fiscal forever and this is probably an important message for governments again in the short run convergence is needed welcome and granted Governor I want to ask Mary something on some of the things that we need to look at and then I want to spend a couple of minutes on you actually on monetary policy because there are questions that have arisen how do you see this I mean the governor was also pointing as was just earlier to some mismatch of excessive I guess leverage and liquidity in some funds and investment vehicles how does this get addressed yes well leaving marriage policies aside the governor said was exactly what they were supposed to do and the and the monetary and the fiscal stimulus worked right it was an explosive backdrop of stimulus that comes on globally coordinated and there we have not surgical approach to what we want to fix we have to take a blanket approach and therefore you have natural froth in the system and there's only so much you can do about it now that causes all sorts of bubbles asset bubbles come and go and there's lots of conversation about things like Bitcoin and SPACs and GameStop and other companies and what's happening those are asset bubbles much like the crisis of 2000 and those they they can end badly but they don't affect the actual economy they don't affect the actual banking system and the stability and the security that we're talking about here credit bubbles as we talked about can and they can be the bigger warrior and the capital markets are pricing in just that we've got the the aggregate as a summary of the overall bond market having negative really yields right now we have really that's telling us there's a scarcity of lending there's not as much out there as what people need to put their money into to be able to diversify their portfolios and to be able to protect the overall diversified asset allocation that they have become accustomed to and they're in search of yield and they're trying to make up for it and so we have to worry about the unintended consequences of what happens to that end investor and the end investor is where it can go very wrong and some of these things just haven't been battle tested you think just in the U.S. there are companies like mortgage fintechs and there's a mortgage foreclosure moratorium so we don't have any idea what that's going to mean and how that's going to play itself out but that's where we really have to figure out where there are no rules and there are becoming access to the banking and financing market where where are things not tested how can we get ahead of it and where can we make sure that we're we're not allowing those things to happen because that's where it really affects the end the end user Q song what does that mean for private markets is it an opportunity or is it a challenge yeah I think it's mostly an opportunity and you know everything that the governor said I kind of agree with in the sense of we need smart public private partnership here but there are market based solutions to a lot of this to just get the economy going again and you know when you think about creation of new companies new business models ways to to improve health care ways to do online education ways to to to improve basically people's lives in a world that's been disrupted you know private capitalists funding a lot of that we're the ones who are helping management teams grow we need smart regulation we need thoughtful fiscal and monetary policies which aren't trying to solve the issues of yesterday they're focused on the issues of tomorrow and we do need coordination amongst the leaders to do that I think Jess brings out a really good point which is I'm I'm less concerned really about the old issues of the banking system I'm much more concerned about issues around social stability not financial stability of how do we figure out how to get trust back in government because government is going to be an important solution path moving forward I think there's no more important thing that can be done right now than solve the health care crisis we're not done with that yet we're very early days and I think it's very clear that you cannot solve and fix the real economy and get that going again until you can get the health of our people all set up the right way so so there's there's lots to do but I do think the private markets and private capital are actually a huge source of opportunity and redirection of capital to the elements of of the economy that are in need of it and that can use it to grow and with smart political leadership I think we've got a good shot at resetting and getting that getting this all going in the right direction I do think you know you can have this this very aggressive fiscal and monetary policy that we are having anchored by the fact that interest rates are effectively zero if not in most many G7 countries negative on a real basis and so you can run massive deficits and grow central bank balance sheets to an unprecedented degree if you don't have to pay any real interest the issue I think the focus on is where is inflation and I think part of what's creating the fact that that they're right now the bond market is not pricing in inflation is because we're not seeing pressure in the labor market which is the other side of that income inequality issue what is generating massive financial returns right now is intellectual capital labor is not being paid that's keeping inflation low keeping the bond market comfortable and allowing governments to run these deficits but I think as everyone said from the governor to Guzhan and Mary you know we've got to start investing in a way that deals with the income inequality issue and it's a timing issue of you know getting people to work with wages that allow someone to afford to live the price of that might be on the back end you're going to get some inflation you're going to get the bond market to move and then all sudden you know governments barring from free may not continue forever and that and that may be the ultimate economic challenge that that we face thank you Jesse governor if you'll allow me I have a couple of questions on monetary policy that are maybe a little bit more immediate compared to what we learned last week there was some confusion or at least there were some questions last week when the ECB actually moved its statement on pet flexibility to the monetary policy statement you say the envelope need not be used in full and could be recalibrated are there any limits on to how much you could deviate from that envelope perhaps one thing to give some clarifications on our monetary policy and keep it very simple we have one objective objective hence two commitments and accordingly a broad range of indicators and let me elaborate somewhat and and give the answer to your question we have one inflation objective which is both medium term and symmetric you should not completely ignore past inflation developments nor should it be a ceiling hence to put it clear URI inflation could in the future exceed temporarily 2% without triggering mechanically the tightening of our monetary policy and then to reach this inflation objective as I said we have two commitments our first one is clearly to maintain a very accommodative monetary stands as long as necessary but besides the monetary stands let me stress our second commitment on monetary transmission we want to ensure a full transmission of this accommodative stance this is what we mean by preserving favorable financing conditions across jurisdictions across channels banks and markets and across borrowers these are governments corporate or households we want to prevent an unwarranted tightening of fragmentation triggered by adverse exogenous shocks or excessive volatility which brings me to the point you made and the indicators we look at accordingly to preserving this favorable financing conditions we are looking at a broad range of intermediary indicators on these financing conditions it's multifaceted as we consider the path through to various non-financial agents as I said and we will be ready to use the all power of all our instruments including as you said the flexibility of PEP monetary policy is not only about quantities it's also about the quality of its transmission and it is not limited to one single indicator or one automatic rule like yield curve control it incorporates judgment and discretion so I think these are the rules of the games and there are clear on our side we will adapt to the evolution we will see with a very clear focus on our inflation objective guaranteeing a very accommodative monetary state stance and an adequate transmission of this stance and both legs are important Governor on that a couple of questions I guess from market participants is you know if you keep financial conditions favorable does it raise the risk of diverting your attention away from your inflation goal to focus on that like you just explained and who decides actually currently what favorable conditions are if I may for senior reactor on your first point and it's very important to react it's why it's stood on monetary stance and monetary transmission our goal is and remains inflation and as I said our objective is midterm and symmetric and I was extremely clear about that why do we speak of financing conditions because preserving favorable financing conditions are the conditions for a full transmission of this accommodative monetary states so it's not something new it's something perhaps to stress somewhat more and again looking across the reductions and across channels and borrowers it's why we need a broad range of indicators but it's and the ways and means to to achieve our inflation objective in a symmetric and midterm way that's clear thank you governor just when you look at you know the changes in banking how difficult as a chief executive is it to you know have people work from home does it make it more difficult to assess risk does it you know even in brexit I mean there's the landscape is changing you know I want I think if you had asked most you know did ask Mary or me or most other bank executives you know and in January of last year a a year ago you know what would bark these look like if we sent 55,000 over 85,000 employees home to work from their kitchen tables you would have thought that was madness the extraordinary thing is I think how the financial industry and many businesses have actually been able to have the technology have the systems have the controls have the environments to allow you know tens and tens of thousands of employees to work remotely and imagine that this pandemic had happened 15 years ago none of this would have been possible in terms of letting people to stay at home so I think it's a remarkable testament to what the industry has done and what technology has allowed us all to do we're thinking about what will happen when we get back to normalcy you know what will happen with the office I would say that over time I think this working remotely with the majority of one's population it's it will increasingly be a challenge to maintain the culture and collaboration that that these large financial institutions seek to have and should have so my bet is we'll have more people coming back to work you know you'll have flexibility but I think we started to have that in in any event but I think it's it's remarkable that it's working as well as it is but I don't think it's sustained I couldn't agree more I couldn't agree more and I think you know we're all experiencing we've talked to any CEO around the world they will talk about the remarkable resilience of their people they will talk about the the adrenaline that came from having to adapt so quickly and companies did people did and it worked very well surprisingly very well in 2020 I think if you ask anyone today it feels like it is fraying it is hard it takes a lot of inner strength and sustainability each and every day to continue to focus and to not have the energy that you get from being around other people and so we need to talk about how that world is going to work and when we think about the conversation that we were having in the green room to prepare for this we gotta we really have to understand this disease of COVID and what it's going to mean and our chief investment strategist Michael Semblest had an interview with Stefan Basel the CEO of Moderna on uh Thursday or Friday of last week and he is talking about the word persistence and so we need to talk about that too COVID could persist for very long periods of time the risk he does not see as much in a future pandemic as he does as a continuation of this one and so with the range of mutations it is unlikely you're going to get herd immunity to all the different strains and so while the pharmaceutical companies are doing a fantastic job with the vaccines and the like it's never going to be a perfect situation the world is going to have no choice but to open up and it hits on all of the comments that were made about this this divergence of people and their experiences and you're going to get very high risk of extremism coming out because of this restlessness and so the world is going to have to figure out how to adapt and Q song use the word coexist with how how we're going to function otherwise we're going to be in a very dangerous situation across the world Mary is there a threat to finance from the transition into green technology just a greener economy and does it mean that we need to maybe loosen up some of the capital requirements to fund the shift to a greener economy well you know Jess and I and a number of us are working with Weff on the sustainable markets initiative and trying to come up with the right terminology the right language the right metrics all of the ways to think about what is the g in the sorry what is the what is the e in the e s and g we've worked very hard as an industry all of us on governance and making sure that governance works properly across all of corporations around the world and we've worked very hard on on the you know making sure that you have the right diversity and the right things within within a company the greenness which is the environmental piece is hard until you have the right common language and when you have the right common language you can get to the right place but i don't think the world should rely on esg to be making up the rules that really governments should because we have lots of companies around the world that are legally functioning and then to ask for asset allocators or banks to be making the judgment on which are the right ones and the wrong ones goes against the way the legal system and the framework works for governments around the world and so we really have to work in partnership that's what weff is spending so much time doing and that's why bringing together industry government central banks asset allocators and the entire banking system together in a forum that we really wish we could be together in person this year but we're not but we're still having these conversations and i think that's the thing that's gonna that's the thing that's going to make the difference i think you have a comment yeah governor let me go to q song and then we'll come back to you governor okay now friends let me just uh raise just two or three very concrete examples which takes a lot of what we're talking about and links it back to your topic uh you know first of all on the on the whole green esg um uh topic you know i think covid has has been a time to accelerate these types of of initiatives and improvements and i can tell you here at carlow we are putting in place lines of credit and or bank facilities with the jp morgess in the parkways of the world whereby actually our cost of capital drops the more progress we make on esg initiatives at our portfolio companies and so that's a good example of alignment uh where uh good things are happening not only at our companies uh and and our cost of capital but also with respect to uh the environment second it's an interesting point you you raised with jess about return to office um zoom uh zoom fatigue culture erosion let me just point out however and this is a point to your financial soundness and banking system issue we've been doing billions and billions of dollars of financings with our banking partners and if you take two-day uh two-week road shows or one-week road shows and now can get those deals consummated in a day or two because of the productivity and the efficiency that's unleashed by the technology that takes banks off risk that takes capital off risk and hence in many ways is better for risk management and capital efficiency uh with respect to the soundness of the system so so you know there there's there's a good part to this as well in terms of the the productivity and and the use of the new technology i'm just trying to link it back to you for your system on strengthening uh and the soundness of the of the system and then finally um look all CEOs are terribly concerned about culture uh and what this is doing to our people if there's if there's one lesson i've learned during this whole time it it's the importance of empathy uh for for senior leaders as we're trying to guide our organizations through this uh unbelievable crisis uh the one thing i've i i think is a great strength of conversations like this and use of this technology is on the one end yeah it's challenging for culture but on the other hand there's unbelievable connectedness that can occur laterally where you are bringing parts uh all different parts of an organization that never before talk to each other uh breaking down silos and that's actually helping culture and helping organizations communicate more in a more transparent way which is also at the end of the day not only good for culture but better for risk management uh as well so i'm just trying to help you out Francine by bringing some of these very you know good concrete examples back to your topic of well what does this mean for the financial system thank you qzall governor uh no two quick points on green uh first this is clearly a direction where we need to be shump Italian uh and this crisis should be an opportunity to accelerate the ecological transformation uh and not to slow it uh and second about green and fine and Francine you raise the bone the question will we need a green supporting factor uh you will not be surprised that i'm quite cautious about that what we need to do is probably two fold first to incorporate climate risk among financial risks and as you probably we launched the so-called network for greening the financial system of supervisors in the one planet summit uh we started at eight supervisors at central banks we are now about including yes the U.S. Fed since one month it's not by chance it you'd do also to draw Biden's election uh but the main message of this coalition of the willing is that climate risk is part of the financial risk we should look at so it's the normal view on risk we should never lose this perspective of risk it's why i'm a bit cautious about the green supporting factor and the second avenue we should follow is about monetary policy it's very important it's still newer it will come uh i personally am very committed to put this incorporation of climate risk in our strategic review of the ECB i strongly hope the ECB can make significant progress on that and be a pioneer among central banks since the three to five years to come Christina Gardner is very committed in this field as you know and uh we can change our economic models we can change our collateral policy we can change our purchases to incorporate this climate risk it will be a game changer but always related with this risks perfectly um governor very quickly actually if the euro strength begins to impact inflation do you have a favorite monetary it is a relation with with green no no we're just throwing everything in 45 minutes it is that was after all usually yeah no about nothing new on nothing new on my side but just to repeat what we said including in our last governing council last week that we monitor carefully the implications of the exchange rate on the inflation outlook full stop fabulous that's all we have time for a very wide-ranging panel so thank you all for joining us