 Yes, it seems to be functioning. Welcome to all of you, it's a great pleasure to follow the President in kicking off this conference, the second annual conference of the ESRB. I'm Richard Portis, I'm the Chair of the Advisory Scientific Committee of ESRB and co-chair of the Joint Expert Group on Shadow Banking and it's in those capacities that I'm here and that I'm chairing the first session of this panel. You might have asked yourselves, looking at the program, why this panel? What's the need for a panel talking about law? I mean we're here, we're regulators, we're finance people, we're economists, we're not lawyers, well that's the point, you're not, right, neither am I. I might have been one, long ago I was certainly thinking about it, but I didn't. I ended up marrying a lawyer, that was fine except we divorced and then, you know, everybody, we're on very good terms, everybody should have a lawyer and a family, you know, unfortunately neither of my older children at least are interested. So I've had to do a bit myself and that initial experience taught me quite a lot and that was, I'm chair of the Wise Men Committee of the MTS which is, most of you will know, is the Electronic Platform Trading Government Bonds in Europe and it doesn't do very much fortunately because it's only called into action when there is a problem, when there's an issue, when some in particular, when some participant in the market may have misbehaved and there was a spectacular event of misbehavior in August 2004 when Citibank, it's European Capital Markets Division, mounted a coordinated attack and that's the only word for it, one MTS in which it effectively sold all up to the limits of what was possible and hedged on Europe. That put the market into chaos, right? Trading stopped for several hours in some cases for a couple of days in other cases and this market disruption was so serious that the regulators first of all got involved, the home regulator in fact of MTS was the British Financial Services Authority and they ultimately assessed the penalty and then other national regulators acted and finally it came around to the governing body of the exchange itself and we, the Weizmann Committee, had to adjudicate the, to what extent this action had violated the rules of the exchange and to what extent these were legally backed was itself a question, what legal force we could invoke as a panel of three in judging this, what evidence should we look at and we had stacks and stacks of emails and trade records and so forth on the day and we spent a day dealing with the representatives of Citibank and their lawyers who were excellent and it was really, intellectually it was a very, very interesting experience. The three of us on the panel were our economists, finance professors and so forth and we learned, they say we learned a great deal but what we learned most importantly aside from the way in which market abuse is defined and how you deal with it was the importance of the institutional framework underlying markets and the legal framework underlying markets and that I think is where I started from, where I start from when I think about the issues this panel is going to be addressing. The legal and institutional framework in this case underlying macro-prudential policy. The Commission, European Commission has just published proposals for some changes to the regulatory framework in particular to ESRB among others and it would be useful I think when the appropriate authorities consider these proposals to go back to the legislative history. What did the Commission, where did the original proposals for ESRB and the associated institutions, where did they come from? What was the Commission's reasoning? When the Parliament discussed this, what was the report, what did the report look like? What were the intentions of the legislatures and the Council when it came to that? I think that legislative history should be considered when thinking about where to go forward, how to go forward, the extent to which ESRB has fulfilled the roles that were intended for it. And then we come to the issues which our panel will be discussing and there's a quite wide range as you will see. Generalism, for example, the respective roles of the ESRB and the NCA is, it's funny in my time involved with the ESRB, I've never once heard the word subsidiarity, not once. And that may or may not say something, but it's worth considering. What are the powers of the respective agencies? What is the legitimacy? What is the accountability of these institutions? And what are the legal basis for the various tools that, what is the legal basis for the various tools that are used in macro-prudential policies? All these issues will be dealt with by our panel. Each of them will have 15 minutes to do an initial presentation. There will then be an exchange among the panelists. And we've left quite enough time, I think, for a very good Q&A session and I expect you all to be involved in that and to be responsive and to raise difficulties, to raise problems. That's what we academics are for, is to try to consider such problems. So I will introduce very quickly the panelists and we will start with Anna Gelpern, who is professor of law at Georgetown University in the United States, and a research fellow of the Peterson Institute for International Economics. Then we will hear from Eric Posner, who is professor of law at the University of Chicago Law School. And finally, we will have current Alexander, professor of law and finance at the University of Cherry. And this is a really outstanding panel of lawyers who are really very, very closely familiar with and knowledgeable about financial systems and financial regulation. And I think we shall have a lot to learn from them. So Anna, I think you should start and your slides will go up in a moment. Thank you very much. It's an honor to be here, Richard. You're incredibly brave and generous to put these good folks in position to have to listen to a bunch of lawyers and hopefully we'll make it worth your while. It's an honor to be here. And my job is to situate the law, as I see it, in the macro-prudential context and to get all the bad puns out of the way up front. So, okay. The reason I titled this talk, Islam Macro Prudish, is partly because there's a stereotype of law scholars and lawyers as two things. One is reactive. So the stimulus for what we do comes from outside events or other disciplines. And second, as extremely micro and transactionally focused. And part of my job here is to say, well, maybe part of this is true, but I don't think that it's, I don't think this holds. And I'm going to start by looking at where were the lawyers. So while economists were developing this concept of macro-prudential policy, macro-prudential regulation, what was happening in the law space, then I'm going to switch from lawyers, really legal academics, to where do you find law in macro-prudential policy. And then I will turn to so what, you know, what do we do with this information, if anything. So this is a very well-known, I'm sure most of you are familiar with this short essay by Pitt Clement from 2010 on the history of the term macro-prudential, the word not the idea. And as far as he and anybody else can tell, the word first appeared in public in 1986. And the definition was very much the safety and soundness of the broad financial system and payments mechanism rather than individual institutions, which of course is the traditional micro-prudential focus. Well we looked at the, well we are a library and I looked at the incidents of the words macro-prudential or word macro-prudential in English language law journals and found actually some mentions at around the same time. The first one was, and both of them were in the context of the sovereign debt crisis. So the first one talked about the conflict between the micro-prudential perspective, individual bank solvency and the position of U.S. government agencies like the Treasury, the Federal Reserve and the State Department, I'll return to that in a moment. And the second one was talking about the position, so one was from 85 a year before that public mention in the Clement piece and the other one was in 87, was talking about a different outlook that money center banks have as distinct from smaller regional banks and what are the stakes in the crisis. So what was interesting to me here was that in the law journals, it's on the one hand echoing the economics discussions, we're talking about stability of the financial system as a whole, from the get-go it's about international financial stability, from the get-go it's about political economy and very much about the bank government nexus. The reason there's an asterisk by the word government is that for the most part the conversation was about the fact that the interests of U.S. money center banks were basically tied up with emerging market governments that borrowed from them. If you recall, at the time if they defaulted in the mid-80s it would have wiped out the capital of all the big banks in the United States. So of course there's this other implicit government standing behind this but the framing was very much big bank fortunes are a function of emerging market governments fortunes and therefore they have a different outlook and how do we configure policy and regulation of those big banks with these concerns in mind. What really stunned me was the mention of the State Department as a macro-prudential agency and you could say well this is a fluke and sort of a little flash of ignorance now the fellow who wrote this was actually not a lawyer. This may explain it but I don't think so because he was from chemical banks so he was very much in the middle of this restructuring stuff clearly the concern with exposures was in the air and the way it migrated into the law journals was in the context of which U.S. government agencies would have their finger in the pot and the fact that state was there before the Fed this is from a banker and next to the Treasury to me was very interesting. Now this is you know the total results of the mentions which is very similar to the economics literature it's so the 1985 piece was not even picked up in the search and then you know little blips in 95 there's a teeny little blip which is exactly mirroring what's going on in the economics and policy discussion which is concerned with derivatives and then you know from 2007-89 it just takes off and you know everybody's macro-prudential and the hyphen disappears by the way which is sort of interesting. Now where so this giant sort of explosion this bubble in macro-prudentialism in again English language law journals and we're very this is over inclusive for what it's worth. Where does the writing where does the law literature stand at the moment? So there are different strands and I think it's important to recognize this is a very selective list I deliberately excluded all of our writings because you're gonna hear from us anyway and you know who we are but it's also just to give you a flavor of different ways in which this comes up. Most common of course is financial instability and financial regulatory response so banking regulatory writing retooled for the you know system stability rather than individual bank stability. There is an explosion of sorts of mini-pop in law writing about money. How is money constructed? What is the role kind of how does it affect the financial cycle and there are some again interesting treatments that were new to the law and clearly in the macro category whatever it is. Then there is a book by Eric Girding which I think is really innovative in that he explores how regulation contributes to the financial cycle. So there's there may be the business cycle there may be the financial cycle but there's also a regulatory supervisory cycle that can become its own source of vulnerability that can also be pro cyclical and I thought that framing that was original and valuable. Then there are some really kind of one-off idiosyncratic pieces like there's a piece by Joanna Gray that talks about lawyers responsibility in structuring transactions right so lawyers as transaction cost engineers lawyers as engineers of contracts do they who actually supposedly knew what you know how they were putting together complex structures that imploded in the crisis is there any responsibility on the lawyer's part. There's the somewhat more traditional political economy in law writing so how is the there really that's their bank government nexus writing and how is how our financial markets constituted and the relationship with the government and then there is the new and really quite distinct writing area that's more law and macroeconomics than law and macroprudential regulation so this is you know you would take your ISLM or you know dynamic equilibrium models and you would and formally plug law into it so this is not really about finance this is a lot more about the business cycle. Now this is where the writing is now forget about the way in which law academics and lawyers slice this if you were to look at where do you find the law and what do you do with it how it can how can it be useful to you. There are a few ways if you read ESRB reports there is the the most common approaches instrumental right so we have the objective which we derive from the economics side and then we basically the question is so what law do we need to make it happen right and law is in quotations because sometimes you know we mean statute sometimes we mean legislation it's different in different countries and it's sort of the higher lawyer moment right I know what I want help me make it happen. There is another way of looking at the law in the macroprudential space and that is look at the constitutional dimension right none of these market structures were handed down from above they were constituted and at the highest level as part of the political bargain so issues like I'm glad Richard mentioned you know federalism global and regional integration fiscal and monetary policy and authority you know whether you can issue public debt how and who decides. Institutional questions which are similar but distinct you're looking at agency structure firm structure regulatory authority and current certainly has a lot of terrific work in this space. There is also purely private law contracts can be systemically important. I give you derivatives right and the standardized contracts in ISDA space where it's something goes wrong it goes wrong with everything right and I'll have another example down the line and then there's the law as a source as an indigeneity problem a version of that right so the the internal problem and the feedback mechanisms with how the law constitutes either financial regulation or issues of power allocation authority. So these are just some examples that might not be that are not generally talked about. In the United States as many people know states have constitutional debt limits you know you can't it's it's all pay as you go balanced budget well if that happens obviously there's a counter cyclical there's a pro cyclical effect to that state stop spending just when you might want them to spend your question is then well who's going to make up for it and that's where questions of federalism come up all of this is not just legal but this is kind of the bread and butter lawyers the the the real lawyers the constitutional folk not the esoteric financial regulatory folk that operate in this space normally employment regulation you know I found out recently that in Canada most employment is regulated at the province level right well what does that do with your worries about unemployment and how you affect unemployment and Eric I think might touch on that because he's written about it this is going back to contracts and money I mentioned derivatives of course there's a much older example this is the gold famous gold clause cases in 1935 all the contracts all the long-term debt contracts in the US were indexed to gold gold clauses were stripped and again very mainstream legal stuff but certainly macro prudential now I'm going to wrap up so what now I this is this will look familiar right I wanted to see I wanted to read the ESRB report from the legal perspective I guess whatever that might be from some some or all of the perspectives I saw there and it's fascinating because it reads as an unbelievably technical exercise and at every step we're getting more granular more impressively sort of precise and we are then the objective is to plug the loopholes right what I can't see from this is the big structures that I just talked about that so tend to frame our thinking right and instead what you get this is not ESRB is actually FSB is sort of when we're all done with these really complicated pictures the sun rises and you know the shadow banking sectors transformed into resilient market-based finance right but the big structures in our are not readily apparent and I think that that's a political policy and constitutional problem so in my last 32 seconds so what do we do with that right so I think when we think about the law we need to think about it both as a source of norms problems and structures rather than just an instrument to do somebody else's job law and macro is not just about regulation but it involves big political issues legitimacy distribution therefore this brings us back to the bank government nexus which is one of those big questions that's very hard to plot international political economy is it about a new so to me the more interesting question is what is the frame what what can we contribute to the frame rather than to the tool kit and of course the famous Andrew Crockett speech from I think it was 2000 you know he emphasized that the the crux of macro prudential thinking is with the objective and the conception rather than the tools doesn't mean we don't bring new tools to the picture doesn't mean we don't care about the tools but I think law can make a bigger and better contribution if we're not just being instrumental about it so thank you very much okay so thank you Richard for inviting me to present here Richard asked me to talk about a paper I wrote with a co-author named Jonathan Mazer called should regulation be counter cyclical another way you could you could think about this paper is should regulation be macro prudential and of course you might say to yourself well of course financial regulation should be macro prudential or maybe maybe not of course but but this paper and and my thoughts are based on a broader topic which is whether all regulation should be macro prudential so I only have three slides so don't panic if I linger too long and on the first one I took the instructions to have three slides literally unlike my co-panelists so I just took the you know I just took my 15 slides and I compressed them into three slides so here we go so as you all know I don't need to tell you that there are two major macroeconomic tools monetary policy and fiscal policy and what I want to ask is whether we shouldn't be thinking about a third macroeconomic tool which I'm going to call regulatory policy now I don't just mean financial regulation here I mean all regulation and so I'm using regulation here in a somewhat technical sense but I just mean the the ordinary ways that we use the word environmental regulation or pollution control regulation employment regulation like the minimum wage maximum hours law food safety regulation insurance regulation and so forth and it's useful to think in terms of a regulatory stimulus analogous to either the type of stimulus that a central bank might create through monetary policy or through or to fiscal stimulus where the government spends money in order to try to get the economy to grow again and I'm going to explain in more detail what this might mean before I get to I want to I want to try to overcome a little bit of skepticism so people might ask so regulatory stimulus means suspending regulations weakening them withdrawing them could that really have a stimulative impact and the answer is at least in principle it could academic research on the types of traditional stimulus programs that have been undertaken by OECD countries over the last let's say 10 or 20 years indicates that they typically range from about 1 to 5 percent of GDP so the the big stimulus package in the United States that was issued during the great recession was about 5 percent of GDP automatic stabilizers are typically around 1 percent of GDP in practice now in the United States if you add up all the cost of regulation you get something like 1 percent of GDP and I'm sure in other countries the amount is either comparable or higher so at least in principle if you suspended regulation you could make a dent similar to the effect of traditional types of stimulus now of course no country would eliminate all of its regulation during a recession that would make little sense so that 1 percent is obviously a ceiling and one suspects the actual amount is considerable small considerably less okay so what would a regulatory stimulus look like I'm going to give you a real-world example of a regulatory stimulus in a few minutes to try to address your skepticism but let's start with one that everybody is familiar with which is in capital adequacy regulations so as you know the traditional approach to capital adequacy regulations is to think of them as just a way of deterring banks from externalizing risk on the market and so you look at how banks might be influenced by deposit insurance or the implicit guarantee or other regulations such as limits on liabilities to create excessive risk okay and then you you impose capital regulations to deter the banks from engaging in excessively risky lending or asset purchasing and then at some point people began to realize that this a kind of wooden microprudential approach could have bad systemic consequences because during the recession as banks assets lose their value the capital adequacy rules would cause them to withdraw credit which could further exacerbate the recession and so the idea was the macro prudential approach needs to be taken so that the capital adequacy regulations are counter cyclical rather than pro cyclical okay and this has been introduced in Basel and in government regulation and while I think it's controversial it seems to be at this point an accepted way of going about bank regulation now let's use as an ex and now it's to turn to the non-financial area of regulation in the case of environmental regulation at least in the United States agencies typically ask whether a particular regulation creates benefits that are greater than the costs and so the benefits obviously are usually health benefits cleaner air cleaner water benefits for recreation and so forth and in principle those can be monetized and then the costs are the costs for let's say factories to add pollution abatement devices and other whatever machinery or labor that's necessary to reduce emissions and then a rule is just is created the rule says you may not dump more than a certain type of chemical into the waterways or you cannot emit more than a certain amount of particulate matter into the atmosphere now here's the macro approach and it might surprise you but in 2011 in the midst of the great recession the Obama administration was prepared to issue a pollution regulation that was supposed to help protect people from ozone ozone regulation and when this regulation was introduced before it was put into effect people in the administration said hey wait a second wouldn't this regulation actually worsen the recession because firms if they're going to spend money in order to come into compliance with the regulation may have to fire workers and in a period of suppressed aggregate demand and unemployment that could be a really terrible thing and so the Obama administration did withdraw the regulation and did not actually issue it until four years later in 2015 after the labor market had recovered and the recession was over so this is an ad hawk approach to you might call it an ad hoc macro prudential approach to non-financial regulation and it's easy once one thinks in this way to extend these ideas into all kinds of areas of regulation I put workplace safety on the slide I really meant in employment regulation in general economists are only saying to governments you should liberalize or deregulate employment rules because they create these rigidities in the market that could exacerbate the business cycle that's actually a macro prudential argument labor law employment law typically doesn't reflect such considerations but one could imagine employment law that did employment law that was highly protective to workers during economic booms but then the protections were weakened somewhat during recessions so that employers would hire more people to get the economy out of recession and one suspects that these types of considerations influence for example immigration regulations where again there's always an impulse during the recession to cut down on immigration and then during a boom to attract it but people in government rarely think about these these sorts of regulations from a macro prudential perspective now having laid out something like a case for macro prudential non-financial regulation let me now acknowledge the many many problems with this approach the first point is that often regulations in this context of non-financial regulations require firms to incur a high fixed cost at the beginning of a period and then to incur much lower variable costs later on so for example pollution regulation might tell a firm to change its production process by a lot of expensive machinery that's very expensive but once it's in place it's relatively cheap to maintain that machinery and maybe you hire a few workers to operate it well if a firm has already sunk costs as a result of this regulation and then recession strikes it's obviously not going to be able to you know reverse these sunk costs if the regulation is suspended and so it wouldn't make much sense to suspend such a regulation unless the variable costs going forward are extremely high okay another problem with the sort of regulatory stimulus idea is that the firm if it saves money as a result of the suspension of a regulation will not necessarily use it to hire more workers of course this is a problem that you also see in the area of fiscal stimulus and monetary stimulus where you don't know whether the savings that are given back to taxpayers or given to firms or the lower cost of credit will actually lead to spending or lending that would be useful for getting the economy out of the recession but it is another problem and then there's a third problem which has to do with what I call the stimulative effect of the regulatory obligation itself so a regulation that tells companies to buy new pollution equipment pollution abatement equipment may very well cause the firm to spend when it would otherwise spend right and so it's possible that the actual act of complying with the regulation will have a stimulative effect and there's a very large literature about whether regulation has any effect on unemployment and it's a inconclusive literature reflecting this complexity that when firms try to comply with regulations they often end up hiring people even though their cost of productions might go up causing them to fire another group of people and then finally if you're going to try to stimulate the economy by suspending pollution regulations you've got to worry about the health effects on people that's a dead way cost so people if people if the pollution in the atmosphere gets worse and people inhale that and become sicker this is a social cost that is what justifies the regulation in the first place now if the economy is doing very badly it may be worth incurring that social cost but this is not something there's nothing like this when you engage in the traditional types of monetary or fiscal stimulus and then there are a set of legal problems that arise in the context of regulatory stimulus or regulatory macro prudential problems in the United States and in most countries regulation is divided among lots of different agencies and so if you really wanted them to engage into engage in regulatory stimulus you'd have to make sure that they're coordinated in some way now one way to coordinate them would be to put them under the authority of the central bank when the central bank determines that there's a recession and starts cutting interest rates maybe at the same time agencies should start deregulating but that would be a problem that would have to be addressed and then also in probably all countries certainly in the OECD countries issuing regulations is a complex process which involves giving people notice allowing people to comment often judicial review of some type and so agencies tend to have less flexibility than for example central bank does that is issuing a regulation that punishes somebody for not engaging in a certain type of behavior raises concerns about due process and other fairness values that for whatever reason we don't think is so such a serious problem when central banks act okay and then the final point which I already alluded to is that it may be very difficult for agencies to identify whether there's a downturn but that's a generic problem here but you might think about the way automatic stabilizers work and you could think of automatic stabilizers as simply being extended from the tax and transfer system with which we're familiar and which I gather people tend to think is appropriate to the regulatory system so just as taxes automatically go down during a recession and transfers go up you could also have a setting where regulations automatically weaken during a recession and then become stronger during during the boom alright so with in light of all these difficulties it seems fairly obvious that the traditional tools of fiscal and monetary policy are superior however there are cases where the traditional tools of fiscal and monetary policy don't work that well everybody's familiar with the zero zero lower bound problem which we saw recently that puts a limit on monetary policy and then realistically there are significant political constraints on fiscal policy I don't need to tell Europeans that it's also true in the United States people there's a significant political resistance to borrowing and spending and so as these other tools become weaker and weaker it may be useful to have a supplement in the form of the regulatory stimulus or in other words counter-cyclical macro potential regulatory policy thank you very much thank you very much accumulating a lot of food for thought and discussion here and Karen will add to it thank you Mr. Chairman distinguished members of the panel and attendees of the ESRB annual conference it's a pleasure for me to be back in Frankfurt and at the DCB to meet with you and to discuss some of the issues related to legal perspectives on macro potential regulation but before I do so I I recognize that most of your economists and finance specialists in the room and I'm a lowly law professor but I want to this reminds me of a of an instance of an instance 20 years ago when I was a newly appointed lecturer at Cambridge University and I was teaching company law and banking law in my first few years as an academic and I was invited by a group of imminent economists from the Cambridge Economics Department and the Cambridge Finance Group to come to one of their research meetings they were engaged in a in a research project on the regulation of systemic risk after the Asian financial crisis the Asian financial crisis had was just erupting and they were working on it and they were doing some excellent work in macro potential modeling and trying to understand systemic risk and financial markets so I was invited to this group and and and I felt a little bit out of place there were no other lawyers there I was the only I was sort of a very junior member of the Cambridge Law Faculty at the time and and and I I I didn't say a whole lot and the chairman of our group looked at me and he's since the fact that I felt a little out of place and he said current don't worry we've invited you to be here because you're here to tell us what we cannot do and so so I think in a way that's law has been viewed in in in by economists is in a limiting fashion that economists have big ideas they do cost-benefit analysis they try to devise economic policy and they try to address these you know in the case of regulation systemic risk how do we do it but of course we're constrained by law we're constrained by institutions and and so so so what I'm gonna try to do for you today is to try to put forth a little bit broader vision of what I think law can do in the area of macro prudential regulation so what I want to do I've got just a few minutes I'm going to touch on the broad contours of macro prudential policy macro prudential regulation is broad it's about monitoring the financial systems we've just heard two excellent presentations in which this is a concept that's been defined over the last 30 or 40 years in a rather broad way looking at the structure of financial markets linking monetary policy fiscal policy regulation and also the design of institutions who should be doing what and and so I saw I want to briefly mention those issues but then I want to go in to some of the issues that concern how will macro prudential regulation and supervision be discharged I mean how will these responsibilities how can they be performed in an efficient way while adhering to principles of the rule of law and and so I'll talk about the issue of independence versus accountability I used the word the strong form of independence because internationally most of you are aware that central banks and most jurisdictions are the institutions that are taking the lead in macro prudential policy and regulation they play an important role in that even now the ECB as a bank supervisor as of 2013 and and so we see and and the ESRB of course it's secretary this here at the at the ECB and but then I want to point out that that given this balance between independence and accountability that there are certain issues that central banks should be aware of certain risks that they should consider regarding the the exercise of macro prudential powers and and then I will mention very briefly some of the issues regarding the limitations of the ECB's role as a as a macro prudential policy institution so anyway the broad contours of macro prudential policy you've seen in the previous presentations it touches on monetary policy fiscal policy regulation supervision the regulation is the promulgation the devising of the rules and laws of regulation supervision is the exercise of discretionary oversight of the financial system it's the decision whether or not to intervene to forbear or to apply sanctions in cases and then finally we've got internationally now the importance of resolution bank resolution and in Europe we've got the requirement for resolution and recovery plans so so the the contours of macro prudential policy or broad they touch on a number of areas I've not mentioned the regulation of infrastructure payment and settlement systems and and clearing and then we heard earlier professor Portas talking about the the issue of of central clearing of derivative contracts and when an exchange breaks down like the MTS it can create a financial stability risk outside of the banking system so so these are all areas that macro prudential regulations been trying to address internationally we've seen that a lot of progress has been made with the adoption of counter cyclical buffers in the area of Basel 3 we see that there are now requirements in the EU and US for central clearing of derivatives also in Hong Kong and in Switzerland as well and we see that internationally there's now been agreement on leverage limits and for both non-systemically important institutions but also for systemically important institutions and finally the bank resolution frameworks as I mentioned they've been adopted but there but there's some areas have not yet been fully developed and in the UK they're looking at the issue of further macro prudential tools loan to value ratios for banks when they make mortgage loans for instance or loan to income ratios these are these are areas that are not fully developed they're being examined by the UK financial policy committee but but that this is an area where macro prudential policy may be moving in the in the future with respect to institutions we see that everyone internationally at least in the G20 has restructured regulation institutionally in the US we've got the creation of financial stability oversight council which is a systemic risk oversight body consisting of all the US federal regulators monitoring the whole US financial system and in the UK we see the complete restructuring of institutional side of regulation with the elimination of the old UK financial services authority and the creation of prudential regulation authority housed in the Bank of England and a separate financial conduct authority and then the EU of course as Professor Portes has mentioned we've got the European systemic risk board but also we've got the three European supervisory authorities and so together these this institutional restructuring is designed in order to have enhanced monitoring of systemic risk across the financial system and it's designed to link up regulators from insurance from securities from banking and from central banks and monetary policy so that everyone's playing working from the same rule book however there are risks there legal risk and regulatory risk and some of the questions are systemic risk boards identifying and mitigating systemic risk in a timely fashion including the risks that emanate from policymakers themselves regulation can be a source of systemic risk we all know from Basel one how Basel one was focused only on balance sheets it created an incentive for for banks to shift their assets off their balance sheets through credit risk transfer and was the birth of the securitization industry in the late 1980s partially driven by regulatory capital charges and under the Basel one framework so we see that's not just the markets themselves but regulators and their rules can create financial stability risk now in the EU we've got if one were in the European Union looking at regulatory policy issues one might if you're looking at it from a legal perspective you could divide the the legal structure of regulation into four areas I would say the first area is competences statutes and create competence they create authority for certain bodies to do certain things to have certain powers that competence might be plenary or it might be partial but nonetheless these are these competences are constitute authority to oversee the financial system to regulate the balance sheet of banks to regulate the structure of the financial markets another aspect is the powers the regulatory bodies have powers and what I mean by powers are the ability to to affect third parties to affect the situation of third parties like banks or individuals in the markets regulators by having competences they can exercise powers to restructure the property rights of third parties like financial institutions but with those powers those powers can be broader narrowly defined with those powers come responsibilities and responsibilities can be viewed as obligations of the regulator not to act ultra virus or the regulator itself in exercising its competence or its powers it can be held liable for supervisory liability in Europe we have a variety of different ways that supervisors can be held liable and and and then finally there are tasks and the tasks are set by statutes or set in policy objectives that are set by policy makers who could be finance ministries parliaments in the case of the EU it's the council of ministers and and also working with the European Parliament they decide in assigned tasks and certainly with these and I have a as an illustration article for the single supervisory mechanism regulation we've got the the competence of the ECB as a micro prudential supervisor to act exclusively to carry out for prudential supervisory purposes a number of specific tasks in relation to all credit institutions what are defined as credit institutions established in the participating member states supervisory competence depends on the identification by the European Council the council of ministers of its task the assignments of what the ECB should be doing and that's a way to hold the ECB accountable by assigning these tasks and so there's some of those tasks are licensing monitoring the institutions and enforcing prudential regulations however one gap one might say with respect to macro prudential policy as the ECB is not really involved in the final decision to take banks into resolution that's as many of you know exercised by another authority the single resolution board also and thinking about the the legal dimension of regulation we can consider regulatory policy principles that that supervisors should carry out their tasks in an effective manner without reputational risk so they need to monitor the banking system well effectively which means don't screw it up and cause a crisis because it could come back and harm the reputation of the supervisor and then and then the policymakers intervene and either change the the responsibilities of the supervisor as a result also with independence of the supervisor to take proportional and necessary measures to regulate property rights and that certainly is a requirement of EU law we know from the Gullweiler case in the ECB case that when regulators regulate property rights or other fundamental rights under EU law that they have to act proportionally and what proportionality means is that they take necessary measures to achieve a valid legitimate policy objective and then of course a traditional policy has been the strict separation between monetary policy and supervisory tasks that seems to be a general a convention among most economists and regulators is that there should be a separation between monetary policy and supervisory task but I would submit to you that that separation in a macro prudential world should be revisited that we should not have strict separations between monetary policy and supervision because in a macro prudential framework they should be linked up more and then finally the accountability of the supervisor to what extent do we want to hold macro prudential regulators accountable for their actions what type of reputational risks that they might have as a result of getting things wrong should they be sued can they the supervisor be held liable so the issues of supervisory liability are very important now and again so what we see is the the traditional notion of independence for central banks is now being called into question because central banks are now being involved in macro prudential policy macro prudential supervision in many jurisdictions so the question is is that is that the old model that allowed central banks to be independent is it appropriate for central banks when they are macro prudential supervisors should that be revisited should we have such a strong form of independence like we have in the in the EU treaty for instance for the ECB is independent in pursuing its price stability objective should that also be the case with respect to macro prudential supervision and even micro prudential supervision as well and in the SSM of course the ECB is involved in only very limited areas of macro prudential policy now that's because of the constraints of the treaty of the EU treaty and so we see the ECB providing it's the secretariat for the ESRB and it also has limited macro prudential tools under article 5 of the single supervisory mechanism regulation but by no means do they have plenary supervisory authority they're not involved in and deciding whether a bank is going to be resolved they also don't supervise infrastructure like clearing houses for the CCPs and and central securities depositories that's done by the European Securities Market Authority so we've got some limitations in the EU context and but nevertheless the ECB has got has gained new powers at least under the SSM framework and the question becomes is there a risk of accumulation of responsibilities is there a type of risk that central banks including the ECB should be concerned about by becoming a supervisor as well would that might might under my it might create reputation challenges with reputation risk issues and potential legal liabilities that they have to address in the future and as you know the ESRB does not have legal powers it was designed that way in 2010 I in fact I was working with the European Parliament on the original regulation that adopted the ESRB regulation and the reason they didn't give the ESRB legal powers at the time was the ECB did not have supervisory powers at the time under article 127 paragraph 6 of the treaty and so there was a concern that if you gave the ESRB any type of legal power it might be interpreted as a as a supervisory power in violation of article 127 6 of the treaty however now we know that all parties have have given the ECB supervisory competence and they now have supervised microprudential supervisory power so I would suggest that there should be a revisiting of that limitation for the ESRB anyway again this is just some up these these are some observations regarding the ECB framework which I think are also very pertinent to other central banks and other jurisdictions internationally central banks of course have been have are engaged in monetary policy increasingly more of them are involved in macroprudential supervision this brings risk and it brings the potential for particular certain types of legal liabilities it raises issues regarding whether or not supervision should be separate from monetary policy and of course there's a separation currently under the law in the eurozone regarding that and I would suggest that in my more effective macroprudential regulation would require that monetary policy be linked up more with supervision also and of course with the ECB the governing council is the ultimate decision-maker so even for the supervisory authorities if they're going to find and penalize a bank and pen and post penalties on the bank they have to get this ultimately approved by the governing council of the ECB at the end of the day so that raises questions about you know is a really separation between supervision and monetary policy if the governing council at the end of the day really makes all the decisions so so these are issues I think need to be addressed in the future my last slide is about is about bail in bail in of course it's the subject of numerous lawsuits around the EU now it's the issue of the execution of bail in has led to many investors bondholders to sue and courts to say that their fundamental right to property has been infringed and whether or not the bail in decision was taken in a proportional way and that was necessary given the circumstances and so and so the bail in issue has led to many lawsuits resolution authorities or have got liability risk there and if the ECB were to were to play a role in resolution in the future that would be a potential area of risk that the ECB would be exposed to and as well as any other central bank resolution authorities are in central banks across Europe in the UK the resolution directorate is in the Bank of England so the Bank of England has got ultimately supervisory has got legal liability for any this decision to take to impose bail in or to take a bank into resolution that possibly might not necessarily should have been put into resolution so these are issues that are risk in the future and the lawyers are here to help you manage the risk and I think that but these are complicated issues I mean the financial markets are complicated the risk in the market derived from the markets but they also derive from the way the law is structured the markets and also from the decisions of regulators in the markets and so I'm not really sure if there's a panacea or an answer to all these questions but they they do relate to legal risk in the future so thank you very much indeed for your for listening and thank you current I think we can take the slides down now and and we've got what I'd like to do is to have an exchange among the panelists I'm going to try to provoke them a bit on a few topics and then turn to the floor for questions and comments the let me start with let me set out a few issues that I think have been raised not necessarily where there's this obvious disagreement among the panelists but where there's a potential for this agreement maybe the first is on the international dimension and whether in particular we can expect to see or we seen already any significant conflicts between the United States and the European Union on macro prudential specifically macro prudential issues and how those conflicts can be resolved what kind of institutional legal framework is there for resolving such conflicts the second is on the very interesting discussion of regulatory cycles and I guess the way I would put it one way of putting it is have we reached peak regulation right we know about peak oil and all that and we reached peak regulation the the cycle is familiar to anybody who's lived in the UK over the past 20 30 years we had the financial services authority in the late 1990s put out a huge rulebook and then a few years later completely tear it up and go to principles based regulation which then was heavily criticized of course when the crisis came and now one could claim that and some of the discussions I observe in and participate in in the committees that I'm involved in here certainly suggest this there is a certain degree that I've noticed of regulators trying to cover themselves against possible risks that somebody may blame them in future for for missing a risk but here or there and therefore let's just try to regulate it right make sure it doesn't happen well of course there are costs to regulation and sometimes those aren't really fully addressed the the counter cyclical buffer we have as I said all the countries have adopted this but only four countries have put in place a number an amount and that by the way of course it should be symmetric the CCB should not be there just to operate in a downturn it should be there to operate in in a boom and and both ways so but you can't operate you can't use it in a downturn unless you've got it in place already unless there's something to relax as the UK did of course immediately after the Brexit referendum the third point that I would raise is the role of private laws and private institutions if you take FRS 9 president referred to it this comes out of purely private body all right and accounting rules are in effect set by private body is being implemented now as the result of actions by by the European authorities but but the rule itself comes out of private sector if you look at derivatives markets the the framework for deciding when a default event when a credit event has occurred in CDS markets for example this is totally opaque it's done by a committee of the International Securities and Derivatives Association that meets completely without without any public record and and has been highly controversial is this acceptable is this legally appropriate what's going on here and then and then I mean that goes into the bigger question of what's the legal basis for dictating terms of private contracts and who can do that and what is proportionality and so forth and finally independence and accountability I tend to think of independence and accountability in the central bank framework as compliments not substitutes not conflicting that is to say that independence requires accountability but accountability requires very clear goals and that's one of the points about central bank having an inflation target say which is a perfectly clear target and you miss it or you don't in the UK if you miss it and you miss it too much you've got to write a letter to the Chancellor of the Exchequer saying why you missed it and that kind of accountability it seems to me is quite important so I don't see there a conflict between independence and accountability they seem to me complimentary but maybe Kern would disagree with that so those are a few ideas to throw on the table and let me just see which of them the panel panelist want to pick up and start with Eric if I may well there you know there's a lot here I don't think you want me to respond to all four can I pick one I'll pick okay let me make a few comments on the role you asked about the role of private law and whether it's legally acceptable for this obscure committee to determine whether a credit event has occurred for the purpose of evaluating a credit default swap at least under American law that's fine that's a private agreement the broader concern here is whether these decisions might have some kind of systemic effect and there is no private law approach to that problem the only question is whether the central bank or some other regulator would have would be given the power to intervene in some way if it thought that one of these decisions would would produce some undesirable outcome I think another example to throw on the table the issue came up with some importance in the Greek case when it was there was a lot of concern among the official sector that triggering the CDS contracts would be destabilizing so let's try to find some way out of this where Greece doesn't defaults but doesn't default right right I understand and let me just add another good example which is the LIBOR scandal so LIBOR was it was a basically a privately determined number but because of the way it was used in the market it had systemic effects and and the I guess the British government was put in an awkward position when the banks thought that maybe they should suppress their LIBOR submissions in order to you know in order to address the the credit crisis that that that example we could we could talk about all day let me just add talk let me just refer to one of your other point one of your other points about regulatory cycles and then maybe I'll let the other panelists the panelists decide what we should talk about but I do think that we're in a period of peak regulation at least in the United States and people have written often about this phenomenon which is that regulation is a kind of lagging indicator you get your financial crisis or downturn there's a flurry of regulation afterwards which of course is too late and then you know the market moves on to some other type of arbitrage whereas while these old regulations remain on the books accumulating interfering often with desirable behavior so this is a view that's that's been out there for quite a long time I tend to be a bit more sympathetic to the regulators if they don't try to stop the behavior that gave rise to the first financial crisis then of course the market can go back and engage in that behavior all over again rather than arbitrage the way it does so I just think the problem for regulators is that they have to constantly play catch up but there is no avoiding that thank you for these indeed very thought provoking questions so I let me pick up on Eric's point because I can just supplement this briefly I think one of the things you have to think about when you think about regulatory cycles is also the political sustainability right I don't know if we're at the peak of the regulatory cycle in the sense that in the efficiency sense however you think of it or you know whether we've we're doing more than is useful but it is clear that whatever it is that we're doing may not be politically sustainable and to me the question is then how do you design the institutional process to be more comfortable with the idea that you can actually sell optimal regulation to your political constituents right because whether we think we're peak trough or in the middle by some platonic standard that actually may or may not have anything to do with reality on the ground I also find the private law question unbelievably important because we don't think of it in macro potential terms usually and that's so first of all to Eric's first point that's exactly why I brought up the gold claws cases right there is a private response to some combination of law and economics right so post civil war we start seeing these gold clauses everywhere at a certain point that becomes macro economically unsustainable in other words even if I have a basement full of gold and can pay off my debt in gold all the contracts together can never pay back and so in comes the public override in the form of legislative intervention and then there's adjudication and then there's a really tortured set of opinions that say you know okay right now that's a kind of a traditional we can point to many examples of this private adaptation and public override to me the most interesting and fascinating example with is this not the one you mentioned but the FSB turning to is for help with the resolution protocol so it is not just that there is this squarely private organization that starts out at transatlantic as a transatlantic body before we have international regulators right that is the develops the dispute resolution process before we catch on but at a certain point governments realize that they can't accomplish what they need to accomplish through public law right why do we go to Isda for the resolution protocol because we know a treaty will take forever and will never happen whereas if they change their form behind closed doors in the basement it'll happen overnight there are two protocols in two years right so really looking at this as much more of a public private collaboration and identifying you know what about the people who write the forex contracts there are a million of these standardized market-wide designs that are and then another of course relevant example is rating agencies right they will tell you they were private but of course they were incorporated in a whole bunch of regulation at which point it really didn't matter that they were private because they were public law and now we say well no ratings no way no how and then so what are we gonna put in place and how are we going to incorporate private mechanisms so market mechanisms so I think the key point is that if we think about a dynamic interaction between public and public intervention and private adaptation from the get-go right we may be less surprised and more sort of constructive or you know at least more comfortable in this cooperation and finally a very narrow point done on the international dimension so national level we have hard law statutes regulations international level we have soft law you know Basel and every place else where we meet informally and take pictures but there's no legal entity as such the question I guess is is that process becoming a political problem an accountability problem do we need more formality the fact that the FSB becomes a more formal institution was that a good preemptive move I think this is a learning experience I think what we're seeing is an evolution of how these questions are resolved that said you know Volcker rule in European government debt that was sort of decided the old-fashioned way with people visiting one another and you know behind closed doors all excellent points I'd say that if we address the issue of conflicts between jurisdictions we will always have conflicts between jurisdictions because of different institutional structures and different sizes of their markets and and this and the structure of their markets as well some countries have bank-led finance systems some countries have capital market-led finance systems and so capital adequacy requirements in the banking sector hit some economies harder than others and so then that's why Europe is trying to develop a capital markets union now because continental Europe is heavily reliant on bank sort of banks for sources of capital whereas in the UK more you know you get more reliance from capital market so I think that countries are all affected differently from international standards of financial regulation and they're frustrated it's a softball framework because countries want that domestic legal space to sort of say okay you've got this objective these standards these guidelines we like to apply them in our own local legal system so I don't really think the answer is hard international law I think it's really devising better standards that are more informed in in trying to to achieve efficient market objectives that can be in which that are can be clearly applied and implemented in different jurisdictions according to their own policy needs and of course with reporting responsibilities and transparency requirements regarding how countries report to how they're fulfilling these international standards so there's pressure and international bodies like the IMF and and World Bank can play a role in that area they've done that before and have been criticized of course but still there is a role for international bodies the issue of the regulatory cycle I think we may have may have met hit the peak only because I read constantly about bank pushback now and and the banks arguing that secular stagnation is caused because of heavy regulatory requirements and leverage you know liquidity coverage ratio and Basel 3 is too strict so we it sucks liquidity out of the market so banks can't trade between one another with with liquid capital because they have to set that aside for the liquidity coverage ratio we hear that capital requirements are too high and that there should not be a strict of a leverage limit and so UBS credit Swiss and Switzerland are constantly lobbying the Swiss regulator now saying this this six and a half percent leverage limit that we have is just too high it's it's hindering our ability to be a global bank and and and to and to manage our risk effectively so so so the banks are pushback politicians respond to that pushback people respond to that pushback people want to borrow more it's not just the banks I say the banks are pushing back well their customers want to borrow more and so we have this cycle you know the problem maybe maybe is not the bankers it's the people who elect the politicians they want to borrow more so so so we may possibly have hit that regulatory cycle Trump might say we have with his views on Basel on the Basel committee in the in some of the the Treasury report that came out recently but but yet I still think that there is more room for regulation to move that that bank should be raising more equity capital it's a question of how much they should fund their lending and their business by issuing equity capital it's not the regulator is not saying they can't make the loans it just said they have to fund more their loans from equity capital and there's nothing wrong with that because we should have more investor financing of bank business and and banks should not be so highly leveraged the way they are so so those are you know I would say in economics since that would be the better approach but the political pressure you know is still there to to limit this the any increase in further regulatory requirements I think on the international issue one thing I'd like to I was reading in the FT today about the negotiations between us and you on the equivalents regarding centralized clearing about whether or not clearing houses in Europe would be able to clear derivative contracts that that are traded by US banks right now that's not fully resolved because there are some differences in the requirements regarding how clearing houses are regulated in both EU and US but the goal is to have equivalents so I think internationally the equivalence principle will develop further and that we will eventually I'm a bit more optimistic think that we'll have nationally based regulation but we'll have equivalence principles that will allow more enhanced market access and then finally I think Richard mentioned the issue about central banks and the issue of in regulators as well the issue between independence and accountability I think it's very important of course that that central banks and regulators have independence in the tools they use to achieve their objectives but policymakers are ultimately democratically accountable and policy makers ought to set those objectives so in the UK we have a we have a price stability mandate for the Bank of England it's set by the Treasury and and the Chancellor of the Exchequer and his ministers set that and then they tell the Monetary Policy Committee you guys are independent and using your your instruments in achieving that 2% inflation objective that we at the Treasury have have picked and so we've got in some jurisdictions I think the balance between independence and accountability has been struck better than others I would fill it out for discussion about whether or not I think many of you know about of course the the the governing council the ECB and the price stability objective in the Eurozone it the treaty says the ECB shall maintain price stability but what is price stability who sets the 2% inflation target 2.5 I think I think the ECB does the governing council does don't they so so so now I might suggest that maybe policymakers might set that price stability objective of 2% inflation target but the ECB would be independent in its instruments and how they use to achieve that objective policymakers might say a higher inflation objective is more is more beneficial in the future maybe 3% 4% but policymakers who are democratically accountable all to be setting that objective not democratically unelected central bankers so so so and then this applies for right regulation as well so so in IFRS I think that is it's okay to have the ISDA the International Swaps and derivatives Association and the IFRS group they it's okay to have them setting standards and model contracts as long as regulators when they accept them they scrutinize them and put their scrutiny of these standards up for public discussion and for public review and so and so as long as you know the FSB is a represents resolution authorities and they can opt in for certain privately set standards but they should do so in a transparent way in which they are the resolution authorities and policymakers are held accountable for what they do and and in the issue of private contracts and public law contract public law intervention I think that as economists you might think of the fact that many financial contracts generate substantial externalities negative externalities we saw this in the in the recent crisis so the issue is should public law can constrain the ability of private parties to enter into private financial contracts if the potential fallout of those contracts is significant or possibly can lead to financial stability risk I'm talking about you know the structured finance market the the the securitization markets the fact that investors will buy their they the wholesale debt markets or private contracts and they were lightly regulated before the crisis to what extent should public law regulate and constrain the ability of lawyers to write those contracts that can potentially lead to systemic consequences if the if the risk in those contracts are not well managed so anyway yeah let me just push a little further on one point and then maybe another another in a moment but on independence and accountability it's all very well to make the comparison with the with the central bank and and who dictates the the price stability target and so forth but with macro pru what are the goals what to what results are the macro pru authorities accountable right what do they have to show at the end of the day right to demonstrate that they're doing their job properly I think that's I think that's a problem yeah right they have to show that a financial crisis didn't occur but the it's not that different from other types of regulation the environmental agency has to show that people were not poisoned by it the discharge of chemicals into a river so there's going to be you know there's going to have to be a certain level of trust and if the trust is lost then the government cannot do what it needs to do I just want to also expand on something that Kern said and this goes back to the general issue of independence and accountability you know I think that's a lot more complicated than it sounds because we'll take this macro potential question again so what what's the target here so the target is financial stability well what does that mean in practice well aside from the ex anti-regulation there's also this problem of what does the central bank do during the actual financial crisis and here you can see there are a huge number of choices that the central bank makes and all of them turn out to be politically controversial so in the United States during the financial crisis one of the choices the central bank made and ultimately Treasury to some extent but initially the central bank was to you know help the Wall Street firms and not to help the homeowners who were being kicked out of their houses that turned out to be you know quite a consequential decision now they argued that they made that decision because as a technical matter it's much easier to help the economy by channeling money to these large lending institutions but a number of economists and others have questioned whether that's really true and it may well have been the case the sort of popular suspicious views that they they were helping their friends you know they were they they were in many cases Wall former Wall Street executives and in any event they were talking to Wall Street they weren't talking to the ordinary people so the target it turns out can't just be financial stability it has to be some at some lower level of abstraction you know financial instability but you know in such a way that helps ordinary people or homeowners more directly but once you try to articulate that target you realize that you know before the crisis occurs it's impossible to provide you know the level of specificity that would both be workable and would achieve a consensus so I think there's a real source of you could call it regulatory instability and there's no real solution to it as far as I can push back a little against honor here and on this the private sector private law if you like and the acceptability I suppose that you were supposed to agree that calling a default event credit event in Greece had significant potential for creating contagion effects and financial instability and do you think that that's reasonable to have that decision lodged in and it is the committee that meets in private and that then comes out with a with a dictate is that really appropriate no but that's not what happens right and as a in in fact actually Greece was one in a long line of situations like this the long-term credit bank in Japan remember they were gonna they were gonna put them under but then they realized that there was an ambiguity in how is the contracts read under Japanese law that was going to have tremendous externality so they basically ask is the foreign no action letter to put out a letter that says this is how we determine the meaning so to me actually a lot of the answers to these questions is very bread and butter legal which is process right so right now we have a process a public-private coordination process the problem is nobody knows it it's but I mean not nobody obviously but you know sort of it's not publicly accountable so you have this situation where not only does a private body at least appear to be making decisions right and in Greece there was such magic to the way everything came out that but this was not an accident they were talking to is that they were talking to this was surgically done not to trigger the CDS so the question is do we want this process to be playing out in public right the answer may be yes but I would love to hear a politician answer that question right and so how would you like to be seen as working out the terms of Greek default with the International Swaps and Derivatives Association on TV right and I think that fundamentally is the is the challenge right so we can say look it's a public decision but then yeah I'm gonna be a pessimist again here so here's the problem these are private contracts the institutions that have made these contracts of obligations to make these determinations and good faith if it turns out that the good faith determination would cause a financial crisis or a massive recession they still have to do it alright so here's what happens the government comes in and says please please you know don't do this but if they don't they'd be breaking a contract and committing fraud against the private individuals who are counterparties to this contract so in the case of LIBOR again which I just happened to know about because I've worked on this the banks without being told by the government or at least maybe being told Soto Voce suppress the suppress the their submissions and you could imagine this happening through agreement of course if it had been if it actually been through agreement that's an antitrust violation so you take their exposure which is a trillion dollars or more and you multiply it by three under American law so they would they would have to pay enormous amount of damages if they departed from the private contract even for public spirited reasons now if the government commanded them to do this not clear the government has the power but if the government did then at least if it were the US government and were US law the government would be exposed to that liability because the private actors would have their rights under the private contract and they would be able to sue sue for damages so the only solution I could see is that if you put into these private contracts at the time that they're negotiated some kind of clause allowing the government to intervene and override what the parties agreed to but then the parties wouldn't put much weight on the private contract because it's value as a stable source of agreement would be contingent on the government acting in the right way so you know I'm not sure there are any solutions here but it's important to know what the problem is there's a classic moral hazard issue underlying all that too but I think it's time now to open the door up for questions and comments and I see hands going up all over the place I saw Francesca much much affair