 Okay, we're just about to start our banking union panel. If you would like to join your seats, please. Okay, so first of all, let me welcome such a distinguished sets of panelists, and they don't need any introduction, but I will still briefly present them. Herkke Kienig is the Chair of the Single Resolution Board of the Single Resolution Mechanism, and if everything goes fine, she will have to take care of Edis in a, I hope not so distant future. Daniel Nui is, as you very well know, is home here, or almost home, as the Chair of the Supervisory Board of the SSF of the Single Supervisory Mechanism at the ECB. Mick Makat here is Co-Founder and Co-Director of the Financial Inclusion Center and the Chair of the Financial Services Users Group, FSUG. And last but not least, Kost Timomens is the Vice-Chairman of the Board of ENG Bank. So let me kick off our discussion with a few introductory remarks and maybe a few words about how I intend to organize this panel. We have achieved very substantial progress in the setting up of a banking union in Europe. The two pillars of the banking union, the two first pillars of the banking union, the Single Supervisory Mechanism and the Single Resolution Mechanisms are now in place. The SSM since November 2014, the SRM is fully operational, well, we hope, since the first of January of this year and is building up the Single Resolution Fund. In October last year, the five presidents issued a report which sets out ambitious plan on how to deepen and complete further the Economic and Monetary Union and as you know, the banking union is one of the four key pillars in that plan. Shortly after, the Commission has adopted a proposal for a European deposit insurance scheme so-called ADIS accompanied by a communication which sets out the Commission's vision and concrete set of measures concerning the completion of the banking union including further steps to share and to reduce risks in the banking sector. So the purpose of the discussion in this panel against this background is to take stock of the progress that were made so far and to identify the most important challenges ahead. So I'd like to organize a discussion around the following three themes which the speakers will address in turn. First, I would like to ask or panelist to share with us their opinion on what in their view are the most important achievements until now and in particular in terms of benefits to the economy and I mean by these households and corporates but also in terms of financial stability. In other words, is the banking union in its current setup an effective shock absorber? Second, I would like to get their view on how far we've gone on whether we believe that the glass is half full or half empty. And finally, to the extent they would conclude it's half empty which is my strong suspicion. What are the main challenges ahead on what remains to be done to complete the banking union and I would like to hear their views notably on the number of questions for example whether they consider that the current bridge financing arrangements for the single resolution fund are adequate. How do they see the postponement of the discussion on the common backstop? How do they see the ADIIS proposal in the context and more generally whether they consider the common safety net sufficiently robust to withstand the period of major financial stress and if not, what do they recommend? And in terms of risk reduction measures what should in their view be done to address the remaining risks in the banking system? So I suggest that each of the panelists takes no more than 10 minutes for an introductory statement and then I will open the floor to questions from the audience and I think that's the best way to have an interesting and interactive session. I think we will have to sufficient time if everybody is disciplined for two rounds of three or four each questions Q&A and then we will conclude. So I'd like first to invite Elke Koenig to make remarks and then I will go on ladies first with Danielle, then Mick and finishing with Koss. Thank you Olivier. Thanks for the nice introduction. I was a bit intrigued to be very short and to say well the policy panel here is question and mission completed not yet but on the way achievements multiple but still more to come. That would be probably the shortest version of my introduction but let me try to be a bit more reasonable. I think we have achieved really quite a lot. Let's be honest we have put in place the banking union and we have with the banking union and I'm now like all of us here a bit solo focused on the euro area otherwise it would get too broad. With the banking union we have put in place the SSM I won't talk about that because that's Danielle's baby to take care of and we have now the single resolution mechanism and we have as important a single rule book with some work still to be done. The third pillar and you've already mentioned it would be the harmonized deposit guarantee scheme which may should evolve into a common European deposit scheme any time soon. So these are the three cornerstone when I look now at what we have achieved with the single resolution board always centering on what I'm doing here then I think we have started and we will support harmonization cross the euro area in order to ensure that there is a consistent application of the BRID bank recovery resolution directive provisions and that we have a very clear transparent set of rules on burden sharing. We have still some you could also say a lot of regulatory work to do there is still a lot of policies to be spelled out there's a lot of cross-border work to be done and let's be fair it's cross-border not just with the countries outside the euro area and outside Europe it is also still a lot of work to be done within the euro area but I won't go into detail unless that comes up in a question but one thing is extremely clear the bank resolution framework changed on January of this year there was already a bit of discussion about what is going to happen here together with the national partners of the SRB so the national resolution authorities we are developing for the moment the standards policies that will implement the existing the new legal framework in particular BRID and our own single resolution mechanism and the rules have changed this is not limited to the buzzwords Amral Teleg the commissioner mentioned the work in this field and even more so it's also not limited just to consider bail in but one thing is pretty sure and you could see that from the market reaction late last year earlier this year we believe that it is extremely important to ensure a consistent and proportionate handling of any resolution case in the banking union going forward not least to provide certainty to the market participants about the approach the worst thing to happen is uncertainty clarity, intransperance about where within accredited hierarchy institutions could stay and this I think is what we need to focus on looking at this from the end what needs still to be done clearly it links also BRID work, it links the single resolution mechanism to well call it the underlying framework called insolvency law we don't have a harmonized insolvency law we have this in 19 versions within the banking union most coming from Roman law but having changed over the centuries a bit but we need to consider that the insolvency law is always the basis for our work so harmonization in that field is some would call it a low hanging fruit so it might be relative to where the other foods are hanging so I would say this is definitely an area to look into and an area where we need to have more achievements using your bus ward shock absorber we have a shock absorber now we have the single resolution fund which has to be built up gradually over the next eight years we have the single resolution fund nevertheless entirely as a last resort I can still remember conference I think it was the same setup last year where someone said is the fund sufficient to solve all structural deficits in banking in the Eurozone I never thought it was meant for that it is the last resort and the tool we have at hand for a bank resolution and it may only be used after at least 8% of total liabilities of the entity under resolution have been bailed in and in addition it is limited in its size actually it's kept at 5% of total liabilities so it's not the pot of gold at the end of the rainbow it is our last resort we therefore believe that the financial means will be sufficient the financial means of the fund to for future bank failures subject that the bankings have built up adequate resources in their balance sheet and this would then mean that we have sufficient emerald setup and banks have done their homework too with that I would stop with the question but no I can't withstand it was I think not you it was Jonathan last year on the question is the glass half full or is it half empty wrong question at least we have a glass and increasingly the glass is getting filled and it will probably be more half full than half empty by the end of this year hopefully so by the way that let me move to AIDIS and very shortly we welcome the ECB EC's proposal for a Euro area white insurance scheme for bank and setting out further measures to reduce remaining risk in the banking sector in parallel so both steps beside the SSM beside the SRBM we need a strong third pillar and therefore a European deposit insurance scheme must become reality but it must become reality also fit for purpose the DGS directive was an important step forwards harmonize deposit guarantee schemes are needed and fully funded deposit guarantee schemes however several member states have not yet transposed the DGSD into national legislation and transposition in member states is call it patchy or is different some use it just as a stock some use it to support within a very clear framework transfer of depositors and payment function to another institution to make the insolvency procedures fit for purpose for me what's crucial and I think I would leave it with that nearly is there is a kind of a triangle to be considered we have with the BRID with the SRM regulation a good system for bank resolution still more to be done but for a resolution of banks we have a system now resolution only comes into play under very specific conditions mainly to preserve financial stability of a member state or the union as a whole and where there are critical functions for the real economy and for financial stability in all other cases reality ought to be should be if a bank fails an insolvency procedure is the next step to go and you need a strong DGS to make sure that guaranteed depositors are safe so all three parts of this triangle need to work together we need to have a fit for purpose insolvency scheme so good rules and also good effective use of those rules and not ages to come to get something sorted out and you need to have a DGS we are always talking about how fantastic the system in the US is that can support the transfer of depositors same with all two when you put it on the European level and with that and having seen that I have totally run out of time I would say we need to strongly advocate not just the risk reduction part of it we can talk about that later and I think that's by far more also to Danielle but also to make the entire system really focused on its purpose in case of in case the bank gets into trouble to resolve or to put into insolvency this institution in an efficient manner and with that I would then stop and go back to the argument the glass for me is half full but I think even more important is we have a glass and we need to work that we get more good solid water into the glass thank you for having stick almost precisely to your 10 minutes and it's true that before 9.56 before we had the glass we put quite a lot of water on the soil so it's good that we have a glass indeed and my second remark before handing over to Danielle is whether insolvency law is a low hanging fruit depends whether it's relatively low if you talk to finance ministers but you will need a big ladder if you talk to justice ministers so on this note Danielle thank you Olivier good morning everybody it's a pleasure to join you today for the traditional financial integration conference as shown in the report published today the new regulatory and supervisory architecture together with monetary policy measures has contributed to the reduction in financial fragmentation in the banking union in 2015 but like Kelke said while we have achieved a lot so far there are still challenges ahead for the European banking integration I will try to explain some of them more in details let me first quickly start with taking stock of the achievement as this was the first point mentioned by Olivier first the ECB organized in a short period of time infrastructure processes on human capital which allowed its establishment as the single supervisor for the whole euphoria one of our driving principles over the first year of the SSM was to promote the unity and integrity of the internal market based on equal treatment of credit institutions in parallel to the institutional setup the ECB immediately decided that it would be necessary to ensure quality effectiveness and consistency of supervision as well as undertook important horizontal project to support its action first consistency was needed across banks on countries in the way supervisors assess the prudential situation of each bank target individual weaknesses and make the banks therefore the ECB set in place a harmonized methodology for the main instrument of banking supervision the supervisory review and evaluation process in short SREP banks with higher risk must hold more capital on the playing field has been considerably leveled within the euphoria which is a very positive development for banks themselves second divergence was identified not only in supervisory practices but also in the regulatory environment itself does the ECB initiated the SSM project on option and national discretions in order to tackle as a priority diverging treatments across banks on countries these policies were translated into implementing instruments including an ECB regulation which will become operational within 2016 this is a very important step it means that significant banks within the SSM will be operating under an harmonized regime and will be treated in a consistent manner by their joint supervisory teams when for example submitting applications for waivers, exemptions or approval I will now turn to the priorities for 2016 and challenges ahead not surprisingly the business model on profitability risk remain a key priority in 2016 credit risk also remains one of our key priorities due to the persistently high level of non-performing loans in a number of euphoria countries we will also investigate excessive risk concentrations in such areas such as real estate on a strongly related issue the implementation of the new accounting standards IFRS 9 for financial instruments which has a bearing on the measurement of credit impairments as well as the valuation of financial instruments another priority for 2016 is capital adequacy of particular relevance in this regard are the consistency on quality of banks internal capital adequacy assessment process ICAP on their internal stress testing capacity the follow up on the quality and composition of banks capital also in relation to national options is important as well including also the examination of banks preparedness for new regulatory standards such as the MRAIL and TILAC and obviously the targeted review of banks internal capital on their risk weighted intensity is an important part as well of the solvency priority regarding banks governance risk governance a priority now for the SSM is to clearly communicate supervisory expectations vis-à-vis the banks in this respect furthermore a thematic review will assess compliance with the Basel committee principles for effective risk data aggregation on risk reporting finally liquidity is a new supervisory priority in 2016 the experience of the 2015 SREP has shown that many banks do not yet fully meet supervisory expectations regarding sound management of liquidity for the sake of time I will not comment further on work on national options on non-performing exposures but I would like to stress that the most important goal underlying all supervisory action is ensuring public confidence in the banking system the new European recovery and resolution rules are supporting this goal and have been tested in the resolution of some less significant institutions in Italy Greece and Portugal so far the ECB has cooperated intensively with national authorities in major phases of the relevant processes in particular with authorizations of bridge banks withdrawal of failing banks licenses of failing banks I will not comment further on this but use it as a transition regarding the interplay with the SRM the supervisory authority has several new tools to ensure improved resilience of banking institutions these tools include for example the imposition of early intervention measures in case the bank's situation is deteriorating without being properly addressed in addition to these powers the bank recovery and resolution directive introduce a number of provisions which make banks safer importantly resolution authorities have to set up credible resolution plans which can be implemented in the event of resolution resolution planning comprises a resolvability assessment which requires removing any impediment to resolve the responsibility for example by imposing changes to the legal and operational structure of a bank thus the resolution authority has the responsibility on the means to reduce the complexity on interconnectedness of big banks which in my view and depending on the institution specific characteristic could also improve banks risk management on enhanced supervisory objective but I don't develop more I wish she will tell you more about this regarding the European deposit insurance scheme I think it's quite important because SSM and SRM meant a quantum lift for enhanced integration the establishment of European deposit insurance scheme is the missing third pillar of the banking union so we also to make it work as Elke said we also need to agree on a public backstop for the single resolution fund in my view when banks are being submitted to a single set of rules subject to a single supervisory framework there is no reason to treat depositors differently across borders and deposits have to inspire the same level of confidence wherever they are located so to conclude overall much has been achieved and I would say that the glass is rather half full that half empty but the road does not end here and to a certain extent I have the view that it is a kind of magical glass the more you do the more you seem to have to do so this empty part is growing still full because we did more than we dreamed to do at the very beginning I'm surprised that we have been able to achieve so much in such a small period of time but there is so much more to do that there is no room for complacency thank you thank you very much Daniel and thank you for having outperformed Elke by almost a minute so gentlemen the benchmark is very high for you no I was interested it is indeed a minute remind me of the meet the CISIF you carry back the stone at the top of the mountain and you always have to do it again and as much as you put water in the glass it is still a full half empty depending on whether you are optimistic or not that simply means work is never finished alright so the next in line no I forgot I think was Mick that's right because so you have 10 minutes please okay thank you very much folks for the opportunity to put the consumer perspective on banking and capital and market union integration this is really really important if integration was measured by the amount of policy activity then we would be okay the glass would be overflowing but I have to say look policy activity is not the same as an effective integrated single market so whenever we are talking about the glass being half full or whatever we haven't even begun the journey of integrating European financial markets from the point of view of the end user whether that is households or real economy firms so those are two very different things I congratulate my colleagues here I congratulate the staff and the commission who have done a great job they have done some great they have introduced some great policy measures but as I say activity is not the same as outcomes from the perspective of consumers or real economy firms now instead of thinking about it in terms of you know is there one glass half full or half empty what you really have to think about here is that there are four glasses now I'll explain what I mean now if you think financial markets are very large and very complex but essentially they undertake four primary functions there's only four things they're supposed to do the first one is transactional and banking facilities for households and real economy firms the second function the second primary function is to make sure the capital gets from where it is to where it's needed in the most economically and socially useful way that's the asset allocation function and the asset gathering function and the asset management function and my colleague Guillaume Price I'm sure will actually go into more detail about the asset management function the third primary function of financial markets is credit creation and financial intermediation so that households and real economy firms can give access to the appropriate short and long term credit that they need and the fourth primary function is actually risk management and insurance again this is a vital part of the financial system because without that fourth primary function real economy firms cannot conduct real economy activities from my perspective is the market integrated successfully from the point of view of consumers and real economy firms and I think only on the first one on the transactional banking activity can we say there has been any significant progress in terms of an integrated market from the point of view of consumers on the other three main activities asset allocation credit creation, financial intermediation and risk management there has not been significant integration from the point of view of the real economy or for households and why is that well look you know there's a number of reasons but let me just try and highlight some of the reasons why this has not happened from the perspective of the end user well the first one is and in doing so I'll explain what has to be done if we do want to integrate the markets well the first one is really is that we need structural and institutional reform what do I mean by that this is actually very simple if you think about it if you think about the amount of financial activity undertaken in the financial system the vast majority of that financial activity in the banking sector is actually there for the purposes of other financial institutions only a small minority of financial activity is undertaken for the benefit of the real economy just to give you a quick example I think the 75% of global investment bank revenues have been derived from selling services to other parts of the financial system just one quarter has been derived from selling services to real economy firms something like only 7% of an interest rate over the counter interest rate derivatives are actually derived from real economy activities and certainly and where I'm based in the UK something like only 8% of bank lending actually went to real economy firms the vast majority of bank lending goes to other institutions or else it goes into non-productive assets like property so the big structural problem here we have in terms of the single market is that too much financial activity goes to other parts of the financial system and the banking sector does not have the right incentives or the right structures to actually be compelled to focus on providing services to real economy firms so we will not have an integrated single market unless we tackle structural barriers and those incentives that still cause institutions to focus on other financial institutions so forget about integration until you tackle the structural barriers in the market I think the second type of intervention if we are serious about incentivising alternative providers to come into the market to compete against dominant providers then we're simply going to have to clear space for those alternative providers there is no evidence that I can find that competition itself or market forces themselves will actually incentive or actually create the conditions for alternative better value providers to take on the big dominant providers in the European Union so unless we actually clear space then alternative providers will not be able to compete and take market share of the dominant providers in different local countries so the third set of interventions really is around a new approach to conduct of business regulation now you might wonder why am I raising the issue of conduct of business when we're really talking about financial stability and competition and integration it's very very simple actually if you have per conduct of business regulation that distorts markets and it actually distorts the efficient allocation of resources as well because they actually have the cost of business they're not priced in to the activity you know it's what economists would call the externalities are not priced in and this is why this is one of the reasons why we still have the focus on nonproductive financial market activities so unless you tackle the conduct in markets you will not get economically efficient allocation of resources I learned so there's clearly a set of regulatory issues around the conduct the culture and competition in financial markets that we really need to improve if we are to see markets working from the point of view of consumers one of the last final point one of the two final points I make really is it when we submitted our evidence to the commission on capital markets union and the retail market integration one of the biggest barriers we found to an effective single market was behaviors in local markets you know quite simply this is one of the biggest barriers to market integration because if you're sitting in one country and you have a really good value product or a really good value proposition the failure of supervisors to enforce and implement regulation in another member state acts as a huge barrier to those better value providers taking market share from per value local dominant providers so unless we have a framework of regulation that works but that has to be built on an effective framework of local supervision as well because unless you have local supervision then you can again that will undermine the ability of a cross-border single market so this is the final point as well as a conduct culture competition the fourth C really is confidence building measures as well I won't go into much detail we certainly support the establishment of a single European deposit insurance that is a much needed measure so we congratulate the policy makers on that but we're also clearly going to have to look at sort of harmonizing regulation have more consistent regulation particularly around insolvency law as well so unless we actually tackle that conduct the culture the competition and the confidence in the markets then we are a long long way from having effective integrated single market thank you you made a point in being just as effective as Daniel so thank you very much for this not just a a remark on something you said I mean it's true that a small promotion of bank activity in general goes to so-called real economy users but I think conversely one thing that the financial crisis showed is that the financial economy is real as well in terms of how big the problems in financial economy translate to the so-called real economy so that that might be but I suppose we will tackle this don't forget of course what people have always said and what has become apparent because of the crisis is that the rewards of privatizing risks were very high but the level of financial market activity that relates to other finance institutions is way out of proportion to the share of financial services in the real economy there's a serious imbalance still in the markets at the moment the other small point that I noted in your presentation is I think the point you made on various applications of standards across countries is probably more true in markets than in banking at least is my feeling the degree of heterogeneity is wider this is one of the issues we want to tackle in capital market union there is some degree of heterogeneity in banking supervision as well and this is why in Basel we're taking care of the fundamental review of the trading and the banking book but I think the problem is of lesser magnitude so Kos thanks yeah maybe a couple of comments to clarify our banks I work for ING and maybe explain a few things about it first if you look at our balance sheet approximately 65% of our balance sheet is in customer lending so and customer lending around 15% is in liquidity and we need to hold that liquidity also because we are raising the level of the amount of the deposit so that leaves a significant amount actually where we measure are we doing and customer business derivatives maybe that part we can discuss later as well we do quite a lot of derivatives but it's also embedded in our products where we sell mortgages to our clients we do need a fair bit of derivatives to hedge that risk maybe if I explain ING in Germany but we also run branching operations in Italy Spain and France so truly European bank with many operations maybe four things to clarify from my part first view on the banking union where we are and what still needs to be developed in our view maybe also talk a bit about digitalization because there it's interesting that Danielle mentioned the fact that the glass gets bigger and indeed the glass gets bigger the other point FinTech glass gets bigger even bigger and then maybe we can lastly also talk a few things about low interest rate because that gives a bit the context of where we operate in for go to the banking union overall what I see is a lot of things have been achieved and you know in that sense you know many good things many standardizations but also more trust in a sector that sense we are quite happy few things where we can still improve one is if you look at integration of capital and liquidity the question is are we already allocating demand and supply of deposits and loans on a European scale the answer is not yet there's a few obstacles in between so a dream over European bank who says like hey I'm raising deposits where I'm efficient raising deposits and I'm generating loans anywhere in Europe where I'm good at that there is quite a bit of capital markets in between which is still not necessary so if we raise too much deposits in Germany via the capital markets it is invested and we borrow in the capital markets in other units where we make more loans and to be honest we like to get that piece of capital markets out because then we can make more balance sheet even more than 65% customer loans because we want to have as much as possible that area so large exposure regime is still an area where we believe we can improve on because that makes simply balance sheets shorter and more focused on deposits and loans the other part where I think still some improvements could be created is if you start to look at the national population still there so if we for instance look at macro prudential buffers buffers in some countries is higher than in others and we hope for instance with ADIS that some of these buffers gets harmonized as well because please know that if you look at do we as a bank have pricing power on all of our assets the answer is not so you do want to have some form of level playing field moving further area to look at and that is not so much an ECB or a Europe thing but if you look at it holistically we have an FSB who's creating some rules like the TLAC we have Basel still coming up with Basel three and a half we have an ECB who formulate Shrap and we have the national regulators who might create top ups the question is there is sometimes still an element of not coordination between because what you could have is that on top of your Shrap buffers and your national discretion supervisory buffers and your TLAC that you start to say like can we all as an institution manage these things at the same time and absorb them and sometimes we'd like to have but I don't know how to create that some more coordination between the different governing bodies who are in the end impacting a financial institution like ours a this we maybe talked about briefly still shortly if you look at Mrel and TLAC one of the concerns what we still have is are we going to implement that on a consolidated basis or are we going to implement that on a country for country basis we hope of course the first one because otherwise you end up issuing securities in all countries where you don't want to do securities because I mean in the end you want to keep balance sheets a bit tidier so overall many things achieved still a few things to be done I would say on the regulatory part but now maybe on the magical glass if you look at digitalization overall digital channels important make one of the points with consumers is one of our major worries is consumers are not visiting our branches how do we contact with them because we have a duty of care rule and that is not so easy by only looking at an account so one of the big challenges we have is how can we connect with a customer do fair business wisdom but also do it in a decent way we do like the competition on that part for for sure in the digital part one of the areas to look at particularly in Europe is the customer onboarding so here the glass gets a bit bigger because customers want to welcome Italian customers in the Netherlands but still you need to bring your personal ID well you cannot expect the client to come up with this passport drive all the way to the Netherlands to become a customer of ours so for instance Spanish and German video onboarding practices could be a good thing to adopt the other thing what you'd like to see is it was mentioned this morning interoperability between next to network so we have a telephone number network but what you start to see is you get more peer to peer payment networks right now somewhere they need to interconnect with the E-Bahn network as well so on these areas you could say digitalization starts to play a role and starts to give demand for new rules question what you will get is E-Bahn all kind of you know nice fintechs will create applications where telephone networks will get connected to E-Bahn's do we want to share that more are these all little individual networks if you want to make a big step sharing could be one of the things which is good at the same time of course we need to respect the part that we all have to care about the privacy maybe on the fintechs one of the things what is a concern somewhat for the banks is we are the holders of the customer account so that means the CEDD, the CSR, the FATCA the tax due diligence all of these things are nice but not necessarily from a customer perspective the biggest value enhancing thing and what you find is the fintechs are not so much interested in the accounts they are more interested in doing the payments so they like to offer the customer the nice payment experience which I can understand at the same time is the fact that if those payments are done by fintechs allowed by customers what happens if something goes wrong is it then the banks who have to compensate for the fintechs and go and chase the fintech in this case sometimes we feel that the rules on this are a bit unbalanced and you get a bit in the utility role as a bank only and of course we want to treat our clients well as well with some low interest rates why do I mention that one right now we are still at the level of the capital and the new capital rules implementation at the same time we also know that given low interest rates banks are going to face more an environment of narrowing margins which is fine but which also means that we then need to make sure that we take actions in terms of more standardizing platforms more sharing things and that could sometimes hamper the part of the resolution because does it make you more resolvable but operational efficiency is one of the things we clearly need to work on if you know given the environment right now because please don't forget that in fact we have from a customer perspective a negative yield curve in a lot of countries that are paying for deposits a higher rate than the Uriber curve based lending what we do and in a negative yield curve environment and that will continue for a while it means margin erosion and it means that we need to take quite a lot of efficiency measures going forward so that's a bit the environment in which we are and that's a bit the context in which we have to operate and that gives us quite some challenges and we have to make sure that we have a lot of things achieved still many things to be done but at the same time be fearful a bit of the silo part between all the different rules that's just your one minute reminder yeah thank you because I found a very effective way to draw your attention my one minute paper excellent and we have had a lot of foot for thoughts I guess there is a lot of questions burning your lips I see a gentleman already already here while the microphone translates to you I would like to take the point that course made on the digitization first of all should the supervisors care about it do anything about it and if yes what like to get Daniel's view on this and also I mean having worked in the competition field for 20 years I have to say I always found that some of the arguments of the banks in the safety of interface which are it's a genuine issue so quite handy to protect existing positions and prevent new entry in the market so I suppose there is a balance to be found between safety and fostering entry Daniel? Yes for sure I think first of all we have to understand how it works digitization on what are the challenges what are the promises offered by these new departments second we have to make sure that the IT of the banks is up to the challenges and up to the standards it has to to be able to resist the hackers attacks for example cybercrime another possible weaknesses of digitalization but I think it's a great opportunity for the banks indeed the profitability is hit the banks are hurt in their profitability by in general low interest rates and or legacy assets sometimes both and that's a good way of get better profitability to work on the cost to income ratio which is pretty high in European banks on SSM banks so this is an opportunity but it has to be used properly and there are big differences between the banks that use it well on the ones that are not using it enough in my view thank you Daniel sir you had a question the microphone is on its way please identify yourself and disclose your affiliation I'm Franco Bruni from Bocconi University to secure Exanta the stability of the European banking system I see a lot of complementarity between three different pool of funds one is the deposit insurance fund the other one is the single resolution fund but there's a third pool of fund which should serve for systemic shocks and that is the European stability fund the European stability mechanism to the extent that its statute allows the mechanism to intervene for direct recapitalization of banks this function has been blocked at a certain point now as far as I understand it hasn't been still unblocked I wonder if you have any comments on that if given the difficulty to tell if you want idiosyncratic from systemic shocks we do not need the backing of this potential powerful function of the ESM in order to be sure to guarantee the stability also at the micro level thank you that reverse to a question I asked in my introductory remark but that very wisely my colleagues did not pick up and it's all about the backstop to the system we need a backstop to the system we need a backstop to the SRF the member states have decided to postpone the discussion they are now reconsidering in the framework of the overall balance between risk prediction and risk sharing whether to re-open it rather sooner than later I think the issue of the backstop not only to the SRF but also to the EDIS will come so what we need ultimately is a backstop to the banking union at least that is the view of the commission and I understand from the integration report that is also the view of the ECB which is not surprising because this was the view expressed by the five presidents in the report and among the five presidents you had President Juncker and President Draghi but you're burning to take the floor so not sure that I'm burning to take the floor but I would slightly try to balance it take our old example glass half full glass half empty or not even a glass I think the SRF has to be built up over time the SRF has put in place or the member states have put in place loan facility agreements for the SRF for the interim time we are for the time being executing those first agreements one by one DGS to be put in place by the member states first and clearly you can always consider to get a backstop but the backstop is under discussion I hope that technical work on that will start soon to consider it but my main message will always be start working on reducing the risk with a good resolution planning start working on having a fit for purpose DGS and insolvency law so that we can take part of it and don't start working with it always from saying I need someone who is paying the bill if something goes wrong so for me ESM also is at the end happy to have it but it is not the front part of our work does any of the other parties want a course? yeah maybe on this part so I had the first thing what we always see in terms of what we have right now then you come to the TLEC and the MREL and then you come which is already more than 10 times bigger than the resolution fund and to be honest also it's a bit what Elke is saying we rather have clarity in the market that TLEC and MREL means loss absorption and if you start to talk too much you rather have clarity on that part and it's a big buffer I mean it's a double in effect of capital anyway no I think we don't live in the same world as some years ago that is clear that's what you need to say okay so I have said it five times I was requested by Elke but and at the same time you very well see that there is an issue of moral hazard here and there is a relationship between the two basically if I should characterize the position of the member states it's a continuum that goes from let's share all the risk upfront now on to let's put in place backstabs and funds and all risk sharing arrangements where there is no risk to share anymore and then we'll be happy to do it and of course in between risk sharing and risk reduction needs to go hand in hand and you need to reduce we need to reduce the risk we still need to reduce further the risks in the banking system and at the same time we need to share the risk because sharing the risk is also one of the ways to reduce it I saw a gentleman that had a question over there Hello, Matthias Thiemann good university, Frankfurt I would like to take up a point that Mr. Megatier made in relation to what also Mr. Thiemann said Mr. Thiemann was speaking about the attempt to reduce capital market doing it all inside of the bank rather than borrowing and loaning Mr. Megatier pointed out that so much activity is going to other financial institutions rather than to what he called the real economy and that's why I wanted to ask the supervisor as well as the person responsible for resolution, where are we in decreasing the interconnectedness in the financial system because that helps resolution makes it much easier and that helps supervision is that something that is still a goal that is pursued how do you assess the effect of the liquidity coverage ratio where do you think this is going thank you so maybe Daniel and then Elke well yes in this two points indeed the capital market part is not important enough in Europe and we support strongly the different building blocks of the capital union we have to promote capital union that's an important part as well and I see that things are moving and not only on securitization which is an important element regarding the interconnectedness well this is work in progress because the single resolution mechanism has been an important step in reducing interconnectedness between the sovereigns on the banks for example the directive that makes sure that there is much less if not at all bailing out more bailing also the creation of single resolution fund that was mentioned once we have deposit guarantee scheme very important as well to reduce the interconnectedness and another important part as well is related to the treatment of sovereign risk and as you know this has been discussed in the last ecofin meeting so there is a lot of work in progress in this field and I'm quite optimistic that we will reap the first benefits quite fast not all of them but at least first on gradually all the benefits let me perhaps address more the focus put the focus more on interconnectedness within the financial sector clearly and again so you've said it five times I added since the financial crisis a lot has happened we should not forget that some products that created part of the interconnectedness have disappeared so part of it just doesn't exist in that form anymore but clearly we are for the time being within the single resolution board based on the recovery plans that banks have prepared that are looked into by the ECB and by us when we focus on 20 banks looking into resolution plans and part of the resolution planning is defining the critical functions of these banks defining interconnectedness and trying and starting step by step to address it side by side with the argument about how much capital as a whole so MLAG TLAG is needed so this is work in progress I think it is by far better sketched out today than it has ever been in the past is it entirely reduced no and I would actually add I think you won't want to avoid it in totality we don't want to go back into a world where you have single banks standing alone and then the attractive part of the business which needs larger interconnected banks has to go somewhere and the risk comes home the latest point is quite important because did you want to add something yeah maybe one point on this because you also mentioned LCR one of the things is if you look at yourself also as a consumer in general you make your money available shorter to a bank than the loan you want to pick up because the loan is a mortgage is 30 years hence the transformation function what you see right now is that parts of our balance sheet will move to investors which also means that investment funds they will start from time to time if money is taken out of funds they'll have to force liquidate some assets so what you will see is part of the transformation function of a bank will migrate more towards credit spread or a price volatility of bonds in a market and you cannot completely get away from this because that has to do with the nature of the supply and the demand of money of a different character in this world and that part will stay it's only now spread out over a bigger group thank you we had a question in the first row and that was not from Philippe but Philippe has a question I see Jean Lasselin, Kaye Sherbank I have a question for all of you I suppose but particularly for Daniel Nui and Elke what is the position of the ECB with respect to the ongoing discussions in Basel for what you prefer to as remaining to be done and what we bankers prefer to as Basel for and I know you don't like the expression particularly with respect to internal models to versus standard models, floors RWA methodology but I would also want to where we stand with respect to the umbrella and the T-Lac because these are all very important issues when it comes to investors and as you know we banks we are in the hands of our investors when it refers to calibrating products seeking equity, bonds and what not so this is very very crucial we need to get out of this uncertainty and the sooner the better so you nicely distributed the questions between Daniel and Elke I'd like to add something yes I'd like to hear Daniel's view and how practically will be implemented the policy lines of the G-host that the exercise doesn't result in average in a substantial hiring of the minimum requirements well personally I have nothing against models I spend five years of my professional life in Basel preparing Basel 2 and I was sharing the model's task force but we want good models that are fully understood by the banks that use them not a model that is built by a consultant giving the key to the bank also well monitored by the supervisors the worst situation would be using a consultant to build the model using another consultant to validate the models not only well validated but well maintained which maintenance has to be adequate which has not always been the case in particular during the crisis because banks had other priorities so right now we very much become the discussions in Basel regarding models we want models producing adequate risk requirement adequate risk weighted assets and consistent risk weighted asset when we compare the different banks if there might be different risk weighted assets but provided there is a good explanation for that that the risk profile of the bank of the two banks that we compare are not the same for example so this is what we expect from Basel and as a matter of fact the work has already started we have a project which is reviewing all the models the thousands of models that have been validated across the SSM countries on banks perhaps let me add to your question let me try to answer your question on emerald tealac from the building said those are two sides of the same coin we fully acknowledge that investors markets need clarity on those at the same time from an institutional point of view let's be clear emerald is an entity by entity group by group decision we started out in early January with a presentation where we set out kind of I would call the frame within which emerald decisions will be taken they will be taken over the letter part of this year as part of the resolution plans of the individual institutions will it be and I'm always citing my colleague who once said it's a journey for the journey but it is definitely a journey we will set emerald targets we will have a quantitative component a qualitative component so there will be the famous issue of subordination and there will be a time component to this to make sure until when this all can be implemented no one is expecting it to happen yesterday so Teleg on the other hand was the FSB paper and I think Olivier and I share a time of Teleg debate and at some point also probably Teleg fatigue but to be fair when you look into the Teleg minimum standard for GSIBs you find a lot of foot for thought and criteria which we will see and implement into our emerald decision for the GSIBs but definitely beyond because these are consideration you come along when you consider whether an institution is resolvable and part of resolvability is also do you have the chance to act on the famous weekend without legal doubt and be sure that your decisions will be enacted on a Monday morning so there's still a lot to come we try to be transparent we will probably come with more information more generalized information over the summer and perhaps for transparency one thing is coming true we have started quite an extensive data collection because transparency about banks friendly limited for us but also for the market so from my side for the outside one area already to work on is having better data readiness on the liability side and to consider from a bank's perspective on how to provide clarity to markets about credit to hierarchy and the question of who comes first line after equity it's not rocket science it's just a question of transparency I will stop here so I still have four questions on my list I will close don't even raise your finger anymore and I ask short questions and if possible short answer the blonde lady on my right hand side thank you very much Marina Brogis Appianza University actually this I think fits in nicely I was wondering whether you could give us a few more details on the no-creditor was off principle which to some extent will have to be from what I gather from reading the documentation will have to be proved once you have actually opted for a recovery for resolution as opposed to the normal insolvency procedure so what sort of documentation do you think that would have to be prepared and by whom thank you very much I guess this one's for you Olga let me try to be fair indeed no-creditor was off is to some extent the elephant in the room resolution is nothing else than a specific insolvency procedure so within resolution when you do a bail-in you have to prove that the creditor is not worse off than in an insolvency procedure gets you back to 19 different countries with 19 different insolvency laws and a lot of work to be done individually as part and as a core part of the resolution plan we are working on thank you short and effective the gentleman next yep thank you Federico you have a question what are some of the most structured products that were in some banks balance sheets and they created a little mess after a number of years we have had now new tools and we welcome the work of the SSM and on the others but talking about risk reduction we wonder if we could wipe away the risk of non-liquid banks in order to enhance the trust that we have each others if we look at the priorities of the SRM we would like to see how are you trying to detect it on a quantitative way rather than on a qualitative way thank you yes gladly while indeed when we are discussing non-performing exposures loans to corporates or loans to individuals quite often we are asked on what do you do with the legacy assets of the trading book in fact maybe because they are market assets on the shorter maturities or maybe because the losses were bigger whatever the reason in fact it happens that this has been much much faster in fact it's not well known because there was no good story or no story to tell around it but during the comprehensive assessment we have made an in-depth analysis of the trading books of the banks having significant trading books and we in this assessment we focused on the less transparent more difficult to evaluate to value positions on assets and the stress test were quite tough and nevertheless we did not find a lot of things so this part has been addressed faster than the classical non-performing exposures and for the time being also because the banks learned the lesson of the crisis and they are much more prudent there are a lot of similar operations that have totally disappeared from the operations that are treated by the banks probably not forever because we are human beings we forget the lessons of the crisis after a number of years but for the time being that's not a major concern that we scrutinized this very carefully for example we have done a lot of work on leverage finance that is starting to develop again because it's a more easy source of incomes in a world with low interest rates but there is no yet reasons to get concern and to be active and before there are reasons because we will publish soon recommendations on leverage finance operations it's something also you will find in reading the FCA report indeed there is an increase in the leverage of firms but it's from 1.2 to 1.3 so as Daniel said it's not yet worrying but we're monitoring it in the second row please Soledad Nunez from Bank of Spain my question is also on interconnectedness I see that there are some things that we are doing to reduce it but at the same time I have the feeling that we are increasing in another way for instance making mandatory the trading of the OTC derivative and giving we know that it's a huge market especially on swaps and banking market by the way knowing that a CCP just mutualized risks and most of the members of CCP are banks don't you think that this is also increased interconnectedness and then by the way I take the opportunity to make a second question and it's on the resolution of CCP we know that the commission has promised a regulation of directive recovery and resolution for CCP and my question is on to Mrs. Elke do you think that the single resolution mechanism should take care of resolution of CCP especially from those that are banks or that they are globally systemic thank you I would enlarge the question to Elke because Elke happens also to be the chair of the RSG group in the FSB so therefore she might have also substantive thoughts to share on CCP resolution I perfectly agree with you that we have created and when I say we I think supervisors regulators supervisors were very instrumental here in the inter-connectedness when it comes to CCPs this we did with very good reason because clearly the transparency of clearing via a platform compared to OTC I think is undoubted but we have addressed and when I say we I think the commission was first in saying they want to look into recovery and resolution of CCPs and they are now very carefully looking at what is happening on the FSB level there is ongoing work by CPMI IOSCO on stress testing recovery and a lot of work there which I would call the part of self-regulation the FSB resolution steering group is working on the question do we need to have dedicated resolution tools or even more important at what point would resolution kick in within a CCP framework do we also need to have at that point firm rules and regulation behind this work is still in somehow early stages you can expect to first call it report that is trying to narrow the options for the G20 meeting in autumn and I think then based on that I would assume that also the commission then starts to take up when I'm looking at it nevertheless and to be fair there for me the most important question is at what point does resolution authority need to step in that's probably before you reach the end of the famous waterfall because then you have just some naked bones left and nothing else but it is also the question what will be the target because always considering that the CCP is a facilitator in itself so how do you find back to a match book to keep the clearing system up and there are a lot of more technical questions and they all interfere and that's the interest that the SAP has in into the fact that's roughly 90% of all those trades go via clearing members which are roughly 10 of the GSIBs so whatever is going to happen if you come to this kind of tail event which I hope is always really a tail event will be an event that impacts the banks as well as the clearing members and not just one clearing member and I've now kept out any kind of operational risk could warrant another session well that's the topic in itself and we will finish with Philip since you expressed the wish to put the question so we talk a lot about regulation so let's have one question on business okay because in the end it's markets that have to drive the financial integration that we all aspire for and the regulation should be able to see and that's needed but be also accommodating to that type of dynamics so I would like to ask a question to Kostima Mans as one of the leading retail banks in Europe you describe very nicely the operations you have in different countries and now in a banking union world at the stage where we were many of us probably believe that there would be by now banks in the starting seeds to pursue similar directions to become truly European retail banks and also for the direction that both the commissioners we have in terms of financial risk sharing this would be really important that this actually materializes at a much larger scale than we have now and so I wanted to ask you to give us from a purely business you mentioned a bit like large exposure some obstacles that you saw on the regulatory side so I've taken note of this the question is on the business side so what are the top three things that would have to happen or is it realistic as the banking union matures that actually we're going to have a larger share of operators operating retail banking at the pan-European level and how can we get there maybe from a business perspective one of the things what we see on the retail side if we look at trends the biggest trend by far is the way our clients are interacting with us read digitalization so during the crisis what happened is people started to use the computer then went straight away from call centers iPads to mobile and so if you ask like what is keeping us busy the biggest part is can we still follow the customer because they choose every time a new channel how to come to us now what does that mean for us it means for us for instance all client data needs to be outside of the product system or outside of the communication system with the clients because you want to be updated on all channels secondly all products need to be sold by the device which is the simplest and the smallest which is a telephone we don't have 37 pages of swiping before you say yes to a transaction so banks are very busy with trying to do this digitalization what we have not seen yet is retail customers internationalizing so we have if you ask really like is it a big trend that you see European customers shopping on the European level the answer is no still this is one of the parts which we do expect will happen in the end I mean you know European customers are going to Alibaba and European customers are going to other internet providers as well so I think two things will clearly help and that is the one is the onboarding and the other one is a more European deposit guarantee scheme because then I mean you don't want as a customer to go somewhere place a deposit in a bank and then first say like well let me read the country's deposit guarantee rules but in that sense it's just too much work if you really ask are people interested to spend a tremendous amount of time on their finances the answer is as convenient and as quick as possible because people just don't like it which I can imagine I mean so that is why I think a simplification European deposit guarantee scheme at the same time also better onboarding rules they will start to help to get more a European retail customer and that is something which we haven't seen yet right thank you Kos we're precisely in time because it's one minute before one so I thank all the panelists for their contributions and thank you for your discipline as well and we break for lunch and we meet back I assume in this room after lunch thank you thank you