 Oh wow. So I feel like there's almost no need for the introduction given that so many people showed up. Can I start by saying again good afternoon from my side. I think it is my distinct pleasure to welcome all of you to our next session, which is a discussion with Madame Danielle Nui, who is the chairman of the SSM supervisory board at the ECB, as I'm sure you all know. Miss Nui has held this role as SSM chairman since it was initially formed or created, should I say, in 2014. The SSM is part of the institution building of the European Banking Union and obviously its key constituent block. In her role as chairman, Madame Nui is essentially responsible for the supervision of the Eurozone's banking system. I'm just going to touch briefly on Madame Nui's previous position. She has had a long career in banking supervision, holding various positions at the Basel Committee, ACPR, the French Banking Commission, as well as Bank de France. Now Miss Nui, I'm aware that this introduction could go on for a very long time because of your CV. Then again I think the full room, as I mentioned at the beginning, suggests that the participants are indeed very familiar with the role that you play and the importance that you have in the supervision of the European banking system. So before I stop, may I please say thank you for joining us here today. I realize that you had to travel from Frankfurt for this and I suspect that this remains a very intense period when it comes to the European bank supervision. So thank you for making the time and thank you for joining us. Jean-François and I will kick it off with a few questions. I'll ask the participants to get their questions ready because we're going to hand over to the audience very quickly. So Jean-François, over to you. Yes, thank you for your participation also from my side and I would like to start with a question on the first year and a half, essentially of operation of DSSM. In your mind, what has been the key achievement of that year and a half and also where has the single supervision made the principal difference? The question in other words is what would not have been possible had the supervision stayed national? Well, first of all, thank you for inviting me. Thank you to all of you for joining this discussion. Good afternoon. Well, during this short period of time, the differences that were brought by the banking union on the first pillar, the single supervisory mechanism was first of all its existence because it was built in a very short period of time. Second, probably the comprehensive assessment that was a huge project to review the situation of the banks that we were about to supervise, asset quality reviews, stress tests. It was very helpful to start knowing very well the banks that we would supervise immediately after. We did also a lot of work regarding harmonization, the national options that are in my view too numerous in European legislation on regulation. We also built a single methodology for the pillar two calculations, the review and evaluation process of the banks, the SREP. And also I must say we raised awareness about possible issues. We made denial impossible on certain issues like national options, for example, but also non-performing exposures, sovereign exposures. And we helped a journey to be started on these important issues. Maybe the last question before we open it up to the audience. We heard from a multiple of banks which have presented thus far that there's concern on the levels of profitability. And I think at some point a low level of profitability becomes a financial stability issue as well. I think the SSM made the sustainability of the business model and sustainable level of profitability, one of its key areas for examination over the course of this year. I was just wondering how do you observe the levels of profitability in the system and how concerned are you? We should not forget what we are coming from. A number of banks and a number of countries have been hit by the, seriously hit by the recent crisis in the euro area. So a number of them still have legacy assets, for example, and they are addressing those assets. The context is a difficult context as well. We are in a low growth, low inflation environment, which means that the recovery process is challenged by this context and that has to be taken into account. This being said, this recovery is taking place and the banks have to take the opportunity of this recovery more difficult times to reassess the sustainability of their business models, to make in-depth analysis of their profitability drivers. And it is important because indeed you need to be profitable to be well capitalised. And that's why from the very beginning sustainability of business models, profitability drivers have been on the top of the list of our priorities. Okay, so with that we will open it up to Q&A from the audience. Please signal your interest to ask a question. A word of warning, this session is being webcast in compliance with ECB's disclosure policies. So you are on live TV as you are asking the questions, be aware of that. Also please introduce yourself and your institution as you ask your question. But I think we've got the first question right there. Oh, we already have one there, sorry. Sorry, I've been given the microphone, so I'm going to start. We've seen a number of new initiatives, sorry, Xavier Van Ho from THS Partners. We've seen a number of new initiatives in the last few years and I'm just going to read them because I can't remember them all. There's obviously the SSM, the SR, the STREP, the EBA, the SRBD, then there's all sorts of regulations, CRD4 stress test, CCB, PLO3F, SBT like GSIBs, SRM additional tier 1, tier 2, LCR, CRD4, AQR, Basel 4. Is it perhaps now enough? Has it got complicated enough? Can we hope for a slight simplification going forward? Well, this is what can be seen after crisis. The regulation is reviewed, the supervision is announced in order to make sure that the probability that such a big crisis happens again is much lower. But I agree with you, this is time for implementation right now and in particular related to the previous question. If we want the banks to rethink their business models, their profitability drivers, they need a stable environment. So we very much support a quick end to the regulatory reform and this is what should happen with the Basel Committee finalizing the current project by the end of the year. Madame Louis, perhaps a different way to ask this question is in your mind how far down the line to reaching a new steady state on terms of regulation and supervision are we? Well, in supervision I start with this one because it's probably the most easy. On supervision we are not yet where we want to be. We have a long journey on certain issues for sure and I'm sure you know those issues. Regarding regulation, the supervisory board of the SSM said last year, I said last year that we thought we were in the steady state for capital requirement. We have not changed our mind and we are in the camp, a very large camp as a matter of fact for sure a majority if not the consensus that believe that the reform still to come before the end of the year should not trigger a significant increase of capital requirements namely pillar one requirements and I have an interest in that because as a supervisor I want to see still room for pillar two for the judgment of supervisors. I think good supervision can make a difference but for that we need this tool which is pillar two and if the pillar one requirement was to go up again in this case there will be less room for pillar two which will not be a good thing. Excellent. Okay, let's take the next question please. Right there. Hi, Heather Takahashi from Three Bridges Capital. I had a question about the Italian banks. So it appears the ACOB has been taking action to encourage them to offload MPLs and raise capital if necessary but just looking at the stock price reaction of the Italian banks it seems to have had perhaps the unintended consequence of increasing their cost of capital. I'm wondering does that matter to you and if so what actions would you take? Well, I'm not quite sure what is the precise question. What you said about Italian banks can be said about other banks in the euro areas. We have a number of banks in a number of countries that have some legacy assets to address. We started addressing legacy assets by having the asset quality review of the comprehensive assessment identifying those assets with a common definition for the first time delivered by EBA. Then once identified they had to be reasonably well provisioned through this asset quality review and also through the stress test exercise. So now we have a very sound basis to move to the next step regarding this issue. We have a high level group on non-performing exposures that is close to produce its report and offer solutions that will have to be discussed by the supervisory board on this idea upon. There will be a consultation anyway on anything that is decided. So you know on such an important issue there could not be less than two months consultation. So on then we integrate the outcome of the consultation. So it takes time before it is guidance. Obviously the final recommendation will be more for the steady state and the new loans not to create new non-performing exposures. And for the rest well each bank will have to address in a dialogue with the supervisor how they move from the current situation to the steady state. To a certain extent it's like a marathon because not you have banks that are closer to the finishing line in this big issue in this journey and others that have still more work to do. It's also the decision of the bankers to decide whether they want to move faster in order to benefit maybe for new opportunities in the SSM area in the euro area banking systems or whether they prefer to address that more gradually but they will have to carry them for a longer period of time. So it's nothing specific if I understood properly your question to the Italian banks. In terms of the second part of the question if I understood it correctly there was a question whether the SSM takes into consideration the fact that the market seems to have taken a negative view on the impacts of MPL initiatives for the Italian banks and the cost of equity for those banks has risen. I guess a different way to ask this question is does the level of market capitalization or the share price enter into the equation at the SSM? SSM is about level playing field on consistency so we cannot consider each segment, each market for investors and in fact investors should start thinking European probably and euro area probably. So the solution should not be looked for simply on a single market but yes depending on the capacity or lack of capacity to get fast the possible equity needed banks may choose to move more slowly again the comprehensive assessment has provided us a very sound basis to take the banks from where they are right now to the finishing line of the marathon. Excellent. Okay let's take the next question, let's take one from the back. Right there. Teri Camudia, Biber Capital. I was just more on the issue of legacy assets. Mr. Consalzio mentioned after the last ECB meeting that there is a possibility of task force being introduced to enforce solutions for individual banks on MPLs and I'm just curious if you could provide more color on that or any more detail because obviously going back it looks like you're in some sort of consultation period and that's moved towards plans for individual banks and I'm curious how you're going to address that. Hang on, so can I just, what the question is? Yeah what, you know Mr. Consalzio said that there would be the ECB or the SSM would enforce plans to deal with legacy assets or MPLs at individual banks or task force would be established to deal with MPLs and I'm curious how you know what initiatives or what plans are in place to address these issues. So I think I must have made this comment from Mr. Consalzio. Well I have not seen what Victor Consalzio said but I presume he said things that I could have said myself as well on non-performing exposures. So well a group high level task force on non-performing exposures exists already and has been working hard for months doing a very good job. So now they are close to deliver some proposals to the supervisory board and we have also to consider the whole sequence on the good calendar, the first event for the banks that are in the EBA stress test will be the publication of the outcome by let's say mid, between mid and end of July. Then all the banks at a certain moment in the fall will receive their step decisions from the supervisors and according to the recommendation of EBA on ESMA will probably be published those requirements for SREP because the banks decide that's why I put it this way the decision of publishing not publishing market abuse directive soon to come market or maybe already just came a few days ago the regulation on market abuse put the responsibility in the end of the bank. So we have to consider another element of the calendar is the new IFRS rule about provision of expected losses as well. So we will probably go public first sometime in the summer fall with the qualitative part of how to manage non-performing exposures then there will be a more quantitative part I would imagine beginning of next year for the steady state and for the new loans and indeed the banks will receive supervisory dialogue depending on their situations depending on their strategy, individual recommendation from their supervisor. Madame Noé, the MPL task force is that led from the ECB from the financial stability division or from the SSM? It's led by a person that has all the capacities for doing the job namely it's already public Sharon Dennery, deputy governor of the Irish central bank that a country that knew about such a problem that had to address the problem and did a good job in addressing the problem. I think it's better to take as usual the best person for the job and she is in my view the best person for the job than all the national supervisory authorities contributed on where part of the thinking I've had say in the proposals. Excellent. Okay, where should we continue? Perhaps over there. Thank you, it's Philippe Boulot from PIMCO. Just if you could give us an update on the progress you're making on the MDA discussion which has been a big focus for the market in January, February, if you could give us maybe a sense of your thinking on that front and as well as the timeline for any kind of new legislation coming through and the second one is on the sequencing for the next few months especially sequencing between the publication of the stress test by the IBA in July and the scrap letters in November. We're a bit worried that there's a lot of data that's going to be published to the market. We know it's going to inform the scrap requirement but it's a very long period of time during which people are going to try to reverse engineer what's going to happen there and I think that just in itself is a source of risk only to understand why you don't publish the two things together. Well, to start with because we will not be ready at the same time and the same people are the ones dealing with the stress test and the ones dealing with the scrap decisions. But let me try to clarify this. I'm sure you are aware of the European Commission note on pillar two requirements and pillar two guidance for this year and we are very pleased that we got this clarification because this is what we had asked the European Commission to clarify the way the different... the staking order of the buffers and the different elements should be considered. So, again, as we said last year we are in the steady state so it means that the requirements of last year will be split this year into a requirement part and the guidance part. This should not be new for you because this is the way our British colleagues are addressing this issue and only the requirements are MDA relevant and not the guidance because there is no automaticity in transforming the guidance into a requirement and as our British colleagues are doing the outcome of the stress test are expected to be in the guidance so there will not be MDA relevant. Obviously, you know the different elements that enter into the SREP requirements credit risk, market risk, governance business model, profitability, ICAP, I like and so on and so forth so I don't imagine that the stress test either the baseline or the adverse scenario will produce something that we were ignoring before the stress test so part of the outcome not in a mathematical fashion but part of the information provided by the stress test is already known and is already in the different blocks that contribute to the PLOTU requirements but the result of the stress test themselves are part of the guidance and in the guidance not even in a mathematical fashion either in particular because as you know this is not a fail pass exercise this year so the stress tests are not expected to have an influence on the level of the MDA I hope I was clear enough I think it was very clear but these are complex topics nonetheless okay, Len, go ahead Hi, I'm Len Riddell from TIA you've made it clear that a level playing field is very important to you the Dutch regulator, DNB has imposed a 300 basis point DCIP buffer for their banks which is obviously completely against your level playing field so to what extent do you put pressure on such a regulator to remove such a buffer? National versus SSM Well there are elements which are in the hands of the SSM because of prudential issues and there are buffers other elements which are not in the hands of the prudential regulator Global CFI buffer domestic CFI buffer have been decided by other people for other reasons macro prudential buffer have a strong national dimension so we exercise our responsibilities and the people that have this task these responsibilities, macro prudential buffer domestic CFI exercise their responsibility we don't put any pressure on anybody respect the work that is done by the people working with us to get safer and sounder banking system Perhaps as a follow on to that question as the European banking union advances and we have a functioning single resolution mechanism do you still anticipate for that to be a substantial difference on the DCIP side or not that much? Do you see it as a temporary measure of somebody like the Dutch regulator or not? Frankly I don't know this is not something on which I have a view for the time being how long it could last it depends very much on the context obviously so if the context is changing it may change I have no crystal ball alright let's take one question from this side of the room if there are any no you can't have another one hang on no? we have shy people here and then lots of questions there there was somebody else okay please go ahead yeah sorry Hi it's Benjamin Billard from Elevan Capital you highlighted the importance of discretion for the national regulator in the pillar 2 can we expect more differentiation in terms of SRAP going forward? well there should be room for supervisors judgment that's my stance this being said it's a certain room in a certain framework what we can do is describe in the regulation on CRD4 and there is an EBA guidance that explains how the discretion should be exercised so we are in this respect fully complying with this framework which is delivering consistency in Europe what we want to do as well is to be as I have said several times tough and fair, fair and tough because the two go together you cannot be tough if you are not fair it's just impossible so we are able to conduct a number of horizontal tests to use different kinds of benchmark to make sure that we are tweeting properly on any of the significant institutions that we are supervising so yes there is room for supervisor judgment but not total discretion on that just normal and fair okay next question please sorry, coming back to the... sorry, Jérôme Legrand from Axiom Alternative Investments coming back to the topic of Italian NPRs you said they were mostly addressed in the AQR Mr Draghi said they were adequately provisioned so presumably I think most of us believe that Popolare di Milano and Banco Popolare had adequate provisioning and still when the merger was announced they said they had to increase provisions by roughly 1 billion euros so could you explain us the rationale for that and why did the merger trigger an increase in provisioning which doesn't seem obvious to me and should we expect similar decisions and possibly future transactions? Well I will not comment on individual cases so I will not comment on these two banks what I will say is that we have first of all that mergers are very serious operations that will change seriously the risk profile of the banks and that's why we are very cautious when we are accepting or putting conditions to possible mergers our stance is that the new bank has to be strong from the very beginning a promise to be stronger over time in the future is not good enough it's not delivering and there is another issue which is just common sense if you take two banks which are in medium size let's say and if by merging them you create one of the first five banks in a country, whatever country, the same for everybody then you want to compare the new bank with the new peer group with the new category and we expect obviously the big banks the systemic banks to be even domestically systemic banks to be safe and sound so yes what could have been enough reasonably good as a starting point to address certain issue for two medium size banks or three medium size banks or four medium size banks before a merger if they decide to move together and to become systemic banks for the country on the SSM well they will be judged with new criteria for sure and maybe to stay on the point of M&A just for one more second we had a brief discussion on this previously so at the start of 2014 I think the President of the ECB outlined the end direction of travel for the European Bank Union and I think he said something along the lines of that national borders should not matter and the capital and liquidity within the euro zone bank capital and bank liquidity should become fungible I think that we are now all looking back on those statements and saying there is a disconnect between perhaps the theoretical intent and the practicalities what do you see, do you think we are moving in that direction? Well yes indeed we are moving in this direction but we are in a transition period of time and let me remind you that the transition has been very fast even if you consider that maybe it should be faster it took decades to get the single currency the SS, the banking union was decided in less than two years then hardly more than two years you had the single supervisory mechanism then coming just after a year after the single resolution mechanism so indeed we are not in the steady state in this respect the third pillar of the banking union is still to be created the single resolution fund that goes with the single resolution mechanism is not yet built on the funded and the solidarity has not started if I remember well the piece of regulation there will be in the steady state in 2023 that's a fact and I'm pretty convinced that the so-called EDIS the single deposit guarantee scheme for the banking union the third pillar will come pretty fast as well here as well the national deposit guarantee schemes are starting from different points very different points so there will be a phasing for this national deposit guarantee scheme to turn into the European guarantee scheme this period of time in parallel not in a sequence but in parallel this period of time will be used to reduce risk in the euro area the two elements are leveraging each other third pillar on reduction of risk and then we will be in the steady state the word has already changed a lot pretty fast in my view but there is more to come yes before we can say it's a single banking system Hang on, there's a question over there Hi, it's Anca Cano from World Capital I'm just gonna pick on your comments on the pending Basel IV regulation and I think it makes a lot of sense it comes through PILA II the question is the quantum from the proposal seems very large very large for some specific banks and also it's the first time some of these proposals are affecting households and corporates so what should be around the quantum of these proposals? Well the stance is no significant increase of the current PILA I capital requirements outliers will be hit for certain of them certain banks are outliers so they will see a difference but again broadly on average should not be a significant increase obviously the impact analysis the consultation is based on reasonably pessimistic parameters because otherwise you can always decrease you cannot increase after a consultation period so my colleagues were prudent when they went out with their proposals but at the end of the day there will be analysis of these results and we will make sure that we get where we want to get and I have seen a number of pieces of research or analysis regarding the possible developments the common feature is that they all take the worst parameter for each element the top first parameter for each element obviously if you do that the outcome is scary but this is not going to happen calibration is key indeed Alright, next question No, sorry, hang on there's one over there Chauncey Thank you Chauncey Ups and Visium just a question on trust and on believability when you meet management teams or investors the view is that rules while uncertain in terms of their calibration may be changed or not adhered to ex post facto whether it's Novo Banco whether it's Italian bank consolidation whether it's banks that have passed AQR and subsequent to that been forced to raise equity to cover legacy assets so my question is how do you view the believability and trust that capital markets should have in this process that seems very low Well I think clarity, certainty, transparency are very important for the investors on capital markets and we should ensure that but with the example that you have quoted I don't see, thanks God anything we are responsible for it was the measures that you are mentioning were not taken by the ECB to the best of my knowledge and I am certain it's not the best of my knowledge so we are committed maybe that's better to say it like that we are committed to clarity, transparency on as much certainty as possible we cannot have certainty on the exact final outcome of the Barcel committee reforms for example we are not in the driving seat we are not the regulators we are the supervisors but I can tell you that we are committed as members of this committee the Barcel committee the so-called GOS the committee with governors and head of supervision that take the final decision to stick to our stance of no significant increase coming from this reform on aggregate on aggregate, yes so we got a minute of time left so I am going to turn to Jean-François if you have any questions sure, the question I wanted to ask you was looking forward now that we have the single supervision mechanism we still have very few pan-European true pan-European banks and the question is from your point of view, from a supervisory point of view do you believe that more pan-European banks larger banks are desirable from a financial stability perspective and what are the obstacles before we start maybe seeing some more of that as we've seen larger banks rather shrinking than growing really recently we certainly need more Europe not less Europe in the banking sector there are already a number of banks which can be considered pan-European banks a number of the banks that we are supervising are very important, systemic, domestic in several countries of the Euro area I'm pretty sure that this will go on we are offering with the SSM the SRM tomorrow with single mechanism for deposit guarantee the framework that makes it not only possible but probably desirable also for market participants I think the moves should be taken by the market participants it's market participants that have to decide about the merger they want to promote and the shape of the European banking system that is to be developed but we offer the framework the consistency, the level playing field it may take also certain additional legislative reforms to make it even more desirable Capital Market Union for example is a great project that should be promoted and that will be helpful new bankruptcy laws that will be on consistent bankruptcy laws in the different countries will help Market Union will help also the supervisors in addressing the non-performing issues new laws for repossession of collateral for example as the Italian legislators are taking right now because you are very much interested in developments in Italy and I think that is going into the right direction and will help the consolidation of the banking system within the euro area Excellent, Madame Nui we are out of time I would like to thank you again on behalf of Goldman Sachs and our clients, investors in European banks for engaging with the market we think it's a very refreshing attitude, thank you very much Thank you