 Ladies and gentlemen, my task is to welcome you to the second day of our ESRB annual conference. I'm Francesco Mazzaffero, I am the head of the ESRB secretariat. Let me offer you a personal contribution on some of the themes which we discussed yesterday. ESRB exists since six years, and yesterday several speakers spoke of infancy, adolescence, the formative time of macroprudential policy. So, all of us know that in the life of people, in the life of all of us, exactly that period is very important, is crucial. And sometimes it determines how we will live for the rest of our life. So, to start well is indeed crucial. And so, I would like to pass to you two messages on what we have been able to achieve in this two, in this six years, in this initial part of our life. The first one is that while we are a soft power institution, we can only issue warnings and recommendations, and we can only try to make the arguments for good policies. However, provided one does not exceed its powers, it does not pretend to exceed its powers, we can show that also soft law can function. I would like to give two examples of this. The first one is that today in all but one country of the European Union, national macroprudential authorities exist, this was the missing link between the ESRB and the implementation of macroprudential policy. It has been identified at the very early stage by the ESRB, we have been issuing a recommendation for that, where recommendations do not have any binding powers, they are not directives, and nevertheless, we have been managing to create a move, a cultural move, which has been legitimating the creation of national macroprudential authorities everywhere. The second point I would like to mention is that the first recommendation on economic policies of the ESRB was on foreign currency lending. At that time, there was a problem of flows which were continuing to aggravate a stock problem, particularly of borrowing from households in Swiss France. We have been issuing this recommendation, this recommendation has led to an interruption of the flow and when the famous Swiss episode took place, when authorities in Bern decided to appreciate their currency, well, at least this has been hitting the economists at the time in which the problem had become less serious, to the point that it has remained a serious consumer protection problem, it has of course having an impact for many people, but it has not led the economies in a situation of a very serious uncertainty. The second point I would like to make is that the ESRB has proven the importance to have a location for dialogue, and I would like to make three points on this. It has been a location for dialogue between micro and macro, and what I've learned in these six years is what really counts is that in all institutions, there must have been people who are caring for financial stability in their own remit. It is very important to make sure that all institutions, whether central bank, national supervisory authorities, national or European, there must be a group of persons who have as its own core function the fact of thinking about financial stability. And the factor of having all the institutions at the table at the ESRB has been facilitating this. The second element of dialogue is between policy and academy. Yesterday we have been listening to President Draghi speaking about the issue of over banking. Today we will discuss the issue of safe assets. I could mention the question of the treatment of sovereign exposures. All these issues have been brought to the table by the advisory scientific committee, which by the way at the table has three votes exactly like France, Germany and Italy. And this which is a completely unique characteristic and feature of the ESRB has led to the fact that new ideas have been continuously brought to a policy table. And the third and last element of dialogue I would like to refer to is between national and European authorities. Macropudential policy in Europe was created with a lot of fear that it would be misused for competitive reasons. Now we can say that Macropudential policy exists. There are more than 100 measures which have been taken. One could of course discuss the merit of the one or the other. But I would say that everybody would recognize that Macropudential policy has not been used in order to implement actions of one country against the other. So these are the considerations I thought were necessary or useful to start this second day. We are now perfectly punctual to give the floor to Stefan Ingves. He does not need a presentation. But I would like to tell you that without him none of the achievements which I've been speaking about would have been possible. Thank you very much. And Stefan, the floor is yours. Good morning, everybody. And thank you for giving me the opportunity this early hour to speak about the work of the ESRB. It takes all sorts to make a world. That's a common expression when confronted with something odd. But at the same time, recognizing that diversity is essential. I think it also takes all sorts or at least plenty of different sorts to make a functional Macropudential body, especially one at an international level, like our host today, the European Systemic Risk Board, the ESRB. The ESRB's Macropudential mandate is mirrored by its broad composition, bringing together central bankers and financial supervisors, national and EU-wide perspectives, sectoral experts, and academics. Now, certainly, we may look at various issues sometimes quite differently. We may indeed find each other's perspectives quite odd at times. But this is also the point. With the right setup, differences in perspectives and expertise enrich our assessments and become a strength. And the ESRB uses that strength to handle its rather daunting task of overseeing the EU financial system as a whole. So this morning, let me elaborate a little on what the ESRB has achieved so far and why I think the EU needs a strong ESRB with a broad membership when we move forward. Now, maybe not so well-known, but it is quite an impressive journey that the ESRB has undertaken since its launch in 2011. I'm proud to have been along for the ride, not the least in my role as the Chair of the Advisory Technical Committee. Now, the beginning of the road, in terms of a blueprint of the ESRB, reached the public eye back in 2009. A high-level group chaired by Jacques de la Rosier recommended, among other things, that a union-level body be established with a mandate to oversee risk in the financial system. And the aim was to address one of the fatal flaws revealed by the financial crisis, the lack of a truly macro-prudential approach for safeguarding the stability of the diverse and interconnected EU financial system. Before the crisis, the quality of supervision varied substantially between countries, and its coordination within Europe was anything but sufficient. The concept of macro-prudential oversight and policy were largely unheard of, and it is probably fair to say that most supervisors, or anyone else for that matter, could not see the words for all the trees, let alone knowing how they were connected to the vegetation in other countries. Part of the remedy would be an EU body that in a holistic way brings together a representation and expertise as broad as its system and encompassing mandate. The ESRB was created more or less on the basis of this blueprint. Today, almost seven years after the so-called de la dossier report, we have reached a stage where the European Commission is assessing the current macro-prudential framework in the Union, including the role of the ESRB. There are a number of areas where the Commission wants to shed some light before drawing final conclusions about possible improvements. One such area is what would be the best composition of the ESRB's decision-making body, the General Board, and also most of its sub-structures. In this context, suggestions to reduce the size of the General Board have been mentioned, but this would in my view be not only, it would not only reduce the number of people around the meeting table, but it would also take away one of the ESRB's present main strengths. Now, as somebody who has seen the ESRB at work from the inside, pretty much since it saw the light of day, I wanted to take this opportunity to talk about the experiences so far and how we can use them as we move ahead. The ESRB is unique in that it brings together representatives from central banks and financial supervisory authorities from all 28 member states, representatives from the three European supervisory authorities, the ECB, the European Commission, and the Economic and Financial Committee, as well as the independent boys, which was mentioned already this morning, of the ESRB Advisory Scientific Committee, the ASC. Now, as some of you in this room have experienced, in person, the General Board usually has over 70 members seated around the table. Most of them central bank governors or heads of national supervisory authorities. Such a crowd around the meeting table could have been a practical nightmare and an impediment to efficient decision-making, but so far it actually works. We have had candid and open discussions in this composition, and we have been fully capable of taking decisions when we have needed to do so. Well, as I touched on earlier, we may not always unanimously agree on everything, not even after many iterations between the parties involved and at different levels within the institution. Such processes may indeed require a bit of patience, especially when a process is being established. But in the end, the arguments from all sides have been heard, and when we need to take this, to make decisions in the General Board, ultimately at the end of the day, we simply vote. Legally, the ESRB is an independent EU body tasked with macro-prudential oversight of the EU financial system and the prevention and mitigation of systemic risk. It is chaired by the President of the ECB. The ESRB has no binding power, but has soft tools and to fulfill its mandate, the ESRB identifies, monitors and assesses potential systemic risks, and when we find inappropriate issues, so-called warnings or recommendations, to mitigate such risks according to the principle comply or explain. Now, this principle simply says that either you do as recommended or you explain what you have chosen not to. Recommendations can be addressed to the EU as a whole, to one or more individual member states, to European supervisory authorities, national supervisory authorities, and to the Commission. And as I said, the General Board makes decisions by voting, and several of the votes that have taken place these almost six years have concerned issuing ESRB recommendations. The very first ESRB recommendation targeted risks generated by lending to EU households in foreign currency, proposing measures to mitigate those risks. Now, it's always hard to assess something against a counterfactual, but I do think it's fair to say that the recommendation in question is likely to have been both timely and important. Mitigating policy actions undertaken by national authorities reduced the risks at hand, and if this had not happened, events such as the sharp appreciation of the Swiss franc in 2015 could have generated severe problems for many EU households. This would in turn have affected other financial and economic developments negatively with the potential to spread beyond the countries directly affected. Now, other recommendations have much in line with the ESRB's macro-pudential mandate, targeted a wide range of issues in different areas such as money market funds, funding of credit institutions, national macro-pudential mandates, intermediate objectives, and instruments of macro-pudential policy, and the assessment of cross-border effects of and voluntary reciprocity for macro-pudential policy measures. Now, naturally, these policy actions have been underpinned by assessments conducted by specialists with expertise in very different fields, and this in cooperation with the broad membership. I think that the ESRB has a good work progress process in the sense that it combines two features. First, all members are free to send their participants to an ESRB work stream. This is an inclusive working method where different perspectives meet, where there is a buy-in for the members and where peer pressure is exerted. Second, there is a procedural aspect which I mentioned earlier, and that is the decision-making body eventually votes on what road to take. Notably, the ESRB has been able to push, to publish a quite extensive amount of work that has contributed actively to the general debate. This is, in my view, very important for implementing a macro-pudential culture in a broad sense, reaching outside the circle of the ESRB membership. Simply by shedding light on some of the macro-pudential issues we are dealing with and explaining why we see a need to tackle them may contribute to managing expectations, making the job of safeguarding financial stability just a little bit easier. The ESRB's contributions also cover very complex and in some respect sensitive issues where the parties involved may have started from views that are very far apart from one another. Being capable of getting results even when dealing with difficult tasks like that is an important quality of a body like the ESRB. And here let me particularly mention the ASC, the Advisory Scientific Committee, with its composition of distinguished academics with different expertise. And in a sense, a more independent view on things. The ASC has been a catalyst in some of the work I just mentioned. And some of the topics on which the ESRB has produced and published valuable contributions include, for instance, the regulatory treatment of sovereign exposures, macro-pudential assessments of various issues related to shadow banks, an area where there is still a lot of new ground to cover, the insurance sector, and commercial and residential real estate markets in the EU, just to name just a few. Now, I'm also thinking about the work on structural issues regarding the banking sector. For instance, in a report called, Is Europe Overbanked, done by the ASC? This is a very relevant question in my view and one that will most likely get back, that we will get back to in the first panel later today, where the ECB vice president will lead the panel a discussion addressing the effects of the low interest rate environment. The latter is another topic which benefits from being assessed from a macro-pudential view and which is naturally also on the ESRB agenda. I would like to mention another core task of the ESRB, namely identifying potential risks to the EU financial system at an early stage and, as I mentioned, issuing warnings or recommendations about policy actions to mitigate such risks when deemed appropriate. Much of the work just mentioned was naturally initiated through the ESRB's regular discussions on risks and vulnerabilities in the financial system. Here, the ESRB benefits immensely from its broad composition of members, as these tasks must be underpinned by a truly holistic assessment of national, sectoral, and overarching aspects, including how all the individual components interact. The ESRB's support on the analytical and statistical side is, of course, particularly important here, but also the inputs from national authorities and other bodies are essential. Now, we have come a long way in terms of issues such as access to and comparability of data. This, for instance, as regards national banking systems, which is a benefit not only within the ESRB membership and products like the ESRB risk dashboard makes a broad set of risk indicators easily accessible for the members as well as for the general public. In addition, the risk discussions often generate further assessments that are eventually communicated in one form or another, such as the reports and recommendations I just mentioned. Now, a main strength of the ESRB's risks assessments is, in my view, that it captures both the top-down perspective as well as national assessments where the members make self-assessments of the risks at hand and what issues they expect to tackle down the road. These assessments are discussed together with all the other inputs to the risk discussions. Now, moving forward, one area where I hope the ESRB will make further progress is in developing the process for making country assessments. That would enhance the abilities of the members to exert peer pressure, which in turn may help reduce what often goes under the heading of inaction bias. When it comes to identifying, analyzing and monitoring financial stability risks at the EU level, many pieces of information are necessary. The process is for handling all the diverse inputs as well as our assessment tools have developed more or less out of necessity. To really get the big picture, we must understand how the individual pieces connect to each other and we must be able to put them all together. All in all, I think that the ESRB nowadays makes good use of the broad scope of inputs from members with different expertise, connecting all the dots and their inherent dynamics from a truly system-wide perspective. Now, of course, the ESRB was not the only response to the structural flaws in the supervisory framework which were exposed by the financial crisis. A whole new financial supervisory and regulatory landscape has by now at least roughly found its shape from in the EU. But there are still some pieces of the puzzle that have not yet fallen in place. And I should also say that I do not think that the landscape will ever be completely frozen. That will be a bad idea. These frameworks need to evolve and adjust as we move ahead, as we learn from our experiences and as the financial system which the target is constantly evolving. But I would still say that the rough contours we now have on the map are fairly stable and will stay in place for quite some time. And I think that that is very positive. Important landmarks in this landscape include, of course, the macro-prudential oversight by the ESRB, the banking union which focuses on the euro area, the banking union in turn has three pillars, the single supervisory mechanism, which is a big leap forward on the micro-supervisory side, the single resolution mechanism, and the European deposit insurance scheme which, when it is implemented, is meant to weaken the link between banks and their national sovereigns and deliver greater trust in the safety of retail bank deposits. Now, as Francesco mentioned earlier, in addition, national frameworks for macro-prudential oversight and policy have been put in place all across the union. The ESRB has played an important role in that work, not the least through its recommendations regarding national macro-prudential mandates and intermediate objectives and instruments for macro-prudential policy. The latter breaks down the overall objective of macro-prudential policy into a number of intermediate objectives, making it more clear what types of risks it's aiming at mitigating. These recommendations also provides an indicative list of instruments that member states may assign to relevant authorities in order to pursue the objectives of macro-prudential policy. The formal recommendations have most certainly been vital in providing a benchmark for the EU member states when setting up the national macro-prudential frameworks. But I also think that the day-to-day work in producing these formal recommendations may have been almost as important. This interaction is, of course, always a key component, but especially in this case, I think the positive side effects may have been particularly large. Macro-prudential policy was still very much in its infancy at the time, and there was a need to find some common language or common ground, if one will. And I think that the work and many discussions at various levels of the ESRB that took place were a catalyst in developing what one could perhaps call a macro-prudential culture within the EU. Now, another landmark in terms of operationalizing macro-prudential policy was passed in 2014 when the Capital Requirements Regulation and Directive, CRR, CRD-4, entered into force to provide these authorities in all EU countries with a set of policy instruments to mitigate financial stability risks in the banking sector more efficiently than earlier and previous toolboxes had allowed for. The ESRB also took an important role here in terms of supporting the member states as they were to operationalize macro-prudential policy. In particular, the ESRB produced two reports to this aim, the so-called flagship report, providing an overview of the macro-prudential policy framework in the EU banking sector, and in addition, a more detailed handbook which provides assistance for macro-prudential authorities on how to use the CRR, CRD instruments for the banking sector. The ESRB also has a formal role in CRR, CRD, among other things through opining on some national macro-prudential measures. But the ESRB's macro-prudential mandate extends beyond the banking sector. And not every spot on the map over the financial system is as well-known and covered from a macro-prudential viewpoint as the EU banks in the remit of the CRR, CRD. Here, the financial landscape is constantly evolving and subsequently the potential sources and subsequently also the potential sources of systemic risks. One aspect reflecting this is that the share of credit provided by other financial institutions than banks has grown over the past few years. Hence, after making the macro-prudential framework for the EU banking sector operational, targeting the parts of the map where we find the non-bank financial institutions and working on how to provide a holistic view regarding all parts of the financial system is a natural and an important next step for our work. The ESRB just recently published a strategy paper on macro-prudential policy beyond banking which complements the guidance already provided on the policy framework for the banking sector. That strategy paper is meant to provide a point of reference as we now move on to further enhance the macro-prudential policy strategy, regulatory data and instruments for addressing risks in non-bank financial sectors. Let me also mention that other work related to non-bank financial institutions has also been conducted where the recently published annual ESRB shadow banking monitor will hopefully provide over time important insights. The monitor provides an overview of developments in the shadow banking sector. It is intended to faster progress of the debate on related issues and hence targets a broad readership. Now here, the overall mission is to eliminate ideally potential blind spots on the macro-prudential map and to connect all the dots. To achieve that, we need both an analytical framework underpinned by sufficiently high quality data and a policy framework which enables us to target risks in different parts of the financial system in a consistent manner. The resilience of a specific part of the financial system needs to be linked to its potential impact in terms of the systemic risk it could generate for the financial system as a whole. We may also need to develop a wider financial stability toolkit and this would for instance include top-down stress tests for asset managers and central counterparties and recovery and resolution frameworks for the insurance sector and central counterparties. The ESRB is very well placed to play one of the leading roles here due to its mandate, the broad expertise of its membership and its inclusive working methods with a wide range of the relevant stakeholders interacting among each other. I've been talking about the CRR-CRD on and off for a few minutes but let me just elaborate a little bit more from another angle. The CRR-CRD started out after a global framework had been agreed in Basel and this EU level framework was in turn implemented at the national level in the member states. Now in my day-to-day work, I deal with financial stability issues on different levels if one will. As chair of the Basel Committee for Banking Supervision, the scope is global. While as governor of the Swedish Central Bank, I have a national perspective on financial stability but let me admit that the international agenda and developments there play a key role at the national level as well. Now being chair of the Advisory Technical Committee of the ESRB and the member of the ESRB's Decision Making Body, the General Board, this of course provides an EU level perspective on macro-prudential policy and systemic risks. Now these different levels or perspectives are in my view becoming increasingly intertwined, especially after the financial crisis and the lessons that we learned during that episode. Now much of the agenda is indeed set at the global level first and the way financial markets function today, this is also quite natural. We need at least minimum requirements at the global level but we also need to strike a balance between common rules of the game in terms of minimum requirements and the need for national flexibility, not the least in the EU, which to put it mildly, is far from a homogenous group of countries. In fact, the economic and financial conditions differ substantially between member countries. While these differences are quite likely to generate different risks, the structure of the national financial system may also in itself contribute to either mitigating or further fueling these risks. Now, it's not very long since the CRR, CRD entered into force but we have already enough practical experience to be thinking about developing it further. So in my view, that should include simplifying the framework. We really had very limited experience of conducting macro-prudential policy in practice at the time of the CRR was drafted. Now in principle, the commission's starting point was to transfer the Basel III minimum capital regulations into a maximum harmonization framework within Europe. And the somewhat cumbersome procedures when using some of these instruments under the CRR, CRD are probably the result of a pretty tough negotiation which took place before the current framework saw the light of day. But today, with some more experience and a fair amount of learning by doing, I think most would agree that national flexibility is necessary for efficient policy implementation. And as I mentioned earlier, the circumstances under which macro-prudential policy operates are not static. So in terms of the macro-prudential framework, it is unlikely that one size fits all and fits at all times. Rather, the appropriate macro-prudential policies set up naturally including the use of its instruments will to some extent need to be tailored. The national flexibility, which is already part of the current CRR, CRD framework is in my view key for efficient macro-prudential policies. And as we move forward, we may need to strengthen that flexibility. We do not have perfect foresight as regard what risks we will have to tackle further down the road. Nor do I think that we will ever develop the perfect tool for every conceivable financial stability risk out there. One thing to bear in mind in all of this is that whether the perspective is global, regional or national, it all boils down to the same thing, safeguarding the stability of the financial system. And in today's highly interconnected world, it is quite obvious that we to some extent are all in this together. And this brings me to a related issue where the ESRB has played a leading role. An important prerequisite for effective implementation of macro-prudential policy in a financially highly integrated world is that the measures in question can affect all financial sectors which influence the specific risk that authorities are trying to mitigate. This is not always the case. For example, foreign branches are regulated by authorities in the home country of the parent company and may not be affected by the measures taken in the country where they are active. Reciprocation may in such a situation help to mitigate the risks, minimize potential regulatory arbitrage and also provide a level playing field. In 2015, the ESRB issued a recommendation which provides guidance for a systematic assessment of the cross-border effects of macro-prudential policy and a coordinated policy response in terms of voluntary reciprocity for macro-prudential policy measures when needed. The recommendation provides the basis for implementing voluntary reciprocity in the EU and sets guidelines for the analysis, notifications and requests to be carried out. The reciprocity framework is still relatively new but it's a very important part of a macro-prudential approach for the reasons I just mentioned. I think that the ESRB's follow-up assessments of the recommendation in this area will provide important insights on how we might develop this further. Now then, what about the future role of the ESRB? Financial crisis brought with it new rules of the game for financial markets from a systemic risk perspective. We have a new regulatory landscape and framework for financial supervision and the ESRB is a pillar in that framework. Not only is the ESRB central in identifying and warning against risks to the EU financial system and recommending measures to mitigate those risks if needed. It has played a key role by providing a benchmark when the new macro-prudential policy frameworks were implemented across the EU. Here the ESRB continues to be vital in developing that framework further and with that I mean for both banks and for non-bank financial institutions. Now there is of course also the ESRB's role in the new regulatory framework connected to the CRDCR. In addition, I also think that the ESRB more or less by construction is well placed to help its members to tackle mainly national problems by using peer pressure and working against inaction bias in various ways. This may be very important, not the least when vulnerabilities emerge due to problems that are mainly beyond an individual authority's own control. One may wish that we would have come even a little bit further in this field at this point but it's important to realize that it takes some time to set up the necessary internal framework and processes. But by now the ESRB has that kind of machinery in place and the next step is actually to start using this machinery. Now, even if we have a much more complete supervisory framework in place today, both nationally and at the EU and Euro area levels, I think that the role for the ESRB as the EU's macro potential overseer is becoming more and more important. At a high level, there is in particular an increasing need to keep a truly systemic perspective, capturing all financial sectors, their interlinkages and dynamics. The EU banking sector is facing structural problems, non-bank financial institutions are becoming more important. CCP's have taken on a systemically important role and the low interest rate environment is among other things challenging the insurance industry and the EU financial sector does not seem to become less interconnected. All these issues must be tackled with the impact on the system as a whole in mind and I think that the ESRB is a key in this endeavor. For every challenge we face and overcome, we learn. We learn and that makes us better prepared for tackling even more difficult challenges down the road. And that is in my view, certainly true for the ESRB. We learn from the financial crisis and there has been a substantial amount of learning by doing since. I must say that the blueprint was good to begin with and now pretty much all the necessary nuts and bolts were already in place to create a macro-prudential body. Having central banks and supervisors around the same table as European institutions and adding the independent views of the advisory scientific committee to the mix is in my view a very good setup. I think that the plan for how all the nuts and bolts and other components should be connected and work together has proven to be a good one. While many probably doubted that the ESRB's somewhat complex setup with so many members could function well in practice, the institution has gone all the way from that original blueprint in 2009 to where it stands today as the EU's macro-prudential watchdog. Its machinery brings together all the components that its founding fathers had in mind with a setup that has allowed the broad composition and large membership to, in my view, become main strength rather than impediments when it comes to carrying out the work. So the road we have traveled these almost six years has formed an institution which has developed with the challenges it met. It has fine-tuned its processes and its machinery and I think it is well placed to face the challenges today and further down the road. Thank you for listening.