 Well, thank you very much for the invitation to speak to you today. This is a very distinguished venue, and I'm delighted that in Ireland today we can discuss these banking issues in slightly calmer circumstances than when I took over my new job back in 2010. I should add that when we were driving down to this venue, I was informed by colleagues that this was a rough area, so I thought that it was very appropriate, given that we were going to talk about banking and state aid control and burden sharing. But I must say, looking straight ahead of me, I don't quite have the impression that it is a rough area. At least the building is very impressive. Now what I think I'll do today is quickly run you through three issues. First to talk a little bit about state aid control during the crisis, then to zoom in on some of the main developments. Don't worry, I will not bore you with all the technical changes that have taken place. But finally, and I think that's probably the most interesting thing at this juncture, to zoom in on the role of state aid control and the transition to the banking union, which is really the big debate we are confronted with today. So I'll start with the role of state aid control. I take it my slides will be available for you, probably be uploaded, so I'll skip one or two slides, which are more for background, but go straight to how state aid control was used as of the autumn of 2008 when the financial crisis in Europe led to unprecedented bailouts of banks. And when we realized that, in essence, there were no central crisis management tools available and that the internal market came under enormous pressure. Here in Ireland, of course, you are familiar with what happened when the Irish banks came under pressure, when the Irish Department of Finance decided to introduce a blanket guarantee on bank liabilities, which led to movements from the U.K., just as an illustration of how purely national rescue measures during the crisis had an impact on the internal market. And at that juncture, the Commission decided that it had to step in in order to ensure that these financial stability measures would not go at the expense of financial stability in other member states or the internal market for that matter. So back in 2008 and 2009, the Commission acting under its exclusive competence to which our Chairman has referred for state aid control under the treaty built up a rule book, which in essence set out the conditions under which member states could aid banks, be it through capital injections or liquidity support or other measures such as impaired asset measures. Now, these rules can, I think, briefly be summarized by referring to the three pillars that guide our interventions, which are viability, burden sharing, and the need to remedy distortions of competition, which are inherent in any bank rescue operation, of course. So the rules, in essence, set out how restructuring operations could be conducted, pricing guidelines for guarantees, but also for recaps, rules governing impaired asset measures, and more generally, remuneration requirements. Now, those tools were used to ensure that we actually in dealing with restructuring and resolution cases could reach the three objectives I've mentioned. And I think it's important to point out as a practitioner that somewhat to our surprise, the bulk of our work has actually consisted to ensure that banks receiving state aid could reasonably demonstrate to be able to return to viability at the end of a restructuring period. The thing that has surprised me most in all of this is that there was a high degree of denial in many bank boards. Also, some national supervisors felt that the deep restructuring, which we sometimes have had to impose, was not immediately necessary. But I think the rigorous application of external verification and assessments for which the commission has also relied on external consultants who, you know, have a lot of experience in this field has, I think, proven to be valuable because to date there have been very few of the restructured banks under state aid rules that, you know, went off track and had to come back for more support or eventually had to be resolved. So these restructuring plans are typically very tough. They lead to de-risking to ensure that the underlying causes of the difficulties in which these banks got into were addressed. They invariably involve a lot of cost-cutting. Many of these banks were overstaffed and overpaid. And I would say they also often involved a streamlining of the business model of the banks concerned to ensure that management could really focus on activities with which they had experience and where the bank could be expected to have a comparative advantage. The objective, of course, was to ensure that after the restructuring period the bank returned to viability, could earn normal profits and would not need any public support. That's the first pillar. And as I said in practice, most of the work we've done on individual institutions has focused on this aspect. Second pillar, burden sharing, very important. In essence, what we try to ensure through these rules is that the costs for the taxpayer, the state, are reduced, minimized. And secondly, that moral hazard is addressed because obviously we all know that banks that count on being bailed out have an implicit subsidy. The subsidy has been quantified as running into several hundreds of billions for the entire EU banking system. And this leads to unnecessary risk-taking, undue risk-taking, I should say, which we felt had to be addressed by requiring owners of banks, and in some cases, creditors of banks, to contribute to the rescue of the bank. Third element, remedying competition distortions. In essence, what we try to do here is to limit the impact on the markets of saving banks that would have otherwise failed in a normal market when a firm is not viable, gets into trouble, it exits, and then the competitors who have been more cautious or who have been better at conducting their business take over their market share. This is a normally functioning economic system, but obviously with the financial stability concerns we were addressing, this could not be followed. So we were trying, we have tried through these competition measures to redress these distortions as much as possible. And typically this is required divesting viable subsidiaries or forcing banks to exit parts of markets where they were active and where they were earning a healthy profit. Now you can clearly see from this description that there can be a bit of a tension between the viability, the return to profit, objective, and the competition measures that we have had to impose. And this has been a challenge in designing individual restructuring decisions where we have had to marry these two objectives. In terms of how this was actually dealt with practically, as I said, we wrote a rule book, all of which is available on our website. And one feature of these rules when they were brought in in 2008 was that they were very flexible. So they allowed a rescue phase because we were dealing with a financial crisis that in essence required immediate action followed by a discussion on a restructuring plan. There were many procedural innovations. In essence, DG Comp was given quite far-reaching powers. I should say the commissioner for DG competition was given quite far-reaching powers to essentially allow us to take decisions within 24 or 48 hours. And finally we set up a dedicated team of about 50 to 60 people who were dealing with all these cases. These colleagues were to a large extent drawn from regulators in the banking industry, obviously economists from within DG Comp and our legal state-aid experts complemented the team. Fairly small team, just 50 to 60 people for the whole of the EU, but relying, as I said, on consultants who worked on individual cases with us and whom were paid for by the banks that got into trouble. Now, I think it's maybe worth illustrating the significance of state-aid control during the crisis. So far we have worked on the restructuring of 67 banks. And contrary to what a lot of people believe outside of Ireland, I should probably say, we've actually had 23 resolution cases, which is not insignificant. We still have 27 cases that are open and there's some on the horizon. And 44 schemes, in other words, rules that allow liquidity support to be given at predetermined terms were decided. Given that some cases involved multiple decisions, we've had to take about 400 decisions to date. In terms of the amount of aid, it's a staggering number. 4.9 trillion euros of aid was approved over the whole crisis, equivalent to nearly 40% of the GDP of the EU. But not all of it was used. Many of these initial schemes were actually not fully deployed. Member states built up a significant buffer. But still, the total amount of aid used was very significant, 1.7 trillion euros of aid, some of which is now being repaid. So this is the maximum figure. It's not the extent of state-aid at this particular point in time. What is also very interesting is this little graph at the bottom of the slide, which shows the extent to which banks got into trouble by Member State. And in effect, 25% of the entire European banking sector is now under restructuring plans authorized by DG competition. But in some countries, this percentage approaches 100. Ireland is one, but there are other countries, my own country, the Netherlands has a very high percentage, 70%. In Greece, it's nearly 100%. In Portugal, we're looking at 55%. Spain only has a percentage of nearly 15% to 20%, depending on how you measure this, because large parts of the banking system were actually sound, despite that, as you know, Spain had to request assistance through an ESM banking program. So very significant coverage. And as I will explain more in a moment, this has actually led to a situation where we've had to update our rules and also take a slightly different perspective. Initially state-aid control, like in many other sectors, was case-by-case, very specific, but obviously when you get to these type of percentages, you need to take a systems-wide approach to think about the impact of your interventions across the banking system for the banking market's concern to look at the macroeconomic implications, the implications for lending to the real economy. So state-aid control was forced to take on a role, which up until now I think it has never played before. I would say that viability was essential. I've already illustrated that when I described the three pillars. But burden sharing has also been important, and as member states ran out of public resources, got into trouble as the economic crisis transmorphed into a sovereign crisis, the provisions on burden sharing actually became much more important. And they are still, I think, at the heart of the debate in the context of the transition to the banking union. I'll say more about that later on. Finally, the rules have been updated to also reflect this growing role of state-aid control. Our latest banking communication, which was adopted in July and which entered into force on the 1st of August, very clearly sets out these more horizontal considerations which we take into account. Finally, as I said before, Europe is often criticized for not wanting to wind up unviable banks. It's actually not true. There are a number of very big banks that have been wound up. West LB in Germany was a very significant London's bank. I don't have to say anything about Anglo-Irish. The example of Dexia is also rather illustrative of a very significant bank. The very large numbers of banks that were resolved in the U.S. by the FDIC were typically extremely small banks. In Europe we've actually seen resolution of quite significant banks. So I'll now zoom in a bit more on the changing environment we have worked on and how that has been reflected in our rules. As I said, our rules have been adapted to the changing circumstances, to the evolution of the crisis. Our pricing rules have taken account of market realities. What we've typically tried to do is to ensure that banks that could borrow on the market on the back of government guarantees that the pricing reflected relative market perceptions of risk through CDS spreads, for example, to ensure that this market distorting effect was at least to some extent a counterbalance through the way in which we've set the prices. But I think the most important change, which I already mentioned, is the evolution from micro to macro, if you will, from an individual bank to a systems-wide approach. I would also say that there's been a very important evolution in that as we have worked on more and more banks, the teams involved have learned to see what type of solutions actually would work. So the decision space that was available to member states could better be defined as we could draw on our experience. And therefore, we've evolved to an authority that isn't just waiting for a member state to submit a restructuring plan, but very often at the outset already can advise a member states as to what can work and what will certainly not work. And then there's been an important evolution in terms of burden sharing where our initial rules essentially required shareholders to be diluted, in some cases significantly be diluted, and the state to be remunerated in an acceptable manner. But as the crisis evolved and as many of the bank restructuring decisions happened in the context of EU, what I should say Euro area IMF adjustment programs, what changed as well was that the Eurozone as a whole decided that in a number of cases burden sharing should be deepened. This happened in Spain and most recently in Cyprus, you will know about that of course. And of course that meant that our burden sharing rules had to be updated to ensure that they reflected the minimum. We can only require a minimum degree of burden sharing. It's not internal market harmonization that we do in DJ competition, but obviously as some member states were pushed by the Eurogroup to go beyond our rules, then our rules also had to be updated to ensure that they remained meaningful and that is an important change in our most recent banking communication. So to sum this up in slightly loose language, what started out as essentially a coordination role evolved into a de facto resolution mechanism role, very partial role, because of course we don't have the right of initiative. We cannot approach a bank which is something a resolution authority can do. We have to wait until there is a credible prospect for state aid to be injected. Now, I'm not going to take you in detail through the next two slides, but I would like to give you an impression nevertheless how we've taken forward such a systems approach in the case of Spain, which as you know got into trouble in the first half of last year. And drawing on lessons learned, for example, here in Ireland, we pioneered a much more synchronized approach where we started out with a very tough in-depth asset quality review and stress test, which then led us to be able to put the different banks in buckets. We managed to evacuate 80% of the Spanish banking sector where even after a very tough stress test it appeared that these banks were sufficiently capitalized. The rest was put in different groups and for these groups we started work on restructuring plans in a pre-programmed manner. This slide actually is part of the MOU that was signed in July with the Spanish authorities. So we planned the entire operation, putting state aid control at the service also of the program, essentially arriving at three groups of banks for which we planned the disbursement of the aid and the adoption of the restructure and or resolution decisions ex ante. And a very important procedural change that was introduced at that juncture in the context of Spain was that no structural capital measures could be granted so no capital could be put into a bank until a restructuring plan was actually adopted. This in combination with the experience we had in terms of being able to guide member states towards viable restructuring plans allowed us to take very quick decisions. In total eight banks were restructured and all of the decisions were adopted between September and December last year. Now that was only possible because of this procedural rule and because of the fact that we could organize things in a very systemic fashion. What we also did there was to in essence look very carefully together with the IMF incidentally which was advising us at that stage at the effects these plans had on lending to the real economy. So we did an explicit test to ensure that there wasn't an undue reduction in lending to SMEs and households whilst of course the total lending capacity of these groups was significantly diminished because most of them had been active on a very large scale in terms of channeling funds to real estate developers. That fell away and if you look at the aggregate figures that of course leads to a situation where total lending by these banks dropped a lot but if you look at the composition of the lending then you'll see that the lending to SMEs and households actually was maintained. So we could plan and program that by working in this more systemic fashion. Second feature that was very important and I've already referred to it as the burden sharing. Now what you see here are essentially three groups of banks. I have a beamer I think. Let me see. Not 100% sure how this works. So three groups of banks. The top line gives you the capital needs that float from the AQR and the stress tests. Group one was by far the biggest group, the group in which you had banks like Bankia, NCG, Caixa, Catalonia. So big banks with big capital holes. Group two banks and group three banks had much smaller capital needs I should say but the total hole was about 55.9 billion euros and in essence what we managed to do on the back of these new rules was to require conversion and asset sales as well as frankly private sector capital raises and this was very important because in group three where you have the stronger banks that nevertheless were in trouble these banks actually managed to go to the market in extremely depressed circumstances and raise capital. So shareholders were heavily diluted as a result but these banks didn't require state aid and that was part of the design of the program. In other cases as you can see in the bottom line the forced conversion of junior debt through LME's first voluntary then forced led to a lot of capital being created, a lot of equity being created through the conversion of junior debt and that saved about slightly south of 13 billion euros in terms of the capital injection. So all in all all these different features of our burden sharing rules led to a reduction in the bill for the taxpayer of about 23%. Now that was very significant it was very controversial at the time there was a significant worry on the part of many bankers in the country that by acting in respect of junior debt holders we would destabilize deposits. Another concern was that many of these junior debt holders were the best clients of the banks and that they would walk away. There was a significant concern that some of these junior debt holders had bought instruments they hadn't understood and that maybe the bank shouldn't have been selling them to retailers to begin with which led to quite a lot of legal action outside of the context of our rules obviously. But all in all I think it's fair to say that the operation was rather successful. We completed these restructuring plans in record time. We saved a lot of money for the Spanish taxpayer and these banks are now nearly a year after the adoption of their restructuring plans all unscheduled. Most of these banks actually are doing slightly better than the requirements set out in these restructuring plans. So that was a very important moment in the way we have dealt with banks in Europe under state of control and many of the lessons learned in Spain were then subsequently introduced in our banking communication in the new rule book which was adopted in July. I think the fact that we had to rewrite the rules was motivated by the fact that diverging bill in requirements Cyprus Spain versus the rest was essentially leading to a situation where market participants had a very different perception of the riskiness of banks. If you're a strong bank in a weak sovereign and for some reason you get into trouble then you're going to be hit by these tough burden sharing rules. If you're a weak bank in a strong sovereign then the market participants thought you would only be required to comply with the then existing state aid rules which were not so requiring not so demanding I should say. So that led to I think differences in funding costs for banks with very similar credit qualities which in terms of the function of the internal market was extremely serious and we had to act on it. Second element I'll come to that in the last part of my presentation of course the whole discussion about the SSM the SRM Banking Union very important but you know applying only to the Eurozone state aid rules apply to all 28 we have to keep the internal market together. It's also clear that phasing in SSM SRM Banking Union will require a long transitional period where the European economy is still very vulnerable where banks are still weak where accidents can happen so we needed to put in place transitional rules all of which meant that state aid control would remain necessary. Now I've already alluded to these new banking rules and mentioned some of the key features of these rules the key innovations if you will I'll just very quickly recap them. So the first point is no public recapitulations or impaired asset measures without a restructuring plan. Liquidity support if necessary can still be allowed and enhanced burden sharing requiring in essence first banks to go to the market to raise capital sell off assets where possible divestive series what have you then subsequently junior creditors and shareholders will be effective they will have to make a full contribution but importantly we stipulated that after the experiences in Cyprus under state aid rules senior creditors and depositors will not be I repeat not be obliged to contribute. We felt that that clearly would be a bridge too far at this juncture in the evolution of the crisis. So our rules put the balance put the line if you will at the level of the junior creditors. And once you do all of that then you know you can actually resort to state aid and the normal rules kick in. Now let me see the slides disappeared for some reason. So let me just say that we have done some empirical work to assess the importance of these burden sharing rules and in essence to put it in very simple terms if in the future a bank needs the medium median median capital injection that occurred during the crisis then for the average bank in the future the conversion would suffice to deal with the capital hold. So this these rules could very significantly reduce the need for state aid in the future. Obviously I should underline in cases where very significant capital holes are discovered then you know there will still be a need for significant state aid but for medium sized capital shortfalls these rules should go a long way to dealing with the problem. So how does this how does all of this fit in in the transition to the banking union and in the steady state. Well just to very quickly recall why you know this initiative was taken in essence to break the link between the sovereigns and the banks to ensure that we would have a mechanism for the Euro area where banks would be supranational their supervision would be supranational and also in death they would be dealt with centrally to avoid a identity between the problems of the sovereign and the problems of the banks and vice versa. So that was very important. Now I would also say that underlying this the confidence effect of a banking union has widely been seen as crucial to economic recovery because with impaired with an impaired banking system no economy can can actually grow so this was and still is I think a central challenge to to put Europe on a sustainable growth path. I think the three most important features not all of the features of the banking union are the single supervisory mechanism the SSM a resolution mechanism the SRM and funding arrangements for resolution the single resolution fund which are now all in discussion and negotiation against the background of a single rule book for all member states the EU 28 which is of course formed by the commission's proposal on the BRRD the bank restructuring and resolution directive which sets rules applying to all 28 member states and this little red thunderbolt I think points to the risks that you may have if you have very different applications between the between the banking union ins and the banking union outs and of course this is where state aid control which applies to all member states comes in. So thinking about transition I think it's worth looking at four lines I mean the legal framework is one line the work on the fund is another line our state aid rules as a transitional facility are a third and then finally the role of the ESM very briefly the looking at the legal framework the SSM you know has now been adopted will enter into force a year from now and that of course for the banking union provides for supervision the central framework essentially putting this at a supernational level for for the 130 biggest banks in the union representing more than 80 percent of euro area plus banks at the same time discussions on the BRD and the translation of BRD principles which is the SRM for the euro zone plus countries are still ongoing it is very much hoped and indeed it's the firm intention of the co-legislator to finalize discussions before this parliament the european parliament stops activities in its present format in in april of this year but if the proposals as they stand are adopted then bail in would kick in under the new rules the BRD rules which foresee the contribution from senior creditors they would kick in only in 2018 and the new state aid rules would would form a bridging solution the single resolution fund as per the proposals is built up slowly through contributions from the industry which means that over time the likelihood that state resources are needed will decrease but this will take time and there's an issue of ensuring that there is liquidity available for the fund in the meantime state aid rules i've just explained we will need to look again at the state aid rules when all the regulatory building blocks are are in place let me just say that to the extent that the ESM the last line intervenes in this process state aid rules will still need to be applied because the ESM being an intergovernmental body funding from the ESM i mean is is subject to state aid control and finally the state aid rules will be applied by analogy i'll come back to that in in in a minute will be applied by analogy for interventions by the SRM now i'm not going to give you all of the detail of where the BRD rules stand this is the council's position the general approach taken in the council let me just zoom in on two important points here one is that the trigger for resolution whether a bank goes into resolution or not into resolution is not as strict as the commission had initially proposed commission had proposed that any state aid would lead to resolution but you know the final position is that a bank should be failing or likely to fail and this of course is something which the supervisor would need to decide what's important is that if you take a proxy to look at what failing or likely to fail actually means and if this proxy were to be insolvency then looking at the 67 cases we've dealt with to date in more than two-thirds of the cases a bank would not have gone into resolution so state aid would still be possible so it's a significant change that has occurred in in the discussions secondly there is the famous waterfall in terms of the use of the bail-in tool with a lot of bail-in required eight percent of eligible liabilities before some public funds can enter into a resolution scenario so burden the the bar has been set set set set quite quite high but you know once you hit that bar there is the possibility for public funds entering into the equation to pay for the legacy costs that are associated with the resolution and all of this means that although it's hard to read that there is some flexibility left in this and that therefore the possibility of state aid being granted also in a resolution context is significant and as I've said maybe we will actually see fewer resolutions than some colleagues think in terms of what the triggers in the new BRD approach actually mean that's basically what I've said here now the SRM proposal this would be the translation of the BRD principles into a body dealing with resolution at the level of the euro area as a whole commission has proposed that it would apply to all banks covered in supervisory terms by the SSM under the existing treaty it is clear that only an institution and an EU institution can can can can exercise the discretion that is inherent in in in any resolution and therefore the commission has proposed after a long reflection and simply because we couldn't find a better institution if you will that the commission should take on this role but it would in effect take this role in institutional terms whilst ensuring that the actual work is done by a board which is comprised of members from member states the ECB and ourselves which would do all the hard work the resolution planning making recommendations on the resolution framework doing the monitoring taking exam to measures so the board would then eventually in the case of a specific resolution make a proposal which the commission would then as the institution responsible for resolution decide on we've also proposed as I've said a resolution fund which should build up to a target size of about 60 billion euros based on contributions from the sector and in our proposal we've made it very clear that state aid rules would apply in the transition as long as there is state aid and as you can see the transition can take take a while and at the same time that if the board takes resolution decisions not involving state resources so not involving state aid it would still have to apply state aid rules by analogy for the very simple reason that otherwise banks in the euro area plus zone would be treated differently than banks outside the euro area plus zone which of course continue to be subject to state aid control so this is simply a schematic overview of how the SRM would would look like with this link to the commission the single resolution fund providing support financial support and the role of course of the ECB as the bank supervisor with the national resolution authorities working for the resolution board as I've said we've already looked a bit at the interaction with state aid control in the previous slides but just to recap as long as the SRM doesn't cover the whole of Europe you know basically we we would need to ensure consistency with state aid control and therefore it would be subject to the same approaches the application of an by analogy of state aid rules is actually quite aligned with the purposes of resolution in a resolution you you try to to ensure a contribution to financial stability that's the overriding concern you minimize the costs of the bank failure for the public so I I think the presumed tension between the role of the commission as stated controller on the one hand and the role of the commission as resolution authority as we have proposed it this presumed conflict of interest actually I think in practice doesn't really exist it's a point of discussion at the moment and obviously it also as I said helps us in leveraging the knowledge we have obtained to date of dealing with all these these cases I think I'd stop there and I look forward to our discussion thank you very much