 So, a very warm welcome everybody to this CNBC debate. We are talking here about the health of the financial economy in the eurozone. And I have with me some very distinguished gentlemen on our panel who are going to help us work out how much progress we've made from the financial crisis and how much more progress needs to be made to achieve the kind of stability and robustness that we want to see in Europe's financial institutions. So let me tell you who we've got here on our panel. Let's start at the end with Francesco Gonzalez Rodriguez, the CEO of BBVA. Welcome. Axel Weber, chairman of the board of UBS and of course the man who used to run the German Bundesbank but famously left in disagreement with the QE policy that was being embraced by policy leaders at the time. The economy minister of Italy, Pierre Carlo Paduan. So thank you very much for joining us here. And Lord Jonathan Hill, commissioner for financial markets at the European Commission. The man who is tasked with steering the commission through the bumpy road of banking union and ultimately capital markets union. Welcome here to our panel. Good to see you. And of course the ECB has been in heavy action in recent days as we know at Mario Draghi appearing here this morning just to reinforce the message that was delivered in Frankfurt yesterday about the willingness to do whatever it takes. I think that's a phrase that we all remember and resonates very clearly. We're very grateful to have one of those foot soldiers, Benoie Curre. Thank you so much for being with us, a member of the council. And just for the sake of clarity as we get into our conversation, it's obviously important that we understand the environment in which Europe's banks are having to operate. So Benoie, if I might start with you, back in December, after that last meeting, Vittor Constantio came on CNBC and said, look, the markets have misunderstood the message that Mr. Draghi was trying to send. And as you'll know, they fell out of bed and they got concerned that there wasn't going to be more monetary easing. Just for the sake of clarity, while I have your attention, did the markets fully understand the message that was delivered by Mr. Draghi and was the reaction the right one? Well, first good afternoon and thank you for the invitation. And I know that's not a good start, but I'm not even going to answer your question. Because I don't think it serves a purpose to comment on market developments. Markets are not right or wrong. They have their own interests, businesses, instructions, principles. And so what we have to do is just to be clear on what we're doing and to communicate it clearly. I think that's what we've done yesterday. So let me come up with a supplementary. Is the communications strategy working? Is there clarity of communication, do you think, now, from the governing council? It is working. I mean, first and foremost, the policy itself is working. QE is working. We've seen a tremendous improvement on Eurozone's capital markets, banking markets, funding costs are down, funding volumes are up, accelerating, funding cost has gone down by, I guess, 80 basis points, on average, two companies. Since we announced our first QE package, and I guess 140 basis points for Italy, so it's working all across the board. And so the fact it's working is the best proof that markets got it because it's transmitted by markets. So it is working. Now, of course, you invited us to discuss to turn to the future, not to the past. So of course, we want to make it work on a continuous basis. And for that, I would say we need three things. We need clarity on the policy framework. That's where certainly monetary policy comes in. That's what we've said yesterday. We believe that the 2% inflation going back towards 2% is key for the stability of the Eurozone. We are very committed to deliver on that. We've not given up, as Mario Draghi said yesterday. And as he also said, we stand ready to reconsider possibly our monetary policy stance next month. So that's for monetary policy. We need also clarity from the other parts of economic policy. So I'm not in the business of lecturing ministers. So Minister Pado and we'll speak to it. But of course, we need clarity also when it comes to structural policies, fiscal policies and the like. We need clarity in the regulatory framework. We are in a transition phase to a new framework. It's a new framework with independent supervision, independent resolution, bailing rules, which our match talked about these days. We're not going to change the rules. These are good rules. They will make the system stronger. So what we have to do as authorities is just to make clear the way we implement the rules and to coordinate with each other. And we are in that process. And if we need to be clearer, then we should be clearer. So that's for the commissioner. That's not for me. But if we need to be more specific on the way bailing rules are being implemented, that will be not up to the ECB, by the way, because we are not in charge of that, but up to the single resolution board, up to the commission to be more granular. That's such a conversation we can have. But we're not going to change the rules because they are making the system much, much stronger. Last remark because this is about the future. We also need to be clear on the benefits of technology. I don't want to have a gloomy discussion on all the risks we are facing, all the anxiety around, et cetera. There are lots of opportunities, lots of potential that we can reap to improve our productivity to create growth, including inside the financial sector. So we've got to reap the full benefits of FinTech. The official community can be part of that. Let's not run ahead of ourselves because I have some time penciled into FinTech and we will get to it because I think it's very important. But I think you've raised some very interesting questions here. And the one word that stuck out for me yesterday from Mr. Draghi was we're going to review the process of QE that's been implemented so far. And I just want to ask this question. It may sound like a really dumb question, but does that mean you could also look at whether monetary policy is too easy at this point and that the commercial banks are taking too much pain because there is no opportunity for them to improve their net interest margin at this point given the rates policy the ECB is pursuing? So is there any possibility that as you review rates on the governing council and QE that you may actually have a conversation about what would happen if we normalised here rather than cutting the deposit rate further? No, we'll have that conversation. So you will have that conversation? We have a conversation on an ongoing basis, I would say, on the unintended consequences of monetary policy. We are monitoring financial risk. We are looking into it in a very close way. It's important for us to understand we are mindful of the consequences. Now we are not going to have a conversation next month on exiting the lower rates policy and that's because it's still needed for Europe. And frankly, isn't it in the best interest of banks to have thriving clients? So that's what we're working for. We're working to revive the European economy that's the kind of first best interest for banks. And then we are mindful of the consequences, but we're not discussing a day prank. That's not in the discussion. Axel, can I bring you in at this point? Because I think there is a lot of time for you to bring in at this point, because I think there is an important matter at the heart of this. If you look at activity in the banking system in Europe at the moment, clearly we're losing out to the Americans. And clearly there could be more activity. Thousands of jobs already announced to go this week. Over 100,000 in the banking sector in 2015. Something's not working in the favor of Europe's banks. And it seems to be one of those issues is the net interest margin. But the other one is when you compress returns, as has been done through QE, it is quite difficult for banks to make a good profit. True. And so to go back to the ECB announcement yesterday, we understand that there may be no limit to what the ECB is willing to do, but there's a very clear limit to what the ECB can and will achieve. And that's the problem. The problem is that monetary policy has largely run its course. Any additional amount of additional marginal easing which will have a much lower impact in the future than it had in the past. And actually fiscal policy is largely neutral because Europe is starting to face the longer term challenges and it needs to face those. So in that environment, and we said that a couple of weeks ago, that we expect a gradual continuation of a dipping lower into negative territory with interest rate. And the review that was announced is consistent with that picture. But the same thing is reviewing the balance sheet. But look, there are two benchmarks out there on whatever the ECB might ultimately go because it's been done by onto central banks and they survived being in that place. One is negative interest rates of 75 basis points which we've had here in Switzerland for a long time. But you're tampering with fate because there is the big risk that you may actually drive cash out of the economy if you start taxing deposits on the accounts. But that's a risky strategy. It works in certain environments but it's not a fail-proof policy. It has a lot of side effects and risk. The second one is to assume ultimately a speed of balance sheet expansion like the Japanese have done. And if you look at the curve of the balance sheet of the Japanese, it really is a line that is moved up like this, up like this, and even straighter now. Both are possible policy options but I think the marginal impact they will have after years of applying them are very hard. But the side effects of this medicine, the longer it has been applied, it's becoming stronger and stronger and the direct effects, the curative effects of this medication is becoming weaker and weaker. And the real issue is the side effects actually are that incentivating investors to go out on the risk curve when the normal bread and butter business of what banks should do, namely provide credit to the economy is challenged by the fact that the world is now upside down. In a negative interest rate environment, you pay your creditor to take out a loan. That's not normal. And what is happening now, risk is being pushed on institutional and other investors that ultimately might not have the same risk-bearing capacity as they have in a normal environment. And some of the turbulence in the markets we're seeing now is not a sort of lack of additional easing and nervousness in the market. There is no more to come. It's already the manifestation of what we've seen in QE is having an impact on risk-taking capacity and on prices in the market that are mispriced. And if prices are mispriced, they will reset to what's more fundamental valuations eventually. So I see the side effects of monetary policy that are really materializing. And I'm quite sure that the banks will have it more difficult in this environment to continue to do normal business. If I look at us as a bank, we are cross-subsidizing the negative deposit rates, which we do not want to pass on here in Switzerland to our retail depositors, by raising the cost of credit in the mortgage markets, because Swiss housing market is actually quite strong, and by raising costs for corporate credit. Because we have to, as a bank, remain profitable. So you're using the levers you have at your disposal. And I don't really see if you take into account the reaction of the banking industry, that the net net of some effects are not a increased availability of funding, but an increase in the cost of funding and a more selective funding for more selective players in the market. Do you want a moment to react to that? Yeah, I mean, that's a civilized discussion. I'm not in disagreement with the picture Alex just, Axel just painted. Looking forward, the more we stay in this kind of very low-rate environment, the more we need support from other policies. We need good structural policies. We need coordinated investment policies. I agree with that. And that's becoming more urgent by the day. So it's not something that you can delay further and further. It's even more urgent. But I wouldn't like you to leave this room thinking that Huey does not work. It has been extremely powerful to lower the cost of investment, to lower the cost of consumption, and the higher cost of credit, which Axel just described, we're not seeing it at the aggregate level in the eurozone. Cost of credit is going down to the benefit of the economy. So it has been very efficient. But the more we remain in that state, the more we need support from other policies. Minister Paduan, if I can bring you in, clearly Italian banks have figured large in the market nervousness that we've seen from the beginning of this year. My question to you really would be, do the market jitters we've seen around the Italian banks, whether it is justified or not, indicate that there is growing intolerance now towards bad news in the European banking space? And if that is the case, shouldn't the Italians be pushing on a little harder to get the reform process through? I mean, I look at the public banks, the agenda is still March 2017. Shouldn't it be a little earlier than that? OK, I got several questions. So let me start with your last point. Of course, given my position, I cannot comment on monetary policy. But I can comment on the impact of monetary policy, which as Benoit just said, depends on other policies as well. And there I would certainly include structural policies, both on the real side of the economy. I'm thinking about labor market reforms, which are already beginning to bear evident fruits of an improvement of the jobs market in my country, in terms of quantity and quality. But also on the credit market. And you mentioned reforms that we have passed a few months back, the so-called popular reform. Let me announce that this week, this coming week, we will introduce another piece of reform which will address the smaller banks. In both cases, the principle is to strengthen the banking system to make it more open to the markets, to encourage, and this is an understatement, banks to raise their capital, even through mergers and acquisition operations. You mentioned this is too long. Well, that is the final date you mentioned. But things are already happening. Of course, they're not making it the headlines, luckily every day. But this is happening. It takes some time. This is a structural reform. All structural reforms take some time to produce their full benefits. So my point is that on the impact of monetary policy, there is a division of labor here. National government, certainly my government, know very well that to make the most of what I consider a positive policy stance, we have to do our homework and we're doing it. Having said that, the other part of your long question is the jitters in the markets. Now, there is another big issue here, which is, of course, related to the Italian case. But I would make it a European case. We are entering with this current stage of the banking union implementation in a totally new world. The Balian world is a world which is, frankly, very, very different from the past. And so by definition, if you move from one world to the other world, there is a transition. You can be very fast in learning how the new rules work, but you need some time. And sometimes not all the actors involved really appreciate what the new world means for behavior. And I can mention two examples here. One example which is related to the well-known facts in the banking system in my country, which has impacted on a tiny fraction of the banking industry, which, however, has generated system-wide shocks because the actors involved, including the retailers, the households holding subordinate bonds and so forth simply did not realize that the world was different and the risk attached to the instruments they held was changed into a higher risk, even without any transaction taking place. So this is a totally new world, which implies, it says to me, as a policy official at this stage, that we need to feel a gap in terms of what is related to us financial education. Savers, one of the implication of the new regime, is that this is a more sophisticated, although more transparent world, to which many of our citizens need to adapt. And it's, of course, it's the duty of the authorities to help this adaptation, both in terms of households and both in terms of the banking industry, especially if it's a banking industry eradicated in the local level. But then, let me finish. Then there is another issue, which has come clear in what we've seen this past week, which maybe there is still the need of a full understanding of what it means when institutions do not fully take on board the implications of what is face value, a very innocent instruction to the banks. And this is the request from the ECB to provide information about the non-performing loans in the Italian banks. The ECB was very quick to understand and to send the right message so that things turned around also for that reason. But this, again, draws the attention to another lesson. We all, actors involved in the new banking environment, need to learn and to understand what it means. So we need to understand that we are, we like it or not, in a transition phase. We are not yet there in the new steady state. So I just want to be sure, though, from what you've said, is the regulatory framework not working? It was a mistake made here to make that request public for further information on NPLs. Let me be very clear. Let me be very clear. So it sounds like that's what you're saying. Let me be very clear. Given the fact that the banks, the markets still don't know in practice what it means to be in a bail-in world, right? Some information requests, which was totally neutral and technical and fine, was interpreted as the way the new world impacts on banks. So this is clearly something that needs to be fixed. I'm not saying that the regulatory system is wrong. I'm not saying this. I'm saying a very simple thing that we need to understand how this new machine works in practice. But we know, don't we? You were told, or Montipaschi was told, in 2014, by the ECB, find a buyer. We're still waiting. We're still waiting. That's how the regulators work. This is a different story. Well, no, but you're all saying there's something wrong with the way we're understanding the regulatory process and the position of the European. That was a pretty clear instruction. No, no, no, that was, no, no. You mentioned the Montipaschi story. I am mentioning, I made the general point that the reforms introduced by the government on the Italian banking system go exactly in the direction of encouraging, strengthening of capital, M&As for a number of banks. I don't want to comment on any specific bank here. Let's just give a bit of courage to make it very clear what the ECB position is on this. Well, I can just speak for the ECB, if you're interested. That the request put by my supervisory colleagues because of the supervisory arm of the ECB is not about the amount of NPLs. This we know, we know the amount of NPLs. That was about the processes that the banks are putting in place and will put in place to address the NPLs. And this will take a number of months or even years in some cases. So it's a discussion about the NPLs and whether they are, about the processes and whether they are forceful enough in addressing the issue. That's not a discussion about uncovering new NPLs, new issues. To be clear. Mr. Padderwell, obviously I'm singling you out a little bit here, but the Italian banking story has been very much in the action, in the action over the last week or so. And I saw Matteo Renzi reported today as saying, if only we'd started a bad bank before the regulations changed to prevent us from doing it. Now, my language ability is very limited here. But what is the Italian for it's too late for regrets? Because this work should have been done a long time ago, shouldn't it? Yes, it should have been done by the government then in place. Yeah. Oh. Yeah, yeah. And you're happy that the current administration is working quickly enough to resolve the issue? We are certainly working as quickly as we can and we have been working on a continuous basis for months to reach agreements with the Commission on these issues. Thank you very much. Francesca, I just wanted to come to you on this. I mean, obviously, the Spanish recognized the writing was on the wall fairly early on and they worked very hard on the bad bank model. And now I think BBVA and other leading Spanish banks are in quite robust health by comparison. So I just want to bring in this broader QE question and bring it back to you here. Is it like trying to fly a kite with no wind? You know, you're constantly trying to stimulate business activity, make a margin off the interest rate curve. And as long as it's being suppressed by QE in Europe, it's a struggle, like flying a kite with no wind. As you have said, Spain has beaten the bullet back three, four years in terms of putting the house in order. And we have taken very good decisions in mainly scrapping the saving banks. That was a big problem, 50% of the system, and was solved. And now the Spanish banking system is working far, far better. Banking systems are not just in Spain, but everywhere in Europe, mainly Europe. I want to have a tough ride, low interest rates, low inflation, activities not on the rise. We have a committee but not too much. Therefore, my guess is that the banking system has to take this situation very seriously, because apart from this present situation, low interest rates and inflation, low inflation, there's a big threat for the banking system, not just in Spain everywhere, which is the digital disruption. This is a big issue, at least for us. We have been working on this matter for eight years. And I think you are seeing what's happening now. A myriad of stirrups, probably thousands in this moment worldwide, the giants of the net, all those guys positioning themselves in every part of the value chain, are really attacking the present situation. My view is that Europe has to move quickly in that regard, and let me give you just one number. In America, there are 88 unicorns, the startups which are worth more than $1 billion. In Asia, 46. In Europe, 16. Therefore, we are lagging behind, and we have to do something very quickly. The single digital agenda, by the way, is a big promise. But I think Europe has to move rapidly in terms of probably their governance. We need one voice, not too many voice. We have a balance very much. And Europe has to be very resilient, and Europe has to emerge stronger after the crisis. We have the banking unions and so on. But we have to look at what's happening in the world. Thank you for that. Lord Hill, can I bring you here? Bring you in on the regulatory, the broader regulatory issue at the moment. When we look at some of the challenges for European banks at the moment, people talk about the perfect storm. Very low interest rates, difficult economic environment, and it's become more fashionable, and I've heard it a lot here talking to bankers, to say the regulators have removed our ability to manage our risk in the markets. The removal of the prop desks has made a difference. The fact that we are unable to manage some of the amplitude of movements in markets has also been a challenge for us. To what extent do you think that criticism is fair, because I know you're currently seeking opinions? Yeah, I think the first point to pick up on the last one about the overall state of the European banking industry, I think we should just keep reminding ourselves, it is a lot stronger, more resilient, better governed than it was during and immediately after the financial crisis. So I think that is where I would start from in terms of the reforms that were put in place. But I think it is sensible when you've introduced big reforms, and as Pierre Carlo said, you change a system, a big change in this case, you've got to work through the implications of it. In the case of Europe, we've introduced 40 separate pieces of financial services legislation since the crisis. It's not too many. I mean, if the banks are having to keep digesting new pieces of legislation when they should be getting on with business, is that not part of the problem? My basic starting point is that the architecture that was put in place as a consequence of that legislation, which wasn't just for banks, but was for financial services generally, increasing transparency, making things safer for consumers, which is incredibly important if they're going to invest and save. So it's made it safer, but I agree with those who say that it is sensible after you've regulated like that to have a look at it and see whether you've got it right. And again, in the European context, the fact we did it in 40 separate pieces of legislation, I don't think it is humanly possible for even the cleverest people to have seen in advance what the interconnections would be between those different pieces of legislation. So I think it is only common sense to do that now. I've started a process whereby I've said to people, including the industry, where you've got practical examples of where the effect of legislation is changing the way you're doing business. Is it having an effect on liquidity? Is it having an effect on lending? Have we got inconsistencies, duplications? Can you achieve the same prudential objective more effectively with less compliance cost? Give us the evidence and the examples of that. And we'll have a look. Because I think if you want people to have confidence in regulation, they need to believe that it's actually delivering its purpose. And I don't want a regulatory framework that consists of a kind of job creation system for lawyers and compliance officers. Look, we know... I'm sorry, are there any lawyers in the audience? Not to go back over ancient history, but I think we know that some bankers were naughty. And a lot of them have paid the price for that with their jobs, and in some countries, some of them are behind bars now. But has the process since 2007, 2008 not taken away too many tools for managing market volatility? I think that's what, as part of this exercise that we've launched, is I want it to look at. A number of people come to me and make the point that some of the tools they had before, they haven't got. But I think we have to understand that and try and disentangle what the different factors are that might lead to reduction in liquidity or not. And I think at the moment, I think there are some quite big claims from either side of the argument, and I think it's sensible to try and assemble the evidence and have a look. Well, this is our opportunity to put everybody in the same big tent so we can have that conversation. Axel, you were nodding through that answer. Well, so, look, it isn't just the European regulation. We have in our inbox, as a global bank, annually roughly 40,000 regulatory events. So our group got 40,000 over the year. And that is speeches that are relevant to our capital standard, decisions, regulatory events. So what we have done over the last three, four years, we have changed the strategy of the bank. We've changed the business model. We reacted and acted upon the new regulation. We have now better capital. We have better liquidity management. We're more resolvable. We've done all the things. But there are two risks now. The first one is you cannot turn this screw ever faster. And this is where I think Mark Carney has said very clear, we're looking at new regulatory certainty by the FSB to be provided during this year. And I think this is important that we have a new framework put in place and that we cannot. We actually think that some of the regulation that has been put in place makes sense for a bank like us, like a global wealth manager, capital strengths is part of our business model now. If you have wealthy clients that put money with you, they don't want to have sleepless nights over your capitalization. So we now have the highest capital ratio in our peer group. On the investment banking side, on the market making, we have stopped proprietary risk-taking. But what has happened, because all of the banks, be it Volcker in the US, the new rules, be it Vickers, Likkanen in Europe, and other rules everywhere else, most of the investment banks have gone out of market making and providing distressed liquidity in adverse market situation. Now, the problem is, this has been replaced by a vacuum. There's nobody that has taken on that function. And over time, it will. But what is now very uncertain is, who will provide stressed liquidity in these situations? Our working assumption, but this has not been addressed by the official community, is the banks have a lender of last resort function for the banking industry. And that's all fine, and this is all this bad shot, and we know how that is done, and it worked in the last crisis. But who has a similar liquidity provision function in distressed markets when it's non-bank entities? And since there was a lot of discussion when the banks and the central banks stepped in to bail out the banks by providing liquidity and capital buffers and transition, if a similar thing were to happen to a fund, there would be a big discussion. And so I think the issue of market liquidity needs to be addressed, distressed market liquidity. And if there is no solution to it, you will continue to see market tests like the one you've seen when the treasury market had a problem and the bonds market had a problem, or some of the correction we've recently seen, where there is amplified volatility in the markets as the market is finding a distressed liquidity situation and is looking for a new price at that. So the price of stressed liquidity and the provision of that stressed liquidity, now that the banks take a backseat role on that due to regulation is something that the regulators need to address. If it's not addressed, I think it would be a collective irresponsibility. But isn't that what Lord Hill is doing here? Isn't that why we need banking union and why ultimately capital markets union to provide that mechanism? And yet, as I read the reports, there are half a dozen countries that are still dragging their feet on implementing the resolution legislation. And we still have reluctance as far as the Germans are concerned, I think, to be involved in a deposit guarantee program that mutualizes one region's losses for German savers to pay. So where are we on this, Lord Hill? Because it seems to be one step forward and two steps backwards on occasions. Yeah, well, we're moving on a bit from the broader question of kind of regulatory review. Yeah, we've only got an hour on the programme, that's the trouble. Moving on to that, where are we? I think, firstly, with the work we're trying to do, which I'm doing with Pierre Carlo and other colleagues, to try and increase the role of capital markets in the European economy to kind of spread our risk away from an over-reliance on bank funding, where we've seen the practical consequences of that after the crisis. Actually, I think that work is going forward quite well and quite speedily. I think there's strong support from that, from Member States and from the European Parliament. We're doing it in a step-by-step basis. We're starting with trying to get securitisation markets going again, try and make it easier for companies to list, review prospectus. We're going to start work on insolvency law, which is a huge area, but that goes to a number of issues we've already touched on. So that, I think, is actually an encouraging, optimistic, forward-looking agenda that's just worth reminding ourselves on. On banking union, I think there is actually an acceptance that there is a missing element in terms of the European deposit insurance scheme that we need to make progress towards it. But quite clearly, the only way that we will make progress towards it is doing it in a balanced way that looks at some risk reduction measures at the same time as we look at risk-spreading measures. That process is now starting, and I think there is an opportunity to make progress with that, too. No, I agree 100% with what Jonathan just said. On capital market union, why is capital market union so important? Because everything we've done by and large since the crisis was about resilience, right? Capital loss absorbency, also behavioural risk incentives, et cetera. But we have not really changed the structure for a financial system. So now really time has come to look into the structure of the system, to identify some of the weaknesses which led to the crisis in the first place. For instance, cross-border capital flows in the eurozone being mostly short-term, bank-based, and not equity-based, which created fragility. And now it's time to fix it. It's very difficult. It will require deep changes in some national legislations, as Jonathan just said, but it's time to tackle it and sooner rather than later. So it's about the structure, making the structure more resilient. On banking regulation, I agree that by and large the job is done, and it's time to review, check consistency, et cetera. There are still bits and pieces of unfinished business in the FSB. So just to give an example, central clearing remains an issue. So we've got to be sure that CCPs are resilient and work is being done on that, and hopefully it will be finished by this year. So there are still these bits and pieces. But just the kind of temptation that we may have and that the industry may have would be to compare the current state of affairs, say when it comes to liquidity, which what they've lived, they've been experiencing before the crisis. That's not the right reference point because that's a reference point that led to the crisis. So we don't want to have as much liquidity as we had before the crisis. Liquidity was not came for free, basically, or it was cross subsidized by other activities. So we need to put a price on this and we need it to be adequately priced. So the benchmark should be not what we've seen before the crisis, but what we want to see to avoid a new crisis. And that's an important difference. There used to be an old saying, I think floating around about the GIs, didn't they, that they're overpaid, they're oversexed and they're over here. And I raise this because I don't know whether you'll have seen the headlines this morning, but Jamie Diamonds just had another pay rise, which I am sure he needed. But we've had a succession of American bankers here in Davos who've been up on our CNBC position, telling us how great they feel about the world and they just think that they're doing dandy and everything is fine and the financial crisis of 0708 is a distant memory. So I wonder, do we Europeans need to swallow our pride for a moment here and ask ourselves, is there some American best practice that we could maybe incorporate into adjustments that we make into the European financial model going forward? Is there anything that we could learn? Lord Hill, I know you've talked about how we might work more closely with other international financial groups as we evolve legislation. Yeah, well, I think two quick points. Firstly, I think you should always look and learn from other models that, you know, see what their strengths and weaknesses are. And I think if you look at what we're trying to do with capital markets, we're not trying to say we want to import an American system, but I think it's completely sensible to see where things are working well and not working well what you can learn. On regulation and regulatory cooperation, I think, again, it makes sense to try and get as much common ground internationally as you can. If you don't, we have the kind of long-running saga that we've had over equivalents over central clearing houses. And it would be much more sensible to try and get those things sorted out in advance rather than to have to try and fix them after the event. That's one of the reasons why we're quite keen on getting more on financial regulation into TTIP. But it's also why, to pick up on Benoit said, about the FSB and international approach to trying to regulate the risk in CCPs, that actually we're going to try and dovetail the work we're doing in the EU at the FSB level to see if we can do it at the same time as our international partners. Paduan, you look, Minister Paduan, you look slightly put out about my comments. Can the Italian banks pick up anything from their American cousins? Can I go back to your initial question? Please do. What can we, should we learn from the US experience? Well, three things come to my mind. Maybe, as you said, it's too late now, but I think, anyways, being an academic, I like to look at the past in any case. First of all, the way the US authorities responded to the financial crisis has proved to be more efficient than the way European authorities responded to the financial crisis in a number of ways. Let me mention one. The sequencing of adjustment was different. In the US, the first target of adjustment was the financial system, and the fiscal position came after that. In Europe, we have more or less done the opposite. We have looked at the fiscal for a number of reasons that you all know, and then now, still now, we are looking at the financial, which implies that we are still looking for an efficient transmission mechanism of macro and monetary policies. While in the US, they immediately put back into place the financial machine of transmission. The second that other markets responded in the US more quickly than the European markets to a given stimulus, which, by the way, has started before than the date it has started here. So there is a time lag anyways, which is explaining some of the difference in behavior, which implies that I expect to have a better performance going forward. Third point, and this is what Jonathan just mentioned I fully subscribe to, is that we should do more in order to diversify the financial system at large. And I think that capital markets union and banking union are a very important opportunity, not just for improving efficiency of the European Union, but to give more value added to the European Union and not just to the Eurozone. So this is important for its own sake, but if I may, it's important from a broader, more political perspective, if you know what I mean. Just to pander to the minister's academic side for a moment, Axel, you were on the board at the time that these decisions were made. Why wasn't it done more quickly in the way that the minister suggests would have been more appropriate? Well, look, it played out in a different sequence than in the US. In the US, there was a huge risk of the demise of the entire financial system. So when they fed with the help of the treasury, stabilized the system, they went in bold, they went in with large numbers, and they allowed the banks to pay back if they had reached a state of health, and that had to be certified by a stress test. The European response was different, and I had rarely had three successive days of my picture on the front of the FT, as when I discussed with the commissioner at the time, Europe viewed a rescue of a bank as a state aid procedure. It was a selective support of a single institution, and therefore, there was a competitive penalty that was put on that particular institution and so the attitude of European banks to state aid and to supporting measures was, in the US, it was seen as a kiss of life. In Europe, it was seen as a kiss of death, and that's why banks were very reluctant to tap into the available funds. I remember when we put in Germany a fund of 500 billion, 80 billion for recapitalization, a 400 billion for guarantees of liquidity, the recapital part was largely not tapped, and when it was tapped, it was tapped for institutions that had clearly gone beyond the point of viability. Where are we now? We've put in place institutions, and for a large part of my previous job, I've been on the FSB and these companies, we've put in place a system of bail-innable capital structures that do no longer require state support. Actually, if you look at UBS, it's not just how much equity capital you can have as a buffer in stress, it's also your bail-innable capital that you issue. We had a rating agency review of UBS, and they have withdrawn the public support because we no longer lead public support because we have raised capital and have contingent capital so that we can vibe in a resolvable case by basically departmentalizing the bank and selling out. So the banks have a role to play in becoming more resolvable, but I think the European attitude at the time was one, because the crisis came in stages, it hit the UK and Germany first, the Spanish and other economies were still thriving on a domestic boom in the property markets, and when those property markets collapsed later, those banks ran into problem. There was no unified response, it was fragmented, UK and Germany were out first, the others came later, and we thought it was a sort of selective review. Just very quickly on this, I mean, we've been running a CNBC thing, the swaggerometer, I don't know whether anybody's seen it, we've been running it up on our position. And the idea is that actually a lot of what ails Europe is just the fact that we're not as confident and as not as front forward as other nations have been in responding to the financial crisis here. And I just wonder, you know, coming back to your point, we are still in a process of forcing the likes of Deutsche Bank and Barclays and others to reduce their risk-weighted capital, which they're doing to the tune of tens of billions of euros. And obviously every time you do that, that is revenue foregone, that is profit foregone. Maybe there's something to the Italian banking system where we just kind of brazen it through, we leave the NPLs on the books for a bit longer and at some point they're gonna come good. And then we can write them back up in the accounts. Is that to X or to me? Well, both of you, I think. I tell you. Which one of you's got more swagger? We did something completely different. We declared a huge non-core and legacy portfolio and we basically ran it down over three years and through that we basically put risk in the market at the discount and we did it of our own strengths. And I can't agree to your characterization of European banks. We have been very proactive with our bank to do this out of our own strength. So if you don't look at us as a European bank because Switzerland is where the Europeans always put the flag so that you don't see that one country surrounded by the eurozone that is not a member, we have actually acted pretty much in sync and early on as many of the American banks. Minister. First of all, picking up on what Axel just said, the fact that in some cases, there was money available in huge quantities that banks did not tap because of other reasons because including the way would be treated under state aid implications. In the Italian case, let me remind that the Italy is the country where by all means it's the smallest amount of public money put in the banking system all over Europe. We had actually one case, which is Montepaschi and no other case. This is also due to the fact that the banking system, and this is not a paradox, has been much more resilient than perceived because we have gone through three years of recession, a loss of 10 percentage point of GDP with basically no real banking problems coming up. Now we come to the NPL story and you're right in saying that some banks have been waiting to deal with the NPLs for too long. Not all the banks. Many banks, especially the larger banks, have started dealing with the NPLs already. So if we have an NPL problem, this is largely for the smaller, medium-sized banks which are now facing a new situation and the government has introduced measures which are already facilitating the NPL story, which by the way it's a long-term story as Mario said yesterday, fully agree with that. What is it that we have done? Something which is complementary to specific instruments or bad banks, if you wish, to introduce measures that speed up significantly the time of litigation procedures, which of course, the shorter the time, the more profit you get out of an exchange of a trade of NPLs. And we will be introducing this coming week further measures to speed that up. So the point is that yes, we need to deal with the NPLs more than other countries in Europe, but the duration of waiting, which is exposed too long, responds to the facts I mentioned. And now of course, the government is accelerating in collaboration with the commission to introduce instruments that will facilitate the dealing with NPLs. But let me add one final point. The NPL story of course is typical to Europe, but it is also a symptom of the fact that the overall financial system and banking system in Europe with national differences is still fragile. Now, why am I recalling this? Because I'd like to go back to the transition issue I mentioned. We are in a transition phase towards a new regime and we are doing it in a still fragility situation. So this is another reason why we should be as careful as we can in the way we move forward, which we need to do, but we have to do it with the appropriate speed and with the overall integration of all European institutions looking at the issue. Just very quickly then, let me run across the panel very fast and don't make the answer too long, but one suggestion about how we could restore that confidence needed and overcome that fragility. Just one suggestion. Benoit, can I start with you? What do we do next? Just to link it to the previous discussion, I mean, one big difference between the US and Europe is institutions, that we didn't have the right institutions to manage a systemic banking crisis and we had to build institutions while managing the crisis and that has taken time. So now we've got the institutions almost. So we have single supervision, we have single resolution, we should make it work and we should trust institutions in charge, which is ECB for supervision, SRB for resolution and Commission for competition. We should trust them and we work together and we have to complete the picture by having this single deposit scheme which Jonathan was describing, the way he described it, also reducing risks in banks. Jonathan. More capital markets to make it easier for businesses to get capital to invest and grow, more regulatory stability. Like Benoit, a common deposit insurance scheme which fades away with all doubts about it and a more flexible approach to bad bank mechanism. Excellent. Less inward looking, capital markets is not about eliminating internal barriers to capital flow. Look at the world, become global, attract global capital flows, you can raise 10 times as much capital globally if you do rather than trying to eliminate domestic barriers. Francesca. One voice, one authority. Sorry, I missed that. One voice, one authority in Europe. One voice. More integration. One authority. Better governance. More integration. Better decision making process and so on. And when you compare America with Europe, that's the real problem. You are comparing the financial system in America with Europe. Yeah. In Europe it's totally fermented. The number of banks are similar, 6,000, 7,000, but four American banks control 40% of the market. That's the big difference. How many European banks control 40%? Probably dozens. Benoit says we've got the institutions. So that is one voice, in essence, isn't it? No. No. Well, we've got that. Take the SEC. The SEC is a single capital market regulator. So the problem is the separate regulators. In Europe it's a conference of regulators from nations and maybe a representative from the EU. Is that the headache for the ECB, Benoit, that you've got all these separate regulators who are just giving you grief at various times? First, let's not paint the American system, the US system, in overly rosy colors. There are many regulators in the US. And this has been streamlined by Dodd-Frank, as we know, but not that much. So second, we need to move towards more collective decision-making. We have it in supervision now. So there is a learning curve. It's a transition, as Pierre-Carlo said, but we have it. We have it for resolution since the 1st of January. That was 20 days ago. So we should trust Elko Koenig to make it work and to unify, harmonize what's being done in terms of resolution, bail-in, et cetera. But we have the instrument. And for that, maybe that leads us way beyond the scope of that discussion, but we also know need political unity. We need the right political institutions to hold everything together. We're talking about trust. We're talking about unified common approaches. And for that, governments have to trust each other. And you need convergence and mutual trust among eurozone countries. And for that, you need growth. So it's a whole compact that we need. It's not only about financial supervision and financial regulation. It's about holding the eurozone together by having more collective decision-making. Let me move on here very quickly, because we've been talking a lot here about the steps that have been taken to fight the last war. But the new war is about banking services not necessarily provided by banks. And there is a technology theme here in Davos this year that I think is very important. So I just want to bring up the comment of Anthony Jenkins, who was briefly the head of Barclays. And he said that the banks are facing their uber moment. Francesco, you want to tell us about your atom deal, don't you? This is the partnership. So you know why? Because regulators. Regulators are there, and they have a lot of say. How is it that you can stop the tide? Absolutely. And there is a big movement in the world. As I said before, hundreds of thousands of straps position themselves in the value chain. And frankly, a new digital ecosystem is in the making. Banking ecosystem is in the making. It's going to take five years, two years. We have worked on that for eight years now. And what I'm seeing that digital is a must. Customers need better service. Customers have a lot of power today because of the net. And we can provide the service as we have done in the future. My view is that, and that is where we are working on, my view is that we have to be a sort of an entity which, first, extreme transparency with the customers, no bad profits, no hidden fees, extreme transparency, are given the best products. And the best products probably can't be produced by us because we don't need to have a conflict of interest. Therefore, a new ecosystem is in the making. And the problem is there are 20,000 banks in the world. That is impossible. A big number of banks will disappear over the next 15 years. Which banks? Could you name a few for me? I don't know. But look at what's happening with what we call exponential technologies, the cloud, the AI, the big data, a blockchain, by the way, a big game changer. Then it's important for the authorities. And therefore, the role of regulators is very important because they can either hold back or speed up the process. But they can stop the process. The process is inevitable. I mean, to a certain extent, you are talking your book here because you've spent 3 billion euros on technology acquisitions and deals, I think, since 2011. So it is very clear where BBVA sits. Is UBS going to be one of those banks that dies? Can I talk our book? Can I talk our book briefly? So, look, I think it's right what Jenkins said. We're phasing an Uber moment. But I think other than the taxi industry, the banks will react differently. Give you an example. And I'm totally where Paco is. Our clients now, because they're used to it through Amazon and many other internet devices, want 24-hour services, seven day a week, multi-channel, everywhere all the time. If we give them that, they will remain our clients. If we do not deliver that, we will lose them. And for those that face Uber moments, if you are in a remote part of a US town at 2 o'clock at midnight and you order a taxi and normal taxis come and a guy shows up with an old banger of a car, no safety belts on the backseat, you know what your relationship to your normal provider of transportation services is worth. Our clients know that as well. We're combining high touch and high tech. That's what the clients want. If you don't react, he's absolutely right. We will be disintermediated like many other industries, the music industry, the taxi industry, actually the printing industry, the media. They're phasing all these Uber moments. But those that survived have reacted. Those that went under didn't react. So I think banks like ours, and I'm pretty sure we're pretty much on the same page, we want to take that challenge and become a more client-centric bank. That's what you need to do. Just to be very clear, because I like the analogy, but it slightly scares me, the one of looking for the taxi and the old banger turns up. Who are you talking about in the context of banking? Is this Apple Pay? Is this some other form of intermediary that's now stepping in using blockchain to take the banks out of the equation to facilitate transactions between individuals? And who is the old banger in the fintech context? It's all dimensions. So it's mobile applications if you're a retail bank. It's basically PayPal and the others that would disintermediate that. For us in wealth management, it's automized, client-centric, mandates business where we risk control our portfolios overnight if markets move big time and we tell clients how to rebalance. So it's all your dimensions. It's retail, it's wealth management, it's asset management, holistically. And I think it depends on our business model. Yours would be different than ours, but it's across the board and it's not just cheap transaction services by blockchain. We're basically now the T plus two settlement that we used to do becomes day plus two is unimaginable. It's now hours plus two or minutes plus two, even seconds plus two. And so it's all dimensions holistically. Is the financial architecture of Europe, the regulatory system, the ECB, are all of these ready to deal with the new challenges from Fintech? Well, we are preparing ourselves. So the good news is that we are spending an awful lot of time on these issues in Frankfurt, in Basel, because we need global. That's an issue where we need global coordination in Brussels and in other places in London also. We're spending a lot of time on these issues and we want to see it as an opportunity rather than a threat. I mean, we central bankers are very good at looking at threats. We are paid to be worried. Well, I hope the others are also paid to be worried, by the way, but we are certainly paid to be worried. And so the priority was to identify the threats. So cyber resilience has been a raising on the agenda. We've now issued global guidance on cyber threat to financial market infrastructures, for instance, which the industry is now responding to, et cetera. So the threats are high and well identified. We have to be better on the opportunities. It's a growth opportunity. It's an opportunity for financial inclusion, which is very high on the political agenda. So we are organizing ourselves. We are organizing ourselves with the industry. One challenge for us will be to identify the right regulatory space for this innovation to blossom, to develop. We don't want to stifle innovation. At the same time, we don't want to move back to light touch regulation, which hasn't left good memories. So we'll have to find the right balance of the kind of regulation that lets that industry develop without creating risks. We are very mobilized on that. We want to see it as a growth opportunity. It's actually, when you think of what Europe needs today, Europe needs productivity. That's my answer to Axel. The best way to avoid that central balance would leave rates at very, very low level for decades is a productivity shock in Europe. We need that productivity shock, and FinTech is part of it. I think one of the triumphs of Europe really is homogenization of standards, and the fact that we implemented chip and pin across Europe I think was a remarkable success. And I still, when I travel in the States, worry about the safety of using my credit card because that facility is not available in most places you shop. If there are Americans who want to come up to me afterwards and tell me how I can do it better, I'm happy to hear from you. But there is this very ugly word in Anglo-Saxon that I don't know how we mashed together friend and enemy and we came up with frenemy. But it feels a little bit like that as far as the new financial services threat to the banking sector, Lord Hill. Yeah, I mean, I think in a way, having a debate as whether it's a threat or an opportunity, I mean, it's coming. It's coming. So I agree with... Like Jaws through the water. Well, no. No, I don't think like that because actually I see it as being a really exciting positive thing. And I think it links to the point about transparency and how financial institutions, whose reputations have suffered in recent years, can reconnect with customers and provide services that people need, rebuild trust at lower costs, bigger markets, and that's all the kind of stuff that I believe in. So I think, you know, the response to Uber, in my view, is not to try and ban it. So I agree absolutely. You need to have a balanced approach to how you regulate. You need to think of the risks of cyber and all of those things. But our basic approach, regulatory approach to these new technologies should be to enable them and not to sit there thinking that, you know, this is all a terrible threat to the existing setup. So... Minister Padawan, if I could just bring you in, because you've been, I think, the most critical on the panel here about the speed of the decision-making process in Europe. Do you worry at all that when it comes to regulating and authorising some of these new technologies that Europe risks losing as we seem to consistently lose against Silicon Valley because we're just not prepared to be adaptive and flexible enough? Three things. First of all, I'm not critical about the speed of regulation. I'm critical about the speed of putting in place in implementing the regulation. Second, I think that technology is coming and it's a great opportunity. Of course, like all technologies, it very much depends what you use it for. It's not technology for itself. Technology, to me, it's an instrument. Number three, I like to bring up a point which may sound specific, but it's very important increasingly, is what I call, perhaps with an old expression, financial education. With new technologies, the responsibility of whoever is in charge of a policy decision increases because we have to help consumers, households, to understand the risk business, not the risky, the risk business, and to use technologies to help them, not to extract something out of them. I just want to very quickly get in a comment from anybody who'd like to step up on this one, about Britain, because we've had David Cameron here and we've had George Osborne, and again, there's been a little bit of tub thumping and campaigning going on as to Brexit. And I guess, hang on, no, I will direct the question here, Lord Hill and Benoit. As you are crafting this regulatory environment, and as you at the ECB are thinking about risks to the financial system in Europe, how are you factoring in the risk of the UK leaving and what the consequences are going to mean for financial relationships between institutions in Europe? Well, if I go first, I mean, I think I'd put it slightly differently because I think this question that underpins yours about the relationship between the euro-ins and the euro-outs is that strategic question, I think, for the future development of Europe separate from the British referendum. Even if there weren't a British referendum, the question of how you balance the need for further integration in the eurozone to make sure it's working properly, strengthen governance, but also to have a proper single-market approach for all 28 member states, I think is a big question. So I think that that is resolvable. I mean, if I think about how I'm approaching the Capital Markets Union, that's very much for all 28 member states. It may have some particular strengthening resilient points for the eurozone, but it's a classic single-market project for all 28, and I just think one has to be aware of these issues, but I think it's perfectly solvable. I mean, given that London is kind of the... As New York is to the United States, London is to Europe as a financial hub here, Benoit. So I guess you guys have modelled pretty carefully what would happen if UK Capital Markets and banks were now sitting outside of the organisation. Well, don't drag me too far in that minefield. So just two comments, very simple comments. First, I wish the UK stays for the European economy and for European values, I would say, also. Second, whatever the kind of arrangement that will be found, which is a political discussion of which ECB is totally, not a participant, and we should not. I want the eurozone to retain the capacity to integrate further, because that's important for us, and it's important also for the European economy. And it's absolutely possible, and the British authorities agree with that, by the way. So we need to keep the ability to integrate further for the sake of the stability of the euro, for the sake of the eurozone economy. Minister Paduand, do you sometimes feel that in the Italian context of your relationship with Brussels, you might have the same kind of vote? Same kind of? Italy to leave the eurozone? I thought the transmission was over. LAUGHTER Well, look. Please, please, Bill, please. I mean, I've made a tremendous assumption that everybody on this panel probably wants the Brits to stay. But please indicate by a show of your hand if you'd like the vote to go the other way. As I said, time's up. I was going to say, not for that, but... Crafty. I see what you did there. Britain started off as an offshore centre. It became our operational hub into the EU. We very much hope it will not end as an offshore centre, because there are certain disadvantages to being offshore. I can tell you that operating out of Switzerland outside of the EU, operations are more complicated. So we sincerely hope that the vote will go in the direction of the status quo. We're close to the end here, and I just want to very quickly get maybe one hope for 2016. It's been a very rocky start to the year. A lot of investors are feeling a bit beaten up, and a lot of people are nervous about the financial robustness of the continent at the moment. Just let's quickly run along. One hope, one goal for this year. Information. People have to need to have more information about what's really going on. I think sometimes misinformation creates what we are seeing in the markets today. Axel. More stability in the Middle East. Minister. More integration. More truly European policies. Rotel. I think making it easier for more investment in European businesses. Benoit. Inflation, getting back to 2%. On the path towards 2%. Yeah, now about that. There's an interesting speculation in the markets. That was over or no? The speculation that the ECB may move to a 1% target at some point in the near future, is that? Does that ring any bells about governing council conversations? None at all. None at all at this point. OK, well, we have to draw this to a conclusion. But do remember, before you run off, I need you to do one more service for me, please. I have said at the beginning that I was going to award this to who you, the audience, felt delivered the most compelling answers for our panel here. So I wonder, just through an indication of how hard you clap, who you think deserves to get. OK, come on. Come on, work with me here. Give it to him. A good audience. Francesco. Me? No applause. Oh, you get to applause. Axel Weber. Minister Paduan. Lord Hill. Benoit. Oh, it's tough, isn't it? It's between... Well, I know that Mario Draghi already has one on his desk. So maybe he could share his with you on alternate days. Exactly. But Minister Paduan, you take the award. Thank you. Ladies and gentlemen, thank you very much for being such a great audience. And thank you to our panelists for participating in this CNBC event. Good afternoon.