 Hello, welcome back from the break We know you like the networking opportunities and there will be a little bit more later on so But bear with us. We're going from the last panel discussion straight into this panel discussion Which is very similar and we hope this panel will take will tell us what the future will bring of course that Panelist entitled the road ahead for bankers and policymakers Let me introduce the moderator Patrick Jenkins deputy editor of the Financial Times and Patrick will introduce the panel Over to you. Thank you, Connie Well, thank you for the opportunity to be here. It's great to see so many familiar faces Yeah very pleased to have the panel that we've got here a great mix of Rear figures from across banking and Politics and regulation On the far side. We have Frank Ellison the vice chair of the supervisory board at the European Central Bank Next to him. We have Thomas Sarenheim the chairman of the economic and financial committee of the Council of the European Union Christian Seving is CEO of Deutsche Bank and also president of the European Banking Federation Irina Tynali is chair of the Committee on Economic and Monetary Affairs of the European Parliament and Sam Woods deputy governor for prudential regulation at the Bank of England Thank you all very much for being here as Connie said the the kind of The theme for this panel is What the future holds the road ahead both from a banking and policymaking point of view? So there's there's a broad a broad spread of things that we could and should talk about I Want to pick up on a few of the themes that were touched on Perhaps in a bit more detail and from the from the previous panel and maybe start off with A kind of this valuation point because I do think it's crucial for European banks I was talking to a consultant the other day who pointed out that 85% of Europe's banks are now trading below book value and The vast majority of those have been trading below book value for a decade in any other sector These banks would no longer exist these companies would have been wound down broken up They don't make economic sense But clearly there are other factors at play here Christian you've been running Deutsche Bank and In the majority in having a valuation that's below but value tell us your kind of perspective on Why this is the case and if there's a glimmer of hope for for it changing Well, first of all, thank you for the invite and and yes, we also still exist and yeah It exists so not to put any concerns or doubts here Look, I think this is various reasons, but but also you said limmer of hope first of all coming from from the lows clearly, but if you if you look at the Valuation of European banks this year also compared to other industries and also to other regions you see that there is a Slight turnaround Nobody of us can happy with that and it's not good enough and you know Andrea on this wonderful dinner last night also said it we cannot be happy with that But you know, we always need to to look at the full story and coming from from a time actually with Zero negative interest rates with clearly some banks and you know Deutsche Bank was part of that not cleaning up early enough and and being in a in a complex situation That explains a little bit the past the past valuation now. Why is it still so and how do we get out? First of all, I do believe and I was unfortunately not part of the previous panel But in in such a scenario where we are living in particular in Europe Investors don't like Just by by category levered industries and banks are more levered than others And there is always obviously a little bit of reluctance, which we have to take into account Secondly, I do believe that there is still a lot of concern about the economic outlook for 2024 If you read all kind of forecasts now for the year 2024 Most of the analysts are actually saying and researchers that they see a slight recession coming and obviously They are then doubts. What does it mean to the asset quality of the banks and not potentially only for commercial real estate, but also for other asset classes number three The analysts are saying and on the other hand over 2024 interest will come down So the good right on NII is coming to an end So how is the business plan and how is the business model adjusting to that? And I think these three items are all kind of Blockers so to say that that that we as banks with our business model have to convince the analysts that Despite this situation We are we are actually in a position to further increase profitability And keep the momentum which we have seen in in 2023 and not in order to take most of the time here on the first question But I can see exactly that because if you really look at the world and if I look at what Deutsche Bank can do about it There are the geopolitical conflicts We have the mega of the mega task, but also opportunity of transformation and we have AI and And and I have never seen more client demand Then we see currently in terms of advice in terms of future financing needs in terms of risk management of Corporates and therefore the role of banks in advising corporates private clients with regard to the challenges Was which are out there is getting bigger and bigger So therefore I can see where the concerns are But I think with the solidity and the robustness we all have achieved in European banking When I look at the balance sheets at the capital and liquidity position at the asset quality The in my view repaired business model now with the need of the clients actually to ask for advice I think actually that the momentum which we see on the top line Will go ahead and if we keep the discipline and that's what I see across Europe actually on keeping costs under control and Having solid underwriting criteria then I do believe valuations will come up more and more and Therefore I'm not concerned, but we need patience last but not least one item and I put it Actually really at the last because I hate to always finger point to other items But there is also uncertainty about European regulation Whether when banks are earning more money, it's windfall tax or we have a Discussion about minimum liquidity reserves or that is holding some investors back and saying we saw the dividend decision And I'm not criticizing that in 21 is something like that coming back if banks are earning again more next year That is a false point, which we should not completely lose Lots to pick up on there Before I move on to other panelists. I just wanted to pick up with you Christian on on on this point of the kind of fundamental performance of the the banks loan book and and deposit base There's this perception that the NII As peaked or is peaking That presumably will We're close to that regardless of whether we're at that point yet, but what about on the on the loss expectations because That does seem to be a Distrust and I think Stuart Graham on the last panel pointed this out the distrust from investors that the kind of benign loss expectations that a lot of the banks have Just not believed by the investment community How can you convince them? Well by quarterly by quarterly delivery of our numbers and sticking to our targets I think you can only convince investors if you say something and you stick to that That's what I'm always telling my management board if we give out a cost number or a loaner's provision guidance It is really vital for us to stick to it or if we are outside that that we have a good explanation Now on the asset quality I do believe that we see a slight deterioration in asset quality going forward because at some point in time The higher interest rates will have their impact. I mean you can't negate that But I do also think that banks have done a far better job I've been chief credit officer of Deutsche Bank 15 years ago if I compare now the underwriting standards the way we manage Concentration risks the way we we are trying to diversify our portfolio This is of a different quality than before. That's number one number two Never forget that this crisis not crisis. I retract that this challenging Situations which we have right now is different than before the last time that Deutsche Bank in 2002 and 2003 had very high loaner's provisions was actually when the Unemployment rate in Germany was a completely different one We don't see any difference in the book of Mortgaging in the consumer finance book because we have high employed people Now if that changes then obviously you come to a slight deterioration But I would say this is a different picture than in previous cycles and therefore I'm more confident than previously that we can run this with Normal loss expectations. Okay Frank let me pick up with you on one of the points that Christian made there around the predictability if you like the stability of the Regulatory and and tax environment that he mentioned as well and that this seems to play a role for Investors particularly. I mean it's true globally. I guess rules have been changing steadily over the years and We we heard earlier That you know, maybe there needs to be further changes to the liquidity regime and so on Can you reassure investors that basically there's going to be a stable environment in terms of the rules? Well, first of all, thanks also for having me here on the on the panel I thought this was a Panel on the future and if you ask for Some reassurance that everything is going to stay be stable and not change in the you know in the years and decades to come I'm going to be Pointing you more or more generally I guess later and we will talk maybe also about climate and you will see that things are not stable at all but maybe you know to to to to To react briefly because I think you know lots have been said already also in the other panel on Valuations, but I think it's fair to say also from from from our part as a regulator that of course the banks You know when you take a little bit along a longer view when you think back to the great financial crisis How we came out of the great financial crisis banks, of course are now You know in a much much better state banks are resilient bench. I am are well capitalized that we have heard You know the high liquidity ratio. So also last night mentioned by the president this morning. It was mentioned so So we should not forget that To to start start off with and it's also true and all of us know of course because of the you know The unprecedented Rate highs that we have seen that the NII has has been you know what it has been But of course we are supervisors. So we We worry We are paid to worry yesterday. Sean Bergen said that he was paid and to to be optimistic So we do look at at asset quality we do look at credit risk we we do wonder just like you said Christian where they're and you know these higher and Interest rates will in the end lead to a higher cost of risk. So But but but but all in all I think that you know the starting point is what what I said in the beginning the banks are resilient and we should not forget that in that story Sam just to pick up on it kind of similar question Can investors or banks and their investors look forward to a stable period of of of rules? So thanks. Thanks Patrick with many investors here. You can you can speak for yourselves, but I think Christian covered the main points I thought Stuart also captured it Well, essentially comes down to a concern that current levels of profitability will not be sustained I noticed that Stuart also said effectively these things to share prices are wrong and We should attach some weight to that given the quality of autonomous work But also because Stuart is exiting the stage as far as I know does not have a financial interest in making that pitch To you also. So I think we should know that on on the last of the factors And I'm glad that she Christian you put it last probably part of people like but when I talk to investors It does tend to come up last, but it is relevant Maybe I don't disagree with what Frank said, but I would just put it slightly differently In that people need to take one pace back. There's a fear and an act of fear I think amongst investors in back stock bank stocks or those who might invest but are not currently investing That the prudential regulators in Europe you have described broadly to include the UK Want to gobble up all the capital that there is in the banks and that they'll never see that part of the bargain That is just flat wrong to be honest and I'll tell you why this is for two reasons one is That the the really big capital we build that happens is of natural crisis the big part of that is done Now we've got Basel three coming through but you know on any implementation of that That is a relatively small thing compared to what we did in the last ten years And I think people have lost a bit of perspective about that debate and the relative size of any changes that will come through in any Implementation of that package compared to what we did in the last ten years. I think that point is a bit missed Secondly that is prudential Supervisors it's it's not our job to to find the business models of banks or to be chasing their profitability That'll be very odd, but we have an interest in banks being able to earn a decent return For the obvious reasons that that helps command confidence in the business model and makes it easier for them to generate their own Capital so it's not a one-sided thing I think investors sometimes think there's the regulator bit and they gobble all that and there's our bit actually It's not quite like that the investors should know that we have an interest in In the bank stocks being being investable So I I do actually think that you know the really big reform period on bank capital is done Nothing's ever static as Frank says and of course. They're also new things But I'm not anticipating that that level of reform is just simply will not carry on at the same base as being for the last ten years Yes, well, I'm sure that would be a great relief to many people but What about another aspect of Things that are holding back European banks, I think it was touched on again in the previous panel very briefly that the scale of banks Here, you know, if you go back to pre-2008 The biggest European banks were kind of the same size as the big American banks and now, you know, the kind of factor of 10 differential One of the things that could obviously help change that is if the European market became more of a single market And I just wondered Thomas if you if you wanted to address that point of hat, you know we again kind of banking union and single deposit scheme and so on our Vext topics people a Lot of pessimism about whether it there can be any progress here, but you're a believer Is that a fair Well, thanks Patrick, so Sean Berrygan is paid to be optimistic Frank is paid to worry I'm not paid to do be anything particular at all. So I'm just going to tell you how I see the Banking union and and and if you allow me, I'll say a few words about the capital markets union And so yeah, we so starting with the banking union So it's been said by many by many over these two here two days that That we've actually made remarkable progress with with the banking union and and Andrea is a living proof of that and as is the the the relative stability that we've seen around us over the last few years and That is something to behold, but on the other hand, it's it's also there's a flip side to that coin and that is that the Existential pressure that that that gets on the political momentum have has more or more or less run its course so there is there is a Very little political capital Invested nowadays to to do anything that is difficult to sell domestically This is the the challenge. We are we are facing. We didn't did not let's a good crisis to go waste definitely not but that's behind us and That's a pity and that's that's that but much of the reason why the CM DI is making so painful little slope progress in in in the legislative work, I Hope it it nevertheless makes it to over the finish line Everything else is more or less in Abeyance right now waiting for that file to to come out at the other end But then there is one part of the the the work Head of us that I need to emphasize. I think we need to push Ahead with whether there's political momentum or not and that is that is the issue of liquidity Which has popped up so many times during these these these two days and I mean When when the BRRD was was was negotiated almost exactly ten years ago I mean that that was when the the big big push was ongoing That debate was framed in the context of what has just had just happened in in the global financial crisis and and the model of bank failures that we had seen and and I mean even though at that point people did Realize there was a liquidity aspect to things the idea that there would be a bank that fails Purely because of liquidity issues was considered kind of nice theoretical, but completely unrealistic Prospects so the outcome was was a legislation that didn't really differentiate between liquidity and and and and so on and see and the the outcome of So the results of this we are seeing right now We clearly don't have the the machinery to respond the way they say the the American authorities Responded this spring or the creed the the Swiss authorities. I don't see the Swiss authorities right now But anyway, you you you the the this sort of Triangle between central bank fiscal authorities and regulators We don't have a structure for that to work We need to we need to to to do more on that and and and try to create more predictable framework to to act act quickly that is that is Something we we I would put that as a first order item I move on to to capital markets, you know, which is quite a different kind of story this Endless political love towards that That that project is not a single politician who doesn't Doesn't declare devotion to to the capital markets union now 80 years Since we started work Working on it. I mean, I I think I think there's a bit of a cynical view on it I think we've made more progress than we than we care to admit but clearly we are still at that at the start of the project The problem here is that we kind of keep mis representing it misframing the whole issue. It's so Many times it's thought and I'm not talking about you guys. I'm talking about the political circles it's it's thought in the same mind frame as as Say the the single market goods and services in the 80s that it did just about Removing removing a few regulatory barriers the opening of the floodgates and and and and the demand will be there That's not really what the issue is we have Capital movement is free. It's just the the the question is that There are all kinds of little complexities and annoyances lack of I mean starting with the fact that many of your many European countries don't have anything to that That's when you could call capital markets. So what do you integrate them? But I mean, it's it's it's a it's a very complex project of of of little things to nurture the the Sort of culture I mean in the previous panel it was mentioned to that that we need to work on on the investor side is which is Very much true, but it's not a small ask to to to create pension funds in terms in in in place of of of the Primarily pillar one pay as you go systems. We have it's a fundamental change in societal structures Which is kind of something that characterizes all the big-ticket items that we can think of it It's it's the pension system of the taxation insolvency. I mean all these create kind of Obstacles to capital markets union, but these are not things that have been Set in place with capital markets in mind. They are not protectionist things they are deep societal structures and yes, we can work on them, but don't expect Quick revolutions. So I'm I'm finishing here my my my sort of point here is that We are making progress with capital markets union But it's not going to and and and we need political pressure. We need commitment, but don't expect The future to look considerably different from the past in that respect. It's going to remain a grind It's it's going to be a very fragmented effort working on on many different files But it's moving and and I I'm quite convinced that we will Be making progress over the coming years Irina, thank you for that. Irina you you made a passionate intervention in the last panel In support of banking union and I guess maybe CME as well Is is something you believe in are these the keys to? Enlarging the potential for for European banking. Do you think I I do believe so and I and I wish we could have a conversation with the Mr. Mustier on that that you know because no because really The fact that I do see the advantages. I do see the opportunities In terms of as professor Carletti said attracting investors That would be much more reassured about a real single market with clear rules So with the you know more stable environment less fragmented One I also do see the synergies I mean it's not true that there are two differences they the single market will help smoothing out the differences I mean in the United States is not that there are not the differences I don't think that alabama's market is the same as massachusetts market in terms of mortgages or you know Whatever you you want to see so I do see the differences I do see the challenges But I see also these as an opportunity to smooth out the differences to manage those differences In a way that is more favorable to increase the attractiveness of the sector to attract the investors And and and also you know these kind of synergies they emerge They're not given and set in stones. They can emerge. They can be built by good strategic management They are created by technologies. I mean new technologies are actually creating tons of new opportunities for synergies Across the European Union. I mean look look at what happened, you know, we complain about the fintech What would they what did they do they did this they saw opportunities to scale up things maybe leveraging Smaller markets at the local national level markets that were considered low-value things or marginal things at the national level but they managed to find a way to create a scale up and and and going cross-border and then create an opportunity for Changing and revolutionize the the industries. I mean markets are changing technologies are changing and in this respect if I If I may you know, yes, it's true that we may not expect big revolutions in terms of Regulatory or rules or you know capital markets because we know how difficult it is and you know the political So it might be slow and no revolutionary But this is one part. I mean there is a whole real world outside our regulatory environment Which will go ahead anyway no matter what and revolutions may happen everywhere are happening They are happening in digital. They are happening in climate. They are happening I mean whether we like it or not and so I think that's our job is also to Use the tools that we have available that we can build Together to make sure that we are prepared for these changes and we don't always come when it's too late And on this regard if I can if I may just go back a little bit to your first questions about having stable rules you so said we need a stable rules regulation So as a as a policymaker I feel a lot about this and of course it's important to have but more than stable rules what I would advocate for is more predictable and Democratically discussed rules in the sense that not stable in the sense that you don't change them But in the sense that you change them in a way that involves all the actors that is capable of Seeing the problems that we want to address with the rules and work together because we also have to agree What rules are for so the way the bank tax for example happened in Italy? Would be the opposite of exactly the way you would like to see even if there was gonna be a tax It means to be Discussed and not sprung on people at 7 o'clock on a Friday night Just to give an example, but it's not the only one. So and So that does not mean that it's forbidden to think about a tool like that Sure, it may well become a possible tool, but we discussed together. What are the tools which directions? Which are the objectives? Yes, you know, how is it sustainable? What are the impacts? this is I think the principle and But we have to agree what rules are for so rules are something that only comes later to Repair what is broken or it's something that allow us to prevent problems and to accompany change In a way that when it comes about it's not so disruptive and we are prepared It's a really good point. So Frank and Kristian both wanted to come on. Thank you you know this is a panel about the future and Sometimes I have a feeling that we are making ourselves too small That we forget and yesterday we had You know a a inspiring figure of a future of a former generation who is still now Teaching us. There were people that Created the single market. There were people that created the single euro There were people that created the single supervisory mechanism They stood up and they do something they did something that many people in these audiences then said Would never work would never come about and if it came would certainly fail It didn't fail here. It is the single Supervisory mechanism the single currency the single market Many of these steps that we Europeans have taken over the many decades were taken because we look back And we said that disaster we should avoid forever Can be for once Do the right things and the big things Looking forward, which is the theme of this panel and say we need to do a couple of things to avoid something Our president has given many speeches. I guess also in this room where she says, you know did and then I stopped here but for now and We need to capital markets union for many reasons, but we also we can never do the green transition without the capital markets We we throw this number at each other and you know, it's it's it's so big that nobody of that But you know every year today we need five hundred billion plus additional investment For the green transition, we are not even close to that Yeah, that's a good point. We said and so so we need to convince ourselves that We need to go back to that spirit of doing grand things in a grand way or we will be Facing a very very dire future Kristian, I'm guessing you would agree with that. Yes, and then Frank took half of my comment because I Really wanted to make clear We will never ever make the green deal without the capital markets union impossible It's a 500 billion think about how long Germany. I'm not talking about the 60 billion How long Germany debated about the extra budget of 100 billion for defense 18 months ago We need 500 billion a year until the 2045 to be fine It cannot be done by a balance sheets of the banks cannot be done by state budgets. So we need that what I'm missing in this Discussion and I agree by the way it will most likely take some years. I'm not a politician I'm not an expert that but this is a base case expectation There are items we can do in the interim There are proposals on the table on secretarizations That would already help to free up the balance sheets of the banks and we have now these days in my view again a Completely different risk underwriting than we had in 2008 We did a lot of things wrong and I think we we learned our lesson But let's make sure that also on secretarizations. We now walk the next steps and And this is what we need to do and and says what can we do in order to take the bridging steps to capital markets union? In order to free up balance sheet to finance this transformation last point I think we banks need to do a better job. I Really do believe that the people out there if you leave this building and you go down into the Frankfurt St And you ask people about the capital markets union 50% of the people don't know what it is Secondly the other 50% are may thinking this is just in order to boost preferred profits for the banks increase the variable comp or Pay dividends at the end of the day. We haven't done a good job and it starts with us in the bank I'm talking about this in the ebf that we need to explain that at the end of the day It's nothing else than the economic booster for the European Union and for our corporates And we need to do a better job to explain to the society Why this is necessary? And I think if we get this done It will be far easier also for the politicians and the parliament to agree on the one of the steps And therefore I'm thinking it's a joint task And we as ebf and single banks need to do a better job in order to explain why this is so essential for the European Union That's an extremely important point. Um, I just wanted to change. Oh, yeah, please if you want to finish out on this, right? So just to touch upon what what Frank said I I don't I don't think capital markets union is is is one of those cases where there are naysayers And then there's a political will that total comes there that that I mean there's there's no one who says that Capital markets union cannot work or it shouldn't happen. It cannot be done That's not really the point. The point is that it's quite difficult to figure out What are the bits and pieces that that need to be done cigarette cessation? I think that's probably one where there is I Wouldn't I wouldn't call it a agreement, but it's sort of a clearest interest the clearest sort of Qualitative understanding that there are things to be done if you if you then go to to insolvency Which I I mean I it is a big issue in in terms of of the the Difficulties in changing because it links with property rights and company laws and things like that, but When you start to dig up, what is what is it exactly that you need to do there? And what would be the effect on on on on capital markets union? It's not that easy to say I re-pointed out that that I mean Insolvency law is not harmonized in the United States still there is a capital markets union. So there is a sort of in every field that there are sort of a Lack of analytical clarity of what actually needs to be done. We have this General understanding that it would be helpful if we do Do do this but but in in terms of coming up with a good plan of Where the bang for the buck is is is good is actually quite difficult, but I do agree with Irene Fully that that the world is going on while we speak here and and and that actually may Create channels for for for creating capital markets union outside of the the efforts that we are we are doing here And I I hope it's it keeps happening Okay, that's that's been a really important discussion about about the kind of scaling of the market if you like I wanted to change tack and bring Sam in on Something that Michael Bar raised in his address earlier, which was The liquidity regime and and a couple of you have mentioned Liquidity rules as they stand now How much do you think the liquidity rules need to change in order to guard against a repeat of the types of events we saw in the US regional banks and also Thanks Patrick the starting point is that the the rules that we set have never been designed To prevent a total run from bringing down the bank and I think Michael was making that point too I think it was 85% Silicon Valley deposits went out in two days We're never going to calibrate the regime there that would be tantamount to move to narrow banking So it's about what's a reasonable amount of kind of self-insurance to have in the system And then I think the second piece where I'm very much in the same places Michael is about How disciplined are we about making sure that in addition to that? banks are in a position to draw down quickly on central bank facilities when needed because there are There are good reasons to doubt as Michael was saying That the speed with which even quite high quality assets can be monetized in the market by a bank It's obviously in trouble that those assumptions are quite right So I think we need to bring together the sort of central banking Preposition piece with the regulatory LCR piece and have a more disciplined view across the two of them now We've always pushed banks on this in supervision At the PRA, but I would say that the what the join between those two things has not been as strong as it should be And some of that's because of you know So technical issues like the fact that some of what is in HQ LA market will sometimes be part of what's preposition Clash was just a bit tricky people to work out So I think there's a job to do to look at you know Does the LCR need any recalibration in view of what we learned? That's a good question to ask me in addition to that How do we make the preposition side work better? And if I might just have one other point if we want to come back to this Patrick But it's interesting because at the other end of the pipe We're going into an environment where the quantity of bank reserves in all of the main systems Will be reducing and that of course is the most liquid asset that we have them from a from a Supervisors point of view reserves are nice because it cuts through all of these issues But there's going to be something about sort of coming up from the bottom What do we need in terms of your first question at the same time? We're coming down from the top in terms of the volume of reserves there isn't a system Somewhere between those two things there's going to be a meeting point So that addresses the stewards point that he said again investors complain about the Minimum reserve requirement rules in this part of the world Well, you're saying it's kind of merit it really I mean the record should show that Sam Woods didn't offer not offer any comment whatsoever on the business of the ECB and particularly the MRR But it is it is it's I think it's going to be an important discussion in all the major jurisdictions over the next year or two About you know as QT comes through and there was some local funding schemes being withdrawn for instance We have one in the UK called TFSME That's going to be quite a big change in funding conditions for banks at the same time as we're thinking about your first Question and I think we can navigate that but it's complex. Okay, Christian I just wanted to bring you in on on this point about you know LCR being self-insurance essentially Normally self-insurance programs are designed by Well, at least thought about by the people who are doing the self-insurance as well as by maybe the the supervisor authorities In running your bank sensibly What do you think is the right kind of you know the 30-day kind of time frame that the LCR Demands versus the two days that Silicon Valley Bank kind of blew up in what was the what's the right? Kind of time frame to be thinking about in the modern world To be honest it's I Let me start a little bit different. That's because Everybody in the room knows that that we were attacked at the end of March and we had a two-day or three-day event Yeah, and therefore I I really do believe that over all the liquidity rules Which we have employed in particular also here in Europe because I can best judge on those Are to be honest the right ones. Okay, and and I have to say, you know, we have often different views but but I think The reaction of the ECB To the situation which we have seen on the regional banks in the in the US or with credit Suisse in Switzerland I really have to praise you because there was no knee-jerk reaction And I think what is very important is that the regulator at the end of the day is looking at the Individual banks because if you really look at our situation end of March at the end of the day We started with approximately six hundred and twenty billion of deposits. We went down to five hundred and ninety five billion now Don't quote me on the last billion, but we went down the real deposits Which we lost through the seven or eight days were approximately ten to twelve billion from wealth management and multinational clients actually in Asia the most sticky part was the retail and Mid-cap and small business deposits which are approximately in our bank four hundred fifty billion in Germany and in Europe And I think that the the most important is if you think about LCR It's not only about the ratio and of course we have to comply with that And I think we have over all the right ratios But is that the regulator and the banks in such a situation Understand the individual individual situation of a bank and can say how sticky or not sticker deposits are Therefore, I'm always saying when it comes to the crisis in March if you have these four things right adequate capital level Adequate liquidity measured by LCR or absolute amount of liquidity But in particular that linked to a broad and diversified deposit base and Then you are sustainable profitable Then you can dress you can address that challenge and in this regard I think it's more an individual assessment of the regulator to the bank in which shape it is there And in this regard I have to say I wouldn't call for action And I have to applaud because there was no knee-jerk reaction and I have to say we bankers were nervous that this is coming Yes If if anybody else wants to come in on this point of liquidity then yeah, please Yeah, maybe maybe just to point what what Sam already started that LCR is is Is probably not the answer to to to the kind of situations that we're faced in in in the spring it That that comes to the issue of land of last resort and and what I've tried to spell out in my in my opening remarks that that that's We need to design Assisted where it's clear where the central bank responsibilities end and and the the resolution authority responsibilities Starts and then on the way back where the central bank Responsibilities resume after the resolution and and and we don't really have that That that that a proper framework for that in place And I think we need to to to do some some work on that Okay, it's good. Well, I would like to add to this part of the discussion Is that of course when something goes wrong and by the way, I think that the European banks, you know Silled well through the the March term on But the immediate reaction many times is to ask so do we need new regulation in different rules, etc. But I think a main Lesson that We can draw and you can see this in I think an excellent SVB report that was done in the US You can see that in the evaluation of the you know the the events in Switzerland is supervision and And today we are here also to talk about, you know, five year of Andrea's chairmanship of of the SSM and And I think if you look at these various reports and by the way also although this was completely unrelated to any kind of crisis, but the the the vice-prison's report that that that that you asked for and that we got The lessons that that I think can be drawn there is that in a world that is changing faster We cannot be complacent as supervisors and as banks, by the way, we need to become better at Remedying findings if we see something that is just not okay It cannot just sit there and year after year, you know We we we embellish our analysis and we share with the banks that we are still concerned and their time goes on we need to have a culture of effectiveness of impact of Supervision that maybe doesn't go like this But maybe goes like this Things need to Remedy because the world is changing fast. So One of the lessons that we draw from this And again, this was something we had already put in motion So maybe I should more say that we were reconfirmed in the road that we had already Embraced is that we had a very close look again to all the instruments that the legislator has given us I mean there's a whole list of things that we can do That go beyond You know capital requirements We can send deadlines we can We can restrict businesses We can set deadlines and say if by that deadline you haven't done so there is actually a periodic penalty payment So we have looked again at our full toolkit And we have looked each other in the eyes in the supervisor board and said we are going to be using this Of course, and this is the lawyer speaking in a proportional way We will always prefer to have a real conversation and to convince A bank of the right way to go if we feel that there is our certain risk that that need to be remedy But if then Things don't change for the better. We will be scaling up and I think this is one of the the clear learnings Of, you know, the recent past I want to move on and talk about A subject that is that goes beyond banking that Is probably the thing that corporates around the world are the most excited about and Maybe authorities are the most fearful of AI Irana, I wonder if maybe I could start with you From from from your point of view, do you see AI as a great opportunity or as a great threat? It's both for banks Both I mean it can be can be it is a great opportunity. Of course, there can be also a threat depending on how you You face it how you prepare for it how you it's like all new as I was saying sometimes from time to time you have these revolutionary changes and And you can't just avoid it. I mean as a legislator, how do you kind of well the debate? It's still ongoing. Yes. Oh, we are as always when you have to regulate something To legislate on something that it's new you have you have to be very careful in trying to not over Overdo it So we tend to always have a sort of a gradual approach like we did with Mika for example So we try to do it on with respect to cryptos and everything So you have to be prepared to start laying the ground and and give also the time to adapt to this to these changes to capture the opportunities, but at the same time trying to new neutralize the threats The thing is that in my opinion with AI but the same with cryptos the same with the you know all these Innovations we need to work together. I believe in a way Being very realistic and very pragmatic about what is going to happen and not in a defensive way Which is sometimes I've seen as an approach some Politicians sometimes are defensive because they want to to show their strength and overregulate to tell their constituency They are they have everything under control the industry sometimes is defensive in saying we need to block this innovation Or we need to protect ourselves if you don't do these we will be destroyed So if we start when we're competing with the US and China, let's say in this particular I do you think this is a particularly European problem that we worry here about What could go wrong before we worry about what could go right? No, I think that you know I reckon I don't want to judge what others are doing I'm saying that for example We saw in the spring that our concerns and the system that we have built made us more resilient and Allowed our banks to be resilient and to our our citizens to be protected So I think we also have to acknowledge that and we have some Specificities and we are trying to to do that actually I see in many fields where we moved Earlier that other constituencies other They are looking at us actually and we are setting standards and frankly I I prefer being a standard setter rather than To passively be the one that run after what others are are building So we do it gradually, you know like two years ago or last year when we were this we had this mission in DC and many of our colleagues in the Congress were very interested in what we had managed to do with Mica for it For instance, so we had a lot of interesting debates and discussions And I think that was a good first step. It's gradual. Of course, we have lots of people that complain That's not enough for someone is too much But this is so of course that they always did the risk of what we of what we do But I think that by moving together so regulators policy makers and industry Identifying what are the trends? What are we going forward and trying to anticipate both of the threats and the opportunities? We can give ourselves a better environment to you know to embrace the change and not be threatened to neutralize the threats and take the opportunities, but We did we need also to Lower our Defensive instinctively the offensive approach. Yeah, and Sam do well. Yeah, I'm glad to glad to hear rena's tone Which I think is is very sensible. Obviously the the development of genitive AI is a massive breakthrough And you know unusually of course it has one manifestation with a large language models where we can all immediately Feel how big a breakthrough is I remember the time quite a long time going actually that our team asked one of the one of the genitive models to Describe our M-Rail policy in the style of a pirate and the response was just fantastic I think it might have also been the first time I truly understood our policy No, I'm not going to do my pirate version. Oh, come on. Thanks for that Later on this evening later on this evening. I will I will offer that um, but the serious point I wouldn't make was this that I am gently skeptical about the idea that we need a lot of financial services specific AI regulation There is I'm sure a place for wider AI regulation, but we've looked very carefully at regulation We've tried always to be technology agnostic It is true that the banks and insurers are asking us to elaborate a little bit here and there so what are reasonable steps if you're a senior manager who's got responsibility for one of these models and Okay, I think we can do a bit of that But I sat where I'm sat at the moment my instinct is not that we need a kind of big extra financial services AI Regulation layer there may have to be something up here. We may need to do some little elaborations Yeah, but I think if we if we if we do this, we're gonna have this in here We're gonna have this in energy. We're gonna this in health. I think it'll be a mess Christiana's a practitioner Are you encouraged by the tone you're hearing from the yeah, absolutely? I think in particular the board Sam Just said this is absolutely true and let me to your question opportunity or threat. Yes in my view It's an absolute must do yeah forget even opportunity or threat if you if you are not there you're gone Yeah, yeah, and and I even start forget about as a bank Look at the demographic development in Germany in the in most of the Western part of this world without AI We will not be able actually to replace all that what is sort of say From from a pension and aging point of view. Yes going into a certain direction So we should really embrace it from a from a banks point of view, you know, it helps us on all three topics For sure revenues why revenues because it's a client Experience which is far better than the old part think about the call centers, which we have in the private bank I can tell you by heart the ten most questions, which are asked from Friday from Monday to Friday and and and and just the level of preciseness Responsiveness no waiting time on the court you can actually increase the client experience Which always has a positive impact on your bottom line or on your top line cost? I don't need to argue that But I think and there we need to have the good discussion also with the regulators and I understand that we need deep Discussions we are running a lot of test runs in AFC in KYC with AI and Our results are actually very very encouraging now I I understand that this needs to be done together with regulators But I think the control areas and the control levels of banks can be even increased if you apply to the right standards interesting Just before I come to the kind of policy makers for reaction to that point You just want to tell us something that you're I mean you mentioned call center kind of servicing stuff There's something really exciting that you think a yeah exciting exciting is look at David focus Lando May not like to hear it, but But it was actually his idea We are now putting AI in Deutsche Bank research to go through the research reports what today are Kind of the analysts the young analysts are doing the way AI can actually scan through all these reports Think about the conclusions. We are trying to think about how can we then make the result? Not that there is no human being anymore involved But to actually come up with a structure come up with a comprehensive summary come up with a faster response to our clients It's an exciting. It's a real exciting project AI in human resources You can't believe how happy people are if they call our own people Call actually the human resources hotline and they get more precise and clear answers to questions Than before so it's not only client related or investor related It is also the way you run the back. Yes, you're any you want to come back if I if I may Of course, there are tons of opportunities for you know banks profitability new markets more efficient management Etc, but as a policy maker I have also to ask myself other questions and I'll give you just a couple of examples I'm often approached by not only by bankers, but also by citizens Entrepreneurs small and medium business firms that are that have problems in relating with banks, you know when they're in access into Mortgages or loans or so they they come to me and for example recently I had Women's organizations and women entrepreneurs Come into me and reporting me problems that they've had in access in credit from banks They were small very very small entrepreneurs with the three four employees at the very beginning and one had Denied that she saw that the bank denied access to credit because said you are in your 30s What happens if you get pregnant next year? Will you be able to repay? Okay, these things happen. Okay, we may be shocked. We may say oh my god, this is terrible, but they are happening Okay, so what happens if things like that get inside the algorithms of the AI when we AI When we have to decide who to give credit to or not what happens to that as a policy maker I feel my duty my responsibility to make sure that this is not happening. Yes, because my Prior objectives is not yours. It's not making the bank profitable But is to make the European Union the union that I want to have in terms of value in terms of protection of the citizens of Women's right of everything so and I'll give you another example. I had associations like business associations LGBTQ plus they were worried about The implications of AI for example in insurance Because what happens if we end up being labeled as riskier for some aspects There are lots of prejudices This could happen How do we know that AI is not becoming an instrument that? Ends up deviating us from the European Union that we want to build for our citizens for our Entrepreneurs for minorities so I think these are questions that I understand you might not be so much worried about But it's my duty as a policy maker to worry about these things And so this is the kind of debate that we have in Parliament when we talk about AI just to you know Yeah, that's some examples. That's right. Really. Do you want to come back very quickly Christian? No, no I think you know, I just said in particular when it comes to controls But others we need to work with the regulators and the policy makers But you know the world as we said for another topic what moves on I was just in China I was in the US the application of AI over there is Dramatically higher than in Europe and we see where the investments are going Capital markets share in Europe versus US was 20 percent 15 years ago We are now at 9% so we have we need to see that this is happening This doesn't mean that we need to be not need to be cautious about that. So I agree that yeah Yeah Yeah, come on with a with I mean I just Seems to me that it is not in the interest of of Deutsche Bank or any bank to create a an AI system that discriminates No customers. It's not good business and and and and I would think that the incentives are there for Christian to worry about this sufficiently that that it doesn't happen Then there are Things of risk management that may arise from this that I'm sure Frank and Sam will be eager to think about and At this point I and and apart from the the issues of existential threats from AI which are so general nature not in in our field specific I At this point don't really see Yet, I mean I need I think we need to We are far too early to form a picture of whether there are some sex sector specific Regulations that are needed in this field so far I'm not seeing any. Okay, great. Um, I'm conscious that would be questions from the audience. I'm very keen to Involve you. I'll come to you do prepare your questions in your head. I've got one that I wanted to put to Frank and Sam actually from an online question And it's to do with climate Frank because I know you have this is an area you're very interested in Do you think it's realistic and sorry, it's a it's a slightly techie question But I all the all the more important for that Do you think it's realistic to include climate related and sustainability factors in estimates for? probability of default and loss given default Calculations and if so, how could it be done? All right, well, thanks for the question. I thought, you know, when is this fishing coming come now finally, but here it is What I normally do when I get a pretty technical question to also make sure that it's palatable for everyone in the room is to maybe just Zoom out a little bit and remind me of all of us of a couple of things. So we talked a lot about regulation There is an European climate law that there is a fit for 55 Strategy there is a green deal There was a Paris agreement almost 10 years ago the climate law says 55% reduction of CO2 by 2030 The Paris agreement as we know says as close as possible to one and a half but under two we are today on a three degree scenario worldwide and The predictions for CO2 emissions by 230 are worldwide are not minus 20 than the minus 55 minus 45 or zero But plus 8.2 percent that's where we are today Now we and I'm going to state this with so much emphasis that I'm just going to say it twice This is how I normally do this V as a supervisor and as a central bank. We don't make climate policies We don't make climate policies We take them So we look at the Paris agreement. We look at the climate the the climate law And we see that these create risks transition risks and We look out of the window and we see that there's a whole bunch of physical risks and I don't need to mention those That's what we do So we don't make climate policy We do what we have always done and that is we make sure that banks manage their material risks and we now know Not all the banks still so I'll come back to that in a second but we now know that Climate-related risk and by the way also nature-related risks are Material so they need to be managed So what do we do to help the banks to get to doing that? Well and adequately we have a multi-year strategy because this cannot be done in a couple of days logically So we published a guide already in 2020 with our supervisory expectations in terms of Managing again risk climate and environmental-related risks then we asked the banks in 2021 to do self-assessments and the banks have been Commandably sincere Because they came back to us and they said well, you know, we do not comply with these expectations as of yet Which I thought was completely logical So we asked how much time do you need and then 80% of the banks under our supervision said, you know Give and take gave give us to the end of 24 and we will get this done We will be able to comply fully with all your expectations in your guide of 2020 So then we thought, you know what if that is what 80% of the banks feel that they can do We will create a level playing field and we will make sure that all banks do this And we will not have any holdout banks, etc So then we embarked on a thematic review, which normally we take, you know A sample of our banks but here because we felt that this was one of our key priorities We asked all the banks and we went to all the banks and we checked and this wasn't 22 We didn't bottom up stress test. We did a number of On-site missions we have done and we have published also crucially Good practices because the good news is that already one and a half years ago all of our expectations at least There was at least one bank And and these banks have been in different jurisdiction different sizes different business models that Complied with one of these expectations. So all of our expectations so to say We're being complied with at least here and there by the one or the other bank So we knew and we know that it is possible We just haven't found any bank yet today that complies with all these expectations Individually Which is okay because we have this process now and here I want to tie in and then I will stop With what I said earlier about Supervisory effectiveness So we said We are not gonna wait till the end 24 to then in 25 check how things have gone and then maybe in 26 Start thinking about how do we make sure that those banks who have not been able to comply? Are compliant so we set a number of interim deadlines and We announced that Years in advanced In many speeches press releases you name it and we said the first deadline Interim deadline for March of this year And what we asked was to do and I'm gonna be a little basic here now But to do what is actually the first basic step in risk management and just do a materiality assessment And those banks who actually did that well they all came to the conclusion that this was material for them What we have done is Those banks who did not deliver debt on that first interim deadline. We have now started in this escalation letter that I I said before and That might but might not depending on how You know in the coming period they will you know start walking faster Might in the end also lead to periodic penalty payments That goes into what I said earlier. We want to be an effective supervisor We want to be a predictable supervisor. We want to be a reasonable supervisor But we also want to be an ambitious supervisor with impact And so that the end point of that though Does that translate into? Risk-weighted asset calculation in the end So I haven't said anything about capital no Which was the question I Tend to remember the question But I wanted to make so clear that this is something that banks can do This is something that banks must do This is something that even if there was no supervisor and if you were to just manage your risks you have to do and And I'm pretty sure that we will be able And you know there is some passion here on this But we will be able to deliver together a European banking system that is able to manage these risks now To say one thing on capital. I think this is This is this is not immediate at all, but it is true that you know Our whole capital system is based on if there are certain risks. They need to be well capitalized Yeah, so from this institution. We have always been against Green supporting factors and and things that can you know that that that let let go of a purely risk focus Because as I have tried to underline I think rather emphatically this is all about risk management now to stop There is one more risk and this goes way beyond what I've just said and and you will see if you look at You know the scenarios that the ncfs the the the the central bank and supervision network for the financial system Produces scenarios that we that we use and there's a disclaimer there and It's small and it looks legal But it's important for all of us the disclaimer says that we might be underestimating seriously what is coming and I think that we all should worry about this not only today, but also tomorrow and in the years to come Climate scientists tell us that it is not unlikely that certain tipping points have already been Past that means that things are locked in even if we stopped emitting today, which we are certainly not doing We always talk about the things that are still needed to make it so today Christian you said Banks and governments will not be able to come up with the 500 billion so we need a green CMU To us you have just told us that's not gonna happen That's not what I see. Well, okay, but you said it's much more difficult. It's gonna take time It's gonna be so is that gonna happen to 500 billion extra investments this year. It is not it's next year No, the year after no, maybe 10 to 15 years from that Is sticking so the only thing that I'm saying to all of us that little disclaimer there Might come to haunt us It's a really important point Sam anything to add from your side and then I want to take some questions from you To the narrow question. Yeah, my answer is yes, but not very well I say that because some of our banks are already doing it on the pillar two for their right But it's something that you're going to increasingly kind of yeah It's early stage, but but the the more you know forward-thinking amongst our banks are already attempting to do those calculations for the They're right about yeah, okay. Very good. Okay questions from the room Raise your hands if you would like to ask anything of any of our panelists Have we answered every question that you might have? Surely not. Yeah, please There's a microphone just coming Andres, yeah, there's Andreas don't but as nobody was asking a question I'll ask a quick question to what extent and you Patrick you just call on whomever you would like Looking at AI and having spoken about other continents being so far ahead of us To what extent is there the potential of a dependency coming our way and what? How much of a problem is that potentially? It's a very good question. I suppose It's been prefigured in other sectors. For example our historic dependency on Chips from certain parts of Asia for example Do you want to take that? Well, yeah, I mean the other thanks Andreas because the other good example recently zombies cloud And the response within the European system has been Dora. We've got a critical third-party thing Just coming forward in in the UK So essentially from the financial regulators point of view if the parliamentarians agree The instinct is to think if something becomes really big and really systemic Then you need a little bit to add to the basic principle of it's for the banks to manage their own suppliers You might need a little bit extra to reach over and say you need to play ball in our Cyber stress tests you need to be able to do XYZ so so I think if it developed in that way To me it seems quite likely that you know that AI dependency would become part of that frame Very good No, I don't have much to add except just one one thought when because we discuss the Regulation in terms of AI and everything the fact that we are behind but just as a reminder the regulation is not You know operational yet, so if we are behind it's not because of the regulation So so maybe we also sometimes have to think about why are we lagging behind because every time I hear we are lacking Behind on innovation in banking in thinking in AI and always we blame the regulation But in in this case we still are working on it So it's not our fault that the thing is that maybe we should have also an honest conversation About how come that in the European Union in general we have but I know it's a completely different panel and a different conference But how come that in the European Union sometimes we struggle in developing innovation, you know, you know Breakthrough innovation and that can penetrate different industries and put ourselves at the frontier of the innovation I think this is a conversation that it was much more fashionable in Europe like 15 years ago 20 20 years ago now it's a little bit under And maybe we should resume that and instead of just blame the regulation and just the work together in terms of what we could do To to spore investments innovation research because we we're not talking that much about it But but we are lacking behind not just in these in many aspects. So it's a crucial point. Yeah, absolutely. We are nearly out of time but Like many panels before us yesterday and today I think several of us wanted to Finish by paying homage to Andrea and his time The hell of the SSM Just peaking speaking personally as a journalist. I've never come across someone who has been so respected by journalists by analysts by fellow regulators but also by the industry is quite an achievement. So I think Applause from me on that, but I know Sam you wanted to come in and say thanks Patrick I'll say a quick word and then maybe I'll ask a question to to finish but Andrea Look everybody knows you've been a brilliant leader of the SSM a brilliant leader the EBA and a totally committed European let me add something more personal which is as you mentioned last night the first time we met was in 2010 When we were looking at a question of ring fencing in the UK and I came away from that meeting thinking ah This is someone who's very wise very wise I remember what you said actually you said at Manca d'Italia and your youth you had some experience with Activity-based restrictions and it was not a very positive experience. Unfortunately. We did ignore that advice last time I did that a couple years later I realized also that you are very courteous because probably what you were thinking in that first meeting was Wow, this guy doesn't know very much But that was not apparent to me at the time and then as we've worked together since You know the other quality that I really admire and use you were incredibly tough very very tough And I think that's a fantastic quality In a supervisor and a regulator, so I've always sort of you as if you like like a wise uncle to give advice to guide Usually when you lose an uncle, it's a permanent loss But luckily in this case, it's not permanent and indeed you've seen the light and you're coming to London So we look forward to welcoming you there, but I'll pass to a question Well, we had already the opportunity in the ebf, but I have to say all that was was said before is really true I think you are a super highly respected regulator among us banks Also when we have the one or the other situation where we had a different view and there I can say yes You have been tough, but I think that's your task and you know at the end of the day I always measure people when there are tense situation Andrea and and Knowledgeable all that of course The way you behave when it comes to challenging and critical situation you listen you think You are very clear. You are calm But you are also pragmatic in those situations and that we all appreciate and therefore We always felt very safe with you Well Andrea, we've probably embarrassed you enough On that note, thank you and thank you to the panel