 I've been doing this for 13 years and there have been some magic panels at magic moments, but I can really say that Marjo and all of the World Economic Forum have really outdone themselves with this panel, which with the storyline of our politics, our economics and our finance at the moment could not be better timed. Let me start by making a few brief comments on our panelists and then I want to get to our three-hour discussion. We have a panelist today who understands the mathematics of the great distortion, the responsibilities of trying to find an actuarial assumption and trying to match the obligations of the future. We have a panelist today with profound responsibilities for the long-term matching of obligations of this strange word, insurance, which is from another century and is changing with the technology of the day at light speed. We have a panelist today who's an absolute crucible of the new finance, it's linkage to regulation, it's linkage to our politics and particularly our world politics, looking at the responsibility of making ratios and making it every 90 days, if you don't make it every 90 days, the world falls apart. We have a panelist who provides us with a terrific historical template who has been committed to acquiring for the United States of America different pieces of our heritage and our history and possibly understands the 1930s like no one in the room and certainly the political moment that we're in worldwide, the many moments. And finally we have a panelist who, full disclosure, has written my book of the year with a great hat tip to Sebastian Malaby and Professor Rogoff, who has the worst ratings on Amazon I've ever seen. His book is just flat out courageous and it has had international response and debate. So let's get right to it. I guess the future of finance is about the how of the future, the what of the future, the strategies and we too often forget particularly in this valley, the tactics that will be required, the short term to get to the strategic long term. And Richards, you understand the great distortion. You understand how the bond market as a measure of this crisis and of this distortion has distorted all of finance. Can you say all clear in the great distortion? Do we begin this seminar? Do we begin this Davos saying that we're through the negative rates and through the great distortion of the last eight years? I think we've passed the inflection point. I mean it's clearly still in bond markets as a lot of distortion is still in there but I think the thing that was crystal clear in 2016 was the shift in the way that central banks themselves, central bankers themselves were looking at what monetary policy could do. I mean I think it's a really interesting chart. If you look at Janet Yellen's statements at the start of the year she'd never mentioned the word fiscal in her press comments once. By the time we get to the end of the year in her last press conference she mentioned the word fiscal 20 times. And I think that is very symptomatic of the fact that central banks have realized that this primacy of their independence away from government actually wasn't sufficient. You need to have fiscal and monetary policy working together and that's what bond markets I think began to react to through 2016. This realization, we need a new framework for thinking about how we transmit monetary policy through to the real economy and that's how we're going to adapt to this and that's why we're at the end of this 30 year period of unidirectional bond markets. David Rubenstein, we go step by step here. We go from thought to thought. There's no real structure to this before we get to your good questions. Full disclosure. Dr. Weber, I'll be starting with you on the question so get ready. But David Rubenstein, I believe we have a fiscal debate and we have a moment. Ian Bremmer had the best photo out on social yesterday of the one left standing Chancellor Miracle. Is it fiscal policy to the rescue in 2017 that sets the template for a more normal finance? Well let me just talk about the United States for a moment. In the United States for the last six years or so it's been very difficult to get fiscal policy because the Congress and the President were not really in sync and so therefore no major legislation dealing with taxes was really going to be passed by the Congress. Now we have a Republican Congress and a Republican President and the theory is that there should be some legislation that would deal with fiscal policy and significant fiscal policy, significant tax cuts and major changes in the way we tax our corporations and our individuals in the United States. If that can get implemented then yes there will be significant fiscal stimulus in the United States I believe. Monetary policy will not be as significant as it was. On the other hand monetary policy is going to have a factor, be a factor because it's likely that the Fed will continue to increase interest rates a bit. And so you'll have an interesting anomaly here. You're going to have a fiscal policy that is controlled by the Republicans and a monetary policy that's really being made by Democrats who are largely composed of the Fed or control the Fed. So we'll see how that works. But right now I think the Congress is likely to pass some significant legislation in the fiscal area tax area but if you go by the George W. Bush administration or the Ronald Reagan administration when they were trying to get significant tax legislation through it takes roughly nine to ten months to get it done. So nothing is going to happen overnight and as we probably know the Presidents of the United States don't have as much impact on tax legislation as the Congress does. So while the President will say here's what I would like to do the devil is in the details in tax policy so it's going to take a long time before we really know what the fiscal changes are going to be. The devil may be in the tweet we'll have to see what Mr. Trump says today as we move to the inauguration. Mario Greco to get back to the finance end of it and part of what Mr. Rubenstein was speaking of is this idea of a change template of regulation. Do you look for a finance of 2017 that will be a difference in regulation for Zurich and what will that difference be. The big issue that we're facing is integration of capital rules. Capital rules are very different in Europe US Asia. Of course we favor in a standardization of capital rules across the continents but I think this is going to be very unlikely and very difficult to achieve. And so capital arbitrage or looking for the best capital rules will remain. It kind of came that Americans Europeans in Asian will think about playing. Which institution do you look for. Which government institution do you look for to be most commonsensical about the future of finance. That's a very difficult question. It's too early in the morning for difficult questions. Is there one institution in particular that you're focused on. I mean not really the issue we have is as insurance companies that the regulators tend to rule or have a memory for having ruled banks and they tend to consider insurance companies as banks which were not. And so the extension to insurance company of banking rules fails to understand the riskiness of what we do. We live in a world where we accept liabilities from customers and we match assets to the liabilities and we run a quite a good match of assets and liabilities over a longer period of time. Banks don't do that and this is something that we're still struggling to have the regulators understand. And this explains the issues that we had in Europe on Solvency too which has been completely counter cyclical capital regulation did not help in the past years getting Europe outside of the economical crisis. And explains also the struggle that we're having in getting an aligned system worldwide. John Crian you have had an eventful set of years with Deutsche Bank you begin a new year there's to be a vision for the future of finance and how large banks fold into that. Not where will you be this year. Where is the future of big banks in five years. Well we are placing our bets on technology. We're not sure that the fundamental nature of products will change much although regulation tends to impact that. We don't think that the demands of our clients and counterparts will change too much since the delivery mechanism and that will help us protect ourselves. We can use technology to improve our own controls. We can use technology to improve our efficiency and then we can use technology to improve the customer service. Within the investment that you have to make is the idea of a new banking. Is it banking as it's been or is the future of finance a new banking that will be radically different. It would be different but if we take the narrow definition of banking we're regulated to take deposits and that regulation provides some form of protection of the status quo. It doesn't defend us against newcomers but it does embody the status quo and everything regulated tends to continue as it is. It's not generally a facilitator of change. So against regulation we try to be innovative. Innovation in financial services has been frowned upon for a decade or so for justifiable reasons. It didn't serve society as well as it might have done 10 years ago but we haven't been innovative other than in delivery channels. Technology is the key in the next five years. In the last half hour of this panel we'll really dive into the technology. Ken Rogoff finally to you we talk about strategies but then we talk about the tactical surprises we saw with India and their adjustments to their cash regime I'll call it. What have you learned about innovation when you look at the curse of cash and you look at experimental modes and such. What have you learned in the last six months that sets us up for the future of finance. Not specifically in India but just on the different experiments out there. There's a phenomenal amount of innovation in finance at the moment. It's sort of hard to know what direction it will take. A lot of it is being developed in the private sector. If you look at the long history of money the private sector is often the innovator from standardized coinage to paper currency to whatever we have in the future. Certainly central banks are looking hard at these ideas. I think it's pretty likely we'll start to have central bank digital currencies in the next 20 years if not the next five. They have digital currencies already. Deutsche Bank holds its reserves electronically at the central bank but this will get extended to a much broader group. And that may sound you know just a little technical thing but it has profound implications for disintermediation of the system. People being able directly to go to the central bank instead of through banks. The government to fund itself and then more broadly in the private sector these innovations provide ways to do legal contracts, ways for banks to transact with each other without going through a third party. It's a very exciting time in innovation but I have a feeling the regulators are probably way behind what's going on. David please comment on the parallels here I think of Mellon in the 1930s. And this idea of combination is the end result of this future of finance. That there's simply fewer players involved and do you assume that that will occur sooner rather than later? Well actually what's happened is the number of banks in the United States has consolidated after the Great Recession and other things. We have relatively fewer major banks than we used to have and that phenomenon occurred in the 1930s as well as banks consolidated. Now what you're finding is that banks are important but you have financial service companies that are not banks that are playing an increasingly important role in the financial service industry. The so called FinTech revolution has really revolutionized banks as well as other providers of financial services. So for example today many people are paying their bills through mobile payments through their telephones and they're not necessarily going through sending checks to banks to do things like that. And China and India are leading the way interestingly while the United States considers itself a financial center and also a center of technology revolution. The revolution that's really occurring in financial services is occurring in emerging markets China and India where they're bypassing some of the things that we have in the United States because they're really going from an emerging market to a financial tech revolution. And therefore you will find many more people comfortable with using mobile payments in China and India than you do in the United States. It's much much higher percentage. And you're also going to see enormous amounts of other ways that people are going to get around the traditional banking system by doing things that banks do for them historically but now non-regulated institutions can do it. And the whole financial tech revolution has seen enormous amounts of money coming into this space. So right now you're seeing probably five times as much money as going to the financial tech companies as was five years ago. Five times as much as come in. And it's projected that probably it'll increase by about 50% per annum over the next 10 years because you see so much opportunity to make money for the investors but also it's really revolutionized the way people deal with banks and also deal with money. So after that briefing John Crian, what is the to-do list for a major bank? How do you pull in that technological innovation? I had a panel here two, three years ago on the same theme ever more so now. How do you pull in that innovation to slower, stodgy, developed economy, banking and finance? Well, we've taken a number of approaches. One is to work with it but it's a slight distance so that we're not, we are a multinational corporation. That's not an institution at which all young people aspire to work these days. So we find new ways of working particularly with younger people. They want a different employment contract than a simple employer-employee relationship. They're much more fluid and they want sometimes some equity so we work with them as a third party but with some degree of exclusivity. And we can capture the intellectual property without necessarily formally employing the individual. We've set up different, we've three or four different approaches to that. We're not sure we necessarily always have the right idea. It varies from country to country too because employment law varies. But in Germany we've tilled three different approaches to how we deal with entrepreneurs and innovators. Do you just assume a consolidation? We see moment to moment in the future of finance, everyone's working on the expense side of the income statement. That can only go so far and then do we see consolidation, whether it's in your banking or Anne and Mario's more portfolio-based products? I do and I agree with you that there's pressure on expense, but there's also a lot of pressure on improving controls. And the product innovation, and I stress product innovation, there have been plenty of other innovations and digital currency is one of them. But the products haven't fundamentally changed because they tend to be regulated and they're more and more regulated. So this regulation becomes more granular. Traditional institutions tend to be less innovative and we're looking elsewhere for disruptors. Are you optimistic on that, Ken, within your travels? Are you optimistic that what David talks about, a third world lead in these innovations can come over to the more developed economy banking? Well, I mean, certainly there are great innovations going on in India and China in addition to the United States, but I mean, I, you know, there's sort of a question of how to tame the whole thing. Their financial sectors are a mess in some ways. That provides an opportunity for these disruptors. For example, internet lending is just huge in China because there's so much regulation on the banks. There's a reason Bitcoin is so popular in China because there's so many capital controls and so many regulations. I think it's more of a substitute for credit cards and debit cards to make a long story short, but you know, it says they circumvent regulation. So there's a big demand for that in India and China. Maria, how do you adapt to this? I mean, you're in a completely different way of it from some of our panelists today. How do you adapt and adjust innovation or to just hide in Zurich? So first of all, innovation for us is a revolution with the customers because through technology, through innovation, we can get in touch with the customer at every moment. So connectivity is what really changes the relationship between consumers and insurance companies. This is a great revolution and it changes completely the product and services that we can offer to customers. Now, in order to do that, we do very similar things to what Jenna said. So we are partially invested, I think, in technologies and partially we outsource it to partners who work with us on different schemes. Maria, we've got a microphone trouble. They want you amplified. Should I repeat it? That's better. Okay. No, no, no. Go ahead. Please continue. Continue. No, so we work on both the systems we outsource technology to providers and we work together with partners. We'll have schemes which incentive us then with us. But as I said before, and I don't know if it was heard, that the big game is the connectivity with the customers which allows us to redefine the product and the services that we offer to customers and makes finally insurance immediately available to customers. Please, David. To make it simple for everybody to understand, at least I will try to make it simple, you have the banks, the insurance companies, the existing financial institutions we're all familiar with. They are innovating and a lot of the FinTech revolution is making them, making it possible for them to provide their services more efficiently and more cheaply. Then you have another FinTech revolution which is trying to disrupt completely the banks and the insurance companies and say we have a whole new way of doing things. It's unclear which is going to ultimately prevail. Will the banks be revolutionized and changed, but they'll still be banks and insurance companies that people are familiar with, but they'll just be much more user-friendly and cheaper? Or will new organizations like Alipay, which is an organization in China that provides enormous opportunity for people to pay their bills through that system which is not really regulated, and will that system prevail over the existing financial institutions, banks, insurance companies? We don't know, but both are moving forward at exponential rates of change because there's a lot of demand by customers, younger people particularly, for innovation, for new technology. I don't know today whether the banks, insurance companies, or the existing organizations will prevail or whether these new organizations we haven't even heard of will prevail five or 10 years from now, but clearly there's a revolution going on both directions. Anne Richards? I think it's quite helpful to break down the financial system in this way and to think about two main bits of it. There is, first of all, the plumbing bit, which is the stuff that connects. So if you think of it in that sense, and then there is the data bit, if you think of the plumbing bit as the pipes and the data as the water that flows through the pipes, we have increasingly a global set of pipes in which a lot of both traditional, conventional companies and new starters are working at different bits of that pipe. There's stuff that's going on dealing with the quality of the water, which is things like the stuff that Google does or Facebook to find out how you and I interact with the plumbing. So there's two different bits of it that are going on here. I think one of our big challenges is not so much who is involved in improving which bit, whether it's the plumbing or whether it's the water. It's that regulators break down the system pretty much into national chunks and actually to the consumer, to the people in this room, to our clients, to our customers, they view it as just one ubiquitous set. And I think we've got a really interesting challenge going on and tension between what regulators are trying to do at a micro level and a national level and actually what the system and what the individuals who interact with that system want, which is a much more global and fluid system. And I think that's the tension that we'll see gradually resolve itself over the next five years. Well, the question you have is, are consumers better off with the FinTech revolution? Presumably they will be eventually. Is society better off? The theory is probably that society will be better off with these changes. And then two other questions that are raised are were regulators going to be able to keep up with all these changes and second and last, will security be able to keep up with this? In other words, with all this technology coming along, are we going to be able to make these things secure? And will the regulators be able to keep up with all these changes? And nobody knows the answers to all these things and they're struggling with them right now. But the issue can help us here with the next 10. Let's pretend we're with ManQ in the Acclaimed Freshman class. At Harvard, does this drive us towards perfect competition within the future of finance where margins are taken away from Mr. Crye and Ms. Richards and Mr. Greco? Do the margins evaporate? Well, first starting with it, a lot of it revolves around regulation and of course always in finance. The private sector innovates. The regulators take time to catch up. The euro market developed that way. The private sector looks for where it's not regulated, goes to those paths. But I do think the regulators are going to come in everywhere. I mean, sort of what I mentioned earlier in China with the internet lending, that's an extreme version. But it's not like the Chinese authorities don't know that that's going on. They're kind of seeing how it works. And I think that's true also if you look at the United States and Europe. They don't, they're nervous, but still as long as these alternative mechanisms are kind of small, they let it go on. But eventually they need to come in and regulate it. Yeah, I mean, of course, just as we saw in, you know, for example, book selling, you know, there's a shift in, you know, where the centers are, that could happen over the future. I don't think it'll unfold that quickly because I think if this unregulated sector got very big, let's face it, some problem would happen. There'd be a hue and cry for regulation. So I think it's a balance between innovation and regulation. John Courant, as a digital world, just compete away. Profits, if you go down any given income statement, do you just assume margins are competed away? Very often, yes. You have to give longer answers than that. But yes, that can be the result of it. Very often we, for example, it's very interesting, we meet a lot of fintechs and they'll come in and they'll lecture you. Yeah, they will. For example, I know in trade finance, they'll say there's lots of inefficiency and friction in trade finance. We can take it all out. And then you look at what they're proposing and what you do is you take out all the profit as well. So you could do what they suggest, but it wouldn't remunerate them and it wouldn't address the fact that it takes a long time to ship something from A to B, physically. And so there is time value and they strip out a lot of that friction. And sometimes it's artificially created friction just to create a profit. So that's an improvement in the service, but when it's somebody actually delivering credit over a period of time, there's no substitute for what we do. And there are different ways of delivering it. You can deliver it in a digital fashion, but it's still extending credit. If we get a cry in universe, Mario Greco, how do the regulators adapt? Do they become the bastion of profit protection for old banking and old finance? I think what they are doing today is they're moving more and more toward customers protection, which is fair and it's right. But I want to stress what Anne said before. The issue I think is that consumers and companies are becoming more and more multinational and consumers also travel and move around the world. And regulators tend to look at borders and tend to regulate on a national basis. And this inconsistency is low in town or is creating hurdles in really following the pace of innovation through the world. And this is something that should be more and more considered in the future. David, do you see a new regime of regulation with the populism that we have today? I mean, you've been very US centric in your conversation, but I go back to the Bremer photograph of yesterday. Regulators are not famous for saying, well, there's nothing really to regulate and we maybe should just go home and find another job. So it's not likely that they won't find something to regulate, but whether they can keep up with the changes, I'm not sure. I'm just curious, though, the people here, how many people here still writing checks? Very few. How many people are banking online? Very many. How many people have been in a bank in the last year? And people haven't been in a bank in the last year. So generally, I find the divide between younger people and maybe people who are a little bit older than, let's say, 30 years old. The younger people, they haven't been in a bank. They don't know what a... I have three children who are in their 20s and 30s. I don't think they've ever written a check. They don't write checks, because everything's online. I'm a last adopter, so I'm always writing checks. But I'm not the best FinTech person. But the younger generation just doesn't understand what some of us are really doing by writing checks, visiting banks, and things like that. And this revolution, I think, is probably best understood by younger people when you talk to the younger people of what they want out of financial services. It's much different than what my generation really wanted. Is it generational, Anne Richards? I've had a number of senior bankers tell me they completely missed how fossils would pick up on digital banking. Well, I think Facebook's fastest growing cohort is people age around about 50. So I think there is a late adopter thing which goes on. I think you have to look at the curves. So I think there is a correlation with age, but it's broader than that. People get there. My 86-year-old father uses an iPad and an email to communicate with us, because he's so deaf. So it's fantastic in that sense. But I think what we are inching towards, and I don't think any regulator has really got their head around this yet, is the fact that I think data regulation and financial regulation are converging more and more. And we have no setup as yet which really brings the two of those together. But if you think about the repository of information, the more we touch the customer, the more information we collate and hold about buying preferences, about risk appetite, about what you did yesterday, about what you do tomorrow, what you're searching on the internet. The more that gets held within a financial world, the more that touches data protection and data regulation and financial regulation, in my view, ultimately are overlapping strongly and are converging. With what you hear, MNG, can you be overweight financials? I don't mean within a tactical sense, but is it a sector of opportunity for investment? The answer to that is clearly yes, but it is also, I think, one of the sectors that we look at most closely, because the potential for the kind of sidewinder missile to hit it, whether that comes from prudential regulation, whether that comes from consumer facing regulation, whether that comes from, you know, Alibaba was mentioned from an unexpected entrant and because of this convergence with data, whether it comes with somebody with a big cash-rich balance sheet from right outside the financial sector, you know, the potential for disruption is absolutely live and it could come from anywhere. But that doesn't mean it's not investable. A enormous amount of money is going into this sector, 20% of the world's GDP is the financial service industry, so it's a large part of the global economy and therefore there's a lot of opportunity there and you're seeing enormous amounts of venture capital money and also private equity money going into the sector. Probably it's the fastest growing area of technology that I see right now, financial services. In terms of Alipay, just think about this, last year, I believe it was, they had 437 million customers. They have more clients than any financial institution than any bank in China. And you're going to see this more and more in the emerging markets where people who are providing payment services are now actually becoming more important in the economy of a country than the banks have traditionally been. And so more and more you're going to see people moving away from banking, traditional banking services and regulated services because they're probably more expensive and the banks have to adapt to that. Ken, do we need cash for all of this chit chat? Or does cash go away? A short answer is I think we need physical currency probably forever, but we would be wise to have a lot less of it, particularly large denomination notes. I want to pick up on something Ann said. I think it's a very deep problem with the whole, it's not just FinTech, but the whole data management privacy, what information are people allowed to have, what information are people allowed to share. Now, economists sometimes look at this and say it's fantastic we'll have all this ability to write really complex contracts that we didn't use to be able to write. My colleague Oliver Hart won the Nobel Prize this year for showing how hard it was to deal with situations where you can't have complete contracts. He uses the example of when I had my house built. I mean, how could I possibly think of everything that would go wrong and put it in a contract? How do I think about those things? But this new world where we can see everything you do and say there is the potential to do that but and give you better services more cheaply in anything, including financial services, but their profound privacy power issues is really even bigger than the question of this panel, a big issue of the next couple decades. Before we get to questions, John Crian, I believe we have what we're calling daily somewhat incorrectly the Trump reflation. And I put up a chart that shows U.S. full faith in credit, Tuesday and spread and we've come up off the election and now we've up down to a real point of tension where we're going to see which way this breaks. How important is it for strategic finance in the future to have a normal market? Can all of this talk happen within the low interest rate environment we're in right now or by definition with or even before do you have to have normalcy within the interest rate market? Well, I think there are two aspects to normalcy. One is interest rates and there's never been a right interest rate. They vary all the time. It's been tough and we've in the banking sector all been a bit vocal about very low and negative interest rates because they have consequences that were not as well thought through before they were imposed as they might have been sometimes. But low interest rates effectively transfer value from savers to borrowers and that's their intent to stoke economic development. I think where we in the banking sector I look more at our securities and derivatives brokerage where we find more distortion and lack of normalcy would be in government intervention in bond buying for example because that deprives us of clean market price discovery. And once the pricing basis, the US Treasury which is the fundamental pricing basis for most securities is distorted by government, deliberate government buying then we distort all asset prices and then we don't have a proper capital allocation. So that I think is the distortion and the normalcy that the markets I think would benefit from being returned. Ken whether you look at central bank balance sheets or you look at them as a percent of their GDP and there's a number of ways to look at this. Do we just need to clear those balance sheets of the financial crisis to get back to rate normalcy or can we do it, can we have both ways? Can we get back to normalcy while the banks ever so slowly unwind all that ownership? Well there has been this overwhelming drive towards safe assets that's been going on for a long time that central banks really have very little to do with. I know most people think central banks are causing this but it's really saving in China, Germany, Japan the low level of investment and by the way I do think in the United States this will change over the next couple years. If Donald Trump brings back nothing else it'll be risk into the bond market that'll eventually get price down. But I do think there are better ways to deal with things if it happens again in 20 years and I talk about this in my book. I want to be cautious, you know I don't look at the current situation but about how we could have effective negative interest rate policy in a crisis not all the time and then you'd have price discovery but that's not a normal thing you would certainly like to see positive levels of interest rates across the board in a well-functioned system. The back half of Professor Rogoff's book is on negative rates. Mario Greco, there's negative rates that we have now and maybe with a little bit of courage we have more negative rates to spur a rebound or reflation if you would. Marvin Goodfriene of Jackson Hole talked about substantially more negative rates. Can you have a future of finance given the fear out there that someday we may implement? Draconian negative rates? No, please. I mean as an insurance company we felt we survived to this negative rate which we never thought we will or the industry will and now we need to have normal rates back into the market and we look forward to have some risks coming back into the play and to have less distortion in the bond prices. The negative rates take us away from choices and from product options and make the life also the consumers incredibly difficult as it is also for banks. So hopefully this we're looking forward to see that moving away. Ken please. I just wanted to add the ECB were to unwind its quantitative easing right now we'd have a collapse of the eurozone so it's not something that should be done. Do you agree Mr. Crane? A collapse of the ECB. Collapse of the eurozone. The eurozone. You missed it down here. Sorry if we got if the ECB sold all its Italian bonds and Spanish bonds unwound its balance sheet. Well we'd have chaos in the bond markets because I'm not sure there would be enough immediate support to buy what the ECB has bought. I'm not sure it necessarily means that the eurozone collapses but prices would fall a lot. It shows the tension points here away from talk about innovation and technology there's the market vigilantes each and every day. We will do questions please identify who you are here at the World Economic Forum and please point it in short questions but we must have and begin with perhaps an observation and question from Dr. Weber please. Can I speak like that? I believe you're heard or do we need it? Marjo can we get a mic over here please sir. Over here Dr. Weber. Just one observation maybe added you talked a lot about banking and innovation. What was missing a bit was the capital market piece and I think we do see that increasingly capital markets will play a much bigger role. Banking disintermediation is going to happen. The example that we heard about the U.S. still writing checks that has basically bypassed 50 years of financial innovation on how we do delivery of money and it shows you one thing the speed of financial innovation is much less driven by the suppliers of that innovation but by the acceptance of consumers to adapt it. And so I'm with John who probably doesn't see a lot of changes in what we do day to day on our retail side and how we do corporate credit but if you go to the capital market side one of the problems of the last crisis was excessive innovation and complexity and that part of markets capital markets has been really pulled back and is on the leech for after the crisis it will reemerge and I think capital market innovation is going to be the key driver in emerging markets. I don't think China will go the same way as Europe or as the U.S. If you get the same market capitalization in China that you have in the United States it just tells you how big bond markets equity markets and property markets will grow in China as they emerge. So my hope is not that the banking side will grow but it's the capital markets it's probably prepared for that. David I want you and John to jump into this David my answer to this when I look at the shock to the capital markets is transactions that lead to combinations. Are nations ready for their banks to combine across borders or within a nation? Clearly some nations regarded as important to have a major bank so I think it's unlikely for example that Deutsche Bank is going to be allowed by the German regulators to be bought by somebody that's not German. And so I think it's probably true that most countries want to have at least one major bank and I don't think you're going to see the French regulators allowing some of the major French banks for example to be bought by a non-French entity. So that nationalistic feeling is still going to be around for a while. But I do think we should recognize that the large banks although we say that we don't want them to be too big and therefore too dangerous they are getting bigger and more powerful than I think they were before the financial crisis as we've consolidated banks and so I do think the banks I don't know whether too big to fail or not but I think they're much more significant than they were before the financial crisis because we've consolidated and given much bigger balance sheets to the banks than they had before. John with great respect for the challenges that you face how do you find too big to fail in the future of finance? I think too big to fail it's the phrase that was normally used I think a better formulation was always too complicated to manage successfully. Dr. Verbridge has mentioned. Yes. And it was that it was it's not so much size if all we did was take deposits and buy US treasuries with those deposit monies we could be really very big. We'd have a lot of concentration on one asset but we could be really very big and relatively simple. I think we proliferated the markets in which we operated the products we offered in those markets and the types of customers we tried to serve and we didn't always control ourselves as well as we should have done. There was a lot of it was the zeitgeist it was there was a lot of focus on growth market share gains cross-border acquisitions which ultimately didn't bad value but added complexity. And I use this word a lot zeitgeist what will be the zeitgeist of modern banking? Well we're regulated to take deposits to be to give a sort of technical answer to that. And therefore it's more fun for people who don't take deposits to play in other fora of financial services where they're less tightly regulated. Now that's partly why banks extended their remit. I mean one of our most valuable businesses would be our asset management business. It's three quarters of a trillion dollars of assets we manage no one ever calls it into question. Obviously runs large operational risk. It's not as fun. It's not as fun it's a very stable source of earnings we like it. There are parts of our business though that did take sizable concentrated risks and we missed out on concentrations and correlations and we missed out on I think all convexity which is actually banks writing insurance policies. And those three C's went wrong and we didn't really we didn't have the common sense to look for them beforehand. But also we were looking elsewhere. We looked we looked for credit risk but not in triple A rated securities. So in triple A rated securities which were high yielding should have been a red flag turned into very poor securities. We then thought about applying credit risk standards to them. So we didn't apply common sense and what banks I think I'd like to hope do today is much better managed to some extent over managed still very timid but we apply a lot of common sense. We we we ask ourselves what could go wrong and I'm a big fan of regulating banks by testing them for stress by using a whole variety of scenarios. It's much better than that arithmetic approach to backward looking capital and liquidity measures much better to stress the institution in all in all manners including general operational risk. And Richard please help us here with the Newtonian mechanics of convexity is acceleration in the second derivative. Can the future of finance be as David has mentioned and avoid those shocks which can be ugly convexity. Well let's let's put the sort of complicated words to one side for a second because I think just going back to the comments just now about complexity I don't believe that innovation means has to mean increased complexity and I think right now the zeitgeist to go back to that word is about innovation that brings more simplicity and more transparency and transparency is really important. It's really important to our customers really important to our regulators. I think the challenge that we have when it comes to responding to shocks is that on the capital side the financial system is regulated towards the maximum capital to withstand the worst shock whereas on the profit side the regulation points us to the least possible profit that it's acceptable to earn at the best possible point in the market cycle. And I think therein lies the tension and we need to bring those back together so that we truly get some degree of counter cyclical cyclicality around both capital and profit at the same time packaging it in transparency and simplicity and understandability. And I think we're still searching for that but I think that is what regulation and indeed our customers are pushing us towards. It's just really difficult to do that across a large complex legacy bound industry. A question please. In the back please. Can we get a microphone please before we want you to the question. Our tech investment is exploding. Is Carlisle investing more and more? We are. We do it through growth companies. We're not a venture investor. We do it through growth companies which companies that have some revenue and maybe some case of some earnings and those tend to be higher risk investments but not as risky as pure venture capital. And then we do buy out investments that are fintech as well. And I think this is probably one of the fastest growing areas of the private equity world which is financial technology related investments. And they've worked out pretty well for us and for others as well. I suspect you'll continue to see that. And also a lot of that money is now being invested in the emerging markets. China and India in particular, a place we see a lot of fintech investment. Are those investments that capture market share and take greater revenues or can they actually now five years out, David, 10 years out actually provide ample margin? Well there are two things that we're investing in and other people like us. One is things that are helping banks and insurance companies make themselves more efficient and services are provided more quickly and therefore they're not disrupting them so much they're making them maybe more effective and then things that are completely disrupting those markets. And I don't know which one was going to be more profitable in the end but we are investing in both as other people are doing. And I do think one of the nationalist points I wanted to pick up on that was mentioned earlier, I don't think that countries like to have no major bank in their country. So I think Deutsche Bank is going to be prominent in Germany for a long time if it needs support I think the government will provide it though it doesn't say it doesn't need any support from the government but I don't think France is going to get rid of having some of its major banks and England will have some of theirs but now as we get new financial service companies like Alipay or companies that are not really based in let's say Germany or France or England or the United States will the regulators allow and will the politicians allow all the payment systems to be done out of India or China and companies that are not really based in let's say the major country where some of the services are being provided I don't know the answer to that but I think it's an issue that people will have to address so for example will American politicians be happy to have all the payment systems be run by companies that are based in China I don't know maybe they will maybe they won't Mario please Not the administration So Tom I just wanted to add something on the disruptive type of investments in our in our industry for example we're testing expert system to handle claims now this is completely changing the speed and the quality of the claims processes and services to the customers if companies will not adapt to this this will be disruptive so there will be no other choice then go in that direction and invest and transform otherwise in a couple of years the companies who will not do that so they will be just out of market right and so I think it's much more pervasive that what we heard so far technology is changing the way we work it's changing the services we give to customers and the companies who will not adapt to it to these changes will be out Do you just assume within capital allocation labor allocation total factor productivity whatever you want to call it multifactor productivity that there'll be fewer bodies at Zurich I don't mean to pin you down on some silly tactical question but do you just assume fewer employees is the first order solution when you use technology So in the last 10 years the total number of employees in the financial sector banks and insurance has been flat despite the growth of middle class and despite the emergence of new players and new opportunities to work every forecaster says that there is roughly 50% of jobs that will be replaced by computers over the next 10 years so yes there will be fewer jobs Can brief us here on this absolute mystery that I call it the Dale Jorgensen mystery of productivity it's really front and center in every single conversation isn't it Well I think there's a measurement issue that we don't know because GDP was designed to measure things and now 75 or 80% of GDP is services which you don't measure as well there's also the financial crisis which which cloud thinks I wanted to mention something about the national boundaries so a big problem in the financial crisis was that the multinational banks it wasn't very easy to unwind them because they had you know cross-border holdings the U.S. didn't want to pay for banks in Mexico etc so many regulators arrived at the solution you had to sort of have a each bank incorporated separately in each country but the modern finance absolutely wants global players there's very natural synergies their natural oligopolies in this and I don't know how we resolved that Europe couldn't resolve it look how much trouble they had with their bailing out their banks and theoretically the eurozone had everything in place to allow this to work seamlessly so there's a big political problem going forward how we do this that finance wants to be international as Anne said and yet the political system just doesn't come close to having a mechanism for dealing with it with the heritage of Deutsche Bank at Frankfurt in London and with your U.S. facilities and frankly world wide what is your optimal regulation given being a multinational bank what is your best outcome given the nationalism that we've been talking about well it's a good question we're in the eye of the storm because we are fundamentally an international bank we're rooted in Germany that's our it's our cool market but the markets we really serve are international markets and we're at our best in international banking and international capital markets and Ken's absolutely right of course there's been a balkanization of regulation particularly in relation to liquidity and so even that where we don't have to physically incorporate we run a branch as though it were incorporated effectively and so we look at the combined operations in each of the major booking centers and jurisdictions of course we have remote booking so we originate business in one jurisdiction and book it somewhere else that's a matter of tremendous convenience for our clients for example we we contract with thousands and thousands of institutions out of our London branch and they they deal with Deutsche Bank London branch and that's it they're done globally so it's a huge convenience it allows us to net effectively but it's not well it's not really comfortable with current regulation with seven minutes to go in our panel let me ask the dumb question of panel and this comes off the inside of Dr. Weber in the capital markets do you need people there within the technology and innovation of the future of finance do you still need someone on the watch who did I talk to with David Fokert's land out the other day Michael Lewis who for years did your commodity research and now is working on sustainable energy do you need a Michael Lewis on the watch in Tokyo we absolutely do need people you still do we need that common sense that comes with people and the more complex our algorithms get the less safe those algorithms are because they're harder to monitor now we have a mantra internally that we exactly as Mario said we need to replace a lot of people who are actually performing the function of the computer so our mantra is to stop people using their hands and eyes and start using their brains we upscale the work people add much more value and we get computers to automate what we hope will be much more standardized business that doesn't mean we don't provide solutions to clients but we provide them in a modular way where we can we can we can identify individual building blocks and we authorize them for use together and that makes us much simpler and it helps us be regulated because we've made ourselves simpler but cross-jurisdictional business will remain the world will remain a place where trade takes place and banks need to support that well this leads to a Prime Minister May we've got the quotes in the released honor speech today here they are we want this is from Prime Minister May and I believe her speech that we'll hear this morning we want to buy your goods sell you ours trade with you as freely as possible I mean David Rubenstein that's as simple it is about a Washington consensus and a system that seemed to work well it's easy to make these statements and of course it's it's desirable that that all those wonderful things would happen but the reality is more complex one of the wonderful things about financial technology is that it will make everybody have access to financial services and payment systems and credit much more readily than before and all of that will unfold over the next five and 10 years I think people will be pleased with this and now you don't you don't you won't need to carry your credit card you won't need to carry your wallet you won't even need to carry your cell phone because everything will probably be through your fingerprint or your or your eye but we do have greater cyber crime that's likely to occur as well and a whole variety of things that you can invest in now are things that are going to prevent these kind of cyber crimes so there's as you get more and more financial technology and become more important part of our life you're going to find more people who are going to try to get around the system and I encourage everybody who has some type of financial tech device or something to make sure that they are protected and and make sure that they have taken the steps to protect themselves against money being stolen or their identity being stolen because this is increasingly going to be a big problem with the whole fintech revolution Let us in the final minutes that we have moved to the moment we have in the United States in auguration I believe it's on Friday and these other key elections in Europe as well Ken Rogoff is it are we moving towards with the tensions and the anger and the other panels here at the World Economic Forum the rage of the day are we moving towards a zero-sum world are we moving back to mercantilism away from all accomplished from the Atlantic Charter I mean Harold James at Princeton has a great book he wrote actually just around the financial crisis about the waves and globalization and history and how it comes and their ebbs and flows and he predicted I think it was a 25-year downtrend starting from that point and there are clearly a lot of very strong you know populist reactions and you know we're seeing them all over the world I don't no it's not a zero-sum you listen to someone like Donald Trump and you think it's a zero-sum but it is not a zero-sum globalization trade can work for everyone et cetera but we're in a period where we're going the other way but I don't think it'll just slow growth I think people who have low income middle income they will suffer from higher prices and help us here with the actual assumption if we have a Trump reflation if we have a new reflation with fiscal stimulus et cetera et cetera can you lift up the return expected from investing and through finance look I think I think if you look at the capacity for intelligent investment there is scope for the business sector for the corporate sector to put in a lot of productive growth and I am an optimist about the fact that technology clearly there are some losers out of it but at the end of the day every great technological leap forward has ultimately been to the benefit of the aggregate economy what we've not been good at and I think this is always the case is that we look at averages and we say on average everyone is better off and we don't think enough about the tails and the extremes and that's really what a lot of the conversation this week I think we'll be about need to get better at that but look I think this net net again go roll forward 15 years and look back we will see this as a marvelous period of innovation and people who aren't doing some stuff today ultimately that time that is freed up humans are really good about finding other useful stuff to do useful innovative stuff and so as an optimist I think you know I think actually there's a lot equities might do okay from here to go back to your very simple question John Croy and Mario Greco and Richards Kenneth Rogoff David Rubenstein thank you thank you