 Thank you to President Lagarde for her introduction. And now we come to the first of our two panel discussions. Again, let me remind you to send questions via Mentimeter on menti.com using the voting code 47228727. So the first panel is called Navigating Through a Storm – Policy Challenges in the Current Macroeconomic Environment. The panelists will look at current challenges, such as the weakened economic outlook, inflation, geopolitical tensions, and an aging population, and what these mean for macro-pudential policy. This panel is chaired by Pablo Hernández de Coz, Governor of the Banco de España, and Chair of the ESRB Advisory Technical Committee. He will introduce the panel members and lead the discussion. Governor Hernández de Coz, the floor is yours. Thank you very much, Connie, and good afternoon everybody, and welcome to this first discussion panel of the Sixth Annual Conference of the European Systemic Risk Board. In this roundtable, we will be focusing on identified challenges affecting the conduct of macro-pudential policies, or macro-polices more in general, in the current turbulent times, which are having important repercussions for the economic and financial environment. As noted by President Lagarde during her welcome address, in the course of this year we have witnessed an increase in financial stability risks. The appalling invasion of Ukraine by Russia, initiated as we were recovering the activity levels previous to the pandemic, has contributed to either full new or exacerbated existing systemic vulnerabilities in Europe and beyond. Spikes in energy afford prices, continued disruption of global supply chains, and demand pressures have resulted in higher and more persistent inflation across the board. This has triggered a response of monetary policy, which is now normalizing around the world, contributing to tighter global financial conditions and increased volatility and liquidity tensions. And it is the combination of the uncertainty derived from the war and more in general from geopolitical tensions with the increase of inflation and the rising interest rates that has generated, ultimately, a general deterioration of the economic outlook, with, for example, one year ahead recession probabilities having increased markedly in both the euro area and other major advanced economies. This challenging financial stability outlook is well led out in the warning on vulnerabilities in the European financial system that the European systemic risk board issued last September. Indeed, the ESRB has alerted of the heightened uncertainty and the increased probability of tail risk scenarios materializing. In particular, the ESRB has won of three severe systemic risks. First, the deterioration in the macroeconomic outlook combined with the tightening of financing conditions leading to negative consequences in terms of balance sheet stress for non-financial corporates and households, especially in sectors and member states that are most affected by rapidly increasing energy prices. Second, a possible shortfall in asset prices leading to large market losses, amplified market volatility and liquidity strains. In addition, the increase in the level and volatility of energy and commodity prices has generated large margin calls for participants in these markets and these has created liquidity strains for some participants. And third, the potential deterioration of asset quality and the profitability outlook of credit institutions. While the European banking sector as a whole is well capitalized, a pronounced deterioration in the macroeconomic outlook would imply a renewed increase in credit risk at a time when some credit institutions are still in the process of working out COVID-19 pandemic related asset quality problems. But forgetting, of course, that the resilience of credit institutions is also affected by structural factors including overcapacity competition from new providers of financial services as well as exposure to cyber and climate risks. Besides, DSRB has identified a number of other risks that are deemed elevated, for example in relation to imbalances in the residential and commercial real estate sectors, which are more acute in some member states than in others. The likelihood of large-scale cyber incidents and high public indebtedness. Summing up, there is no shortage of challenges and in this context preserving and enhancing the resilience of the union's financial sector remains essential to ensure its capacity to support the real economy if and when financial stability risks materialize. Credit institutions can act as a first line of defense by ensuring that their provisioning practices and capital planning properly account for expected and unexpected losses that may be caused by deterioration in the risk environment. Micro and macro prudential capital buffers that are consistent with the prevailing level of risk can also help to ensure credit institutions resilience. Some national authorities have already tightened macro prudential policies, while others are currently exploring whether these policies could be implemented to address vulnerabilities. Preserving or further building up macro prudential buffers would support credit institutions resilience and enable the authorities to release these buffers if and when risks materialize and negatively impact credit institutions balance sheets. But as ever, these decisions should be made considering each member state's specific macro financial outlook and banking sector conditions in order to limit the risk of prosyclicality. Financial stability risks beyond the banking sector should also be addressed. This requires tackling vulnerabilities and increasing the resilience of non-bank financial institutions and market-based finance. In this regard, the SRB has repeatedly noted that a lack of tools is hampering authorities' ability to address financial stability risks beyond the banking sector. It has hold for authorities to be provided with such tools, for example, in the context of the review of the prudential rules governing investment funds and insurance. The current hyphen risk environment makes these more urgent than ever. Against this background, let me now turn to the four distinguished panelists that are to be with me today, Claudio Boreo, Alfred Cammer, Lucrecia Reichling and Ricardo Reyes, who are very well-known to you in the audience and therefore need leader presentation. Let me anyway briefly introduce them to you by alphabetical order. Claudio Boreo is the head of the Monetary and Economic Department of the Bank for International Settlements. He has held various positions of responsibility at the BIS over the last 35 years and during this period he has authored numerous publications in the fields of monetary policy, banking, finance and issues related to financial stability. Alfred Cammer is the director of the European Department of International Monetary Fund. In that capacity he leads and oversees the IMF's work with Europe on financial stability surveillance, monetary and macro-provincial policies and financial regulation among other key areas. Lucrecia Reichling is professor of economics at the London Business School with a background in central banking. She was, for example, director general of research at the European Central Bank. Last but not least, Ricardo Reyes is the AWP Phillips professor of economics at the London School of Economics. Widely regarded as one of the top research macro-economies of his generation, Ricardo has published extensively on monetary and fiscal policy, inflation and business cycles. So, thank you very much, Claudio, Alfred, Lucrecia and Ricardo for kindly accepting the invitation to be with us today. As discussed with you previously, I would first give the floor to Alfred. Alfred, please, you have the floor. Thanks, Pablo, and thank you for inviting me to speak at this event. The financial system, indeed, is facing challenging time, and Pablo, you have started on a list of events and risks we are facing, Russia's war in Ukraine, the extreme rise in energy prices, high and persistent inflation, rapid monetary policy tightening, a slowdown in US and China economic activity, the undoing of the peace dividend and reprisal of almost all financial assets. And the list goes on. What we can take comfort from is the fact that financial markets function orderly and the European banking system remains strong in 2022. This is testimony to the quality of European regulators and supervisors. This is also a result of the reforms implemented since the global financial crisis, which included the introduction and widespread use of macro potential policy tools. But the next years may prove difficult scale. While we are only projecting a shallow recession for Europe for 2023, most risks are pointing to the downside. Against this background, it is appropriate to reflect on the role of macro potential policy at the current juncture. The great moderation exemplified the divine coincidence, where optimal monetary policy could simultaneously stabilize inflation and minimize unemployment. But it became also apparent in the low for long interest rate environment that there was no divine coincidence, reaching risk taking and leverage, and it introduced financial vulnerabilities. Also today, there is no divine coincidence. Rapid monetary policy tightening that aims to bring inflation down to target is now boosting risk and term premium and it trains market liquidity. These financial stresses raise the specter of financial instability. For example, the Volcker disinflation of the early 1980s contributed to the savings and loan crisis in the US and the banking and sovereign debt crisis in Latin America. The first line approach to resolving this conflict between monetary policy and financial stability is to let monetary policy focus on its inflation objective and use macro potential policy to ensure financial stability. Macro potential policy, however, may not be powerful enough, especially in high pressure circumstances. And when it comes to the less regulated non-bank financial intermediation sector, therefore, each policy, monetary and macro potential, must be cognizant of its effect on the other. The ECB's monetary policy strategy review recognized that monetary policy could affect the stability of the financial system and it viewed financial stability as a precondition for price stability. With this, let me now outline our views on the desirable macro potential policy stance in Europe. Macro potential policy in the EU should lean towards maintaining its existing stance while reflecting country-specific conditions and be ready to accommodate should the downside macroeconomic scenario materialize. That's it in a nutshell. Let me elaborate. I will start with the cyclical macro potential tools, such as the counter-cyclical capital buffer. These tools ensure that banks build up cushions in good times when the counter-cyclical capital buffer is activated and accumulated and use these cushions to continue lending during downturns when the buffer is deactivated and brawn down. Unfortunately, most European countries could not accumulate counter-cyclical capital buffers quickly enough during the short post-pandemic recovery and still have buffers at zero. But many countries have announced intentions to increase the counter-cyclical capital buffers later this or early next year, usually to around 1% to 2%. When these imminent increases are already incorporated into banked capital planning, as is the case for France, Germany, and Sweden, they are almost as good as implemented. For us, maintaining the stance of macroeconomic policy means using current counter-cyclical capital buffer settings and announced plans as an anchor. A loosening of buffers from these levels is premature, as financial excesses are still present and sometimes they are even increasing. A marked tightening of buffers is not advisable either, as it may make macroeconomic policy prosyclicly. If the credit cycle turns, the pressure on banks to comply with higher counter-cyclical capital buffers requirements may reduce credit supply and amplify a downturn. The other part of the macroeconomic toolkit are structural borrower-based measures, such as low-to-asset debt-to-income and debt service-to-income limits in mortgage lending. Tider borrower-based measures help build resilience during buoyant market conditions. But we would urge caution on initiatives to loosen borrower-based measures to support financial conditions at the current stage of the cycle. Loser borrower-based measures may increase fragility and household financial risks in the still-imbalanced housing market. Additionally, empirical evidence confirms that the relaxations of borrower-based measures historically add little effect on financial conditions in downturns. In fact, given our clearer understanding of the spectrum of risks, countries could now augment loan-to-asset and debt-to-income regulations by requiring banks to stress-test the debt-service-to-income ratios on new mortgages. This has been done in some countries already, like Finland, Lithuania, Malta, and Slovakia. The authorities could also issue recommendations of low limits to avoid lending at high loan-to-asset and debt service-to-income ratios. Countries can supplement the core macro-idential tools with sectoral measures, such as the systemic risk buffer to target-specific risk, such as those in real estate. For example, Belgium, Germany, Lithuania, and Slovenia have recently imposed macro-idential capital charges on banks' mortgage exposures to better protect banks and the macro-economy from adverse housing markets shocks. These sectoral measures are welcome, and the fact that they are targeted is countries' more flexibility in their implementation by limiting unintended consequences. Our advice towards maintaining the existing macro-idential policy stance may, of course, change in a downside economic scenario. Then the authorities can release or deactivate the counter-circuit capital buffer, consistent with the purpose of enabling bank lending in a severe downturn. Let me make three further points. First, it is critically to keep enhancing the macro-idential policy toolkit. If this toolkit is insufficient, a specter of a financial crisis may break down the separation between monetary and macro-idential policies, forcing a degree of financial dominance in policymaking. In this context, we look forward to progress in the European Commission's legislative review of the EU micro-idential framework, which started in 2021. This review could usually include measures towards an earlier buildup of the counter-circuit capital buffer to higher steady-state targets, a priority that has been underscored by recent events. Furthermore, the review could ensure that all member states should have access to basic borrow-based macro-idential tools to mitigate housing, market risks, and imbalances. The question of improving coordination and consistency of macro-idential policy across member states, while accounting for country-specific characteristics, also deserves analysis. Second, not only monetary policy, but also sound fiscal policy is important for the functioning of markets as the recent British Guild marketing episode demonstrated. Markets can respond violently to unsustainable fiscal policies. There are other examples of fiscal policy that could impact financial stability, such as windfall taxes. Finally, we should not lose sight of micro-idential regulation. A timely and faithful implementation of internationally agreed Basel III bank capital standards would underpin global financial stability. Improving the regulation and supervision of non-bank financial intermediaries is challenging, but critical. Given the global nature of the sector, coordination with the financial stability board and international standard-setting bodies is key. The current focus on liquidity risk management practices of non-bank financial intermediaries and on data gap is the correct one. With this, let me conclude. The resilience of Europe's financial system should not be taken for granted. The financial system which stood the pandemic and the war relatively well only thanks to hard and forward-looking work since the global financial crisis by financial sector policy makers. Complacency is dangerous. Policy makers should see recent events as a wake-up call to prepare the financial system for whatever the future may hold. Thank you. Thank you. Thank you very much. Alfred, let's now move to Claudio. Claudio, please. Well, thank you, Pablo. And I'm delighted to be on this panel and to reflect on an issue which is very close to my heart. That's the relationship between micro-idential frameworks and monetary policy, and particularly at the current juncture. Now, this is a huge topic, so let me just be quite selective and start from the big picture. I think it's useful to have this as context. Policy makers are facing unprecedented conditions by post-World War II standards, and that is recession risk in the context of a combination of monetary policy tightening in order to bring inflation down and widespread financial vulnerabilities. By that, I mean, in particular, historically high debt levels, both private and public, and elevated as a crisis, particularly those in real estate. Now, why do I say unprecedented? Well, because what we're facing is in some respects a combination of two stylized different types of recession. First is the recession that we saw until the mid-1980s, which one could call inflation-induced recessions. That is, inflation would go up, monetary policy would tighten, and this would cause a downturn, in addition to an exogenous shock at the time. But because you had generally financial repression, there was little change in indicators of the financial cycle, such as debt, credit, property prices, and the like. After the mid-1980s, and leaving aside the COVID crisis, which is so ingenious, we shifted from what one could call financial cycle-induced recessions. That is, inflation was low and stable, so there was no need to raise interest rates. But financial booms turned into bust, and of course, the great financial crisis is the biggest example of that. Now, given financial liberalization, what happened was that there was much more scope for financial imbalances to grow. A couple of implications from all this. First of all, if you like, the macroeconomic background is combining the worst of all two possible worlds, and we have little precedent to go by. And second, and importantly, central banks' room for policy maneuver is much more limited than what we saw in the past, because monetary policy and financial stability interventions would pull in opposite directions, as we saw in the recent case in the UK. And in fact, the adoption of balance sheet policies to set the monetary policy stance has greatly complicated communication because it has blurred the distinction between setting the stance of policy and backstopping the financial system, something that in fact, post-GFC, at least at the beginning, the ECB was very careful to do. So let me turn to the state of the financial system, which in a way is the kind of tale of two subsystems. We know that banks are in much better shape than they were pre-great financial crisis, large as a result of the financial reforms, to the point that they were considered to be part of the solution, as opposed to being part of the problem during the COVID crisis. But clearly, as was mentioned before, there is no reason for complacency. The high debt levels mean that the losses on exposures to firms on households could be substantial, depending on how the macroeconomy evolves. And we discuss this in the annual economic report of the BIS, where we had some simulations. And those on exposures to non-bank financial firms, non-bank financial intermediaries, are, if you like, a big known unknown. Indeed, the non-bank financial intermediation sector is more vulnerable. This is the second subsystem. Just think, for example, of the dashboard cash in March 2020, or the recent problems in the UK. Now, this sector has grown in leaps and bounds following the great financial crisis. And this was actually partly an intended result of regulation, because the idea was to try and push out the risks into the less leveraged part of the financial system on balance. But in fact, there is quite a lot of hidden leverage on liquidity mismatches, as also we heard before in this sector, which means that they're highly opaque direct and in particular indirect bank exposures to the sector. And there was a lot of risk taken during the phase of low for long, which means that there is plenty of tinder to ignite the fire. And what was not intended or planned at the time was what I would call disappointing progress in developing a systemic oriented macro prudential type set of regulation for the sector, which I think needs to, this is a gap that needs to be filled with some urgency. Now, let me say a few words about the role of macro prudential policy at the current junction. And here, let me say that I fully agree with President Lagarde said and what Alfred said before. That is that it's important that macro prudential policy now focuses on building resilience in the financial system ahead of the possible storm in case the financial stress breaks out. This is indeed the very mandate of macro prudential policy. And it would be of great help for fiscal policy as well, because a solid financial system increases the policy headroom for monetary policy. Now, let me say that, and here Alfred, I agree with you in substance, but there is something that makes me slightly uneasy, which is when people talk about the macro prudential stance, which to me suggests a short-term stabilization focus, and for which there is quite a lot of pressure at the moment. I don't think macro prudential policy is well suited, even if one tried to use it in that context. And macro prudential policy is more like a super tanker. You have long implementation lags partly and because of political economy constraints, but also technical ones. And the tools are not really designed for short-term macro stabilization purposes. I think the COVID crisis may have given the wrong impression, but that was so e-generous because it was entirely exogenous, not the result of the buildup of financial imbalances. It was fundamentally temporary, so the whole idea was to put in place a bridge and an emergency situation called for an emergency response. Indeed, I would suggest that there is scope to strengthen and reflect more on the built-in stabilizers in macro prudential frameworks because less discretion also means less relevance for the so-called inaction bias and less relevance for timing problems. By this, I mean, for example, low loan-to-value ratios and low DTI ratios, which somehow reduce the endogenous elasticity of credit with respect to asset prices or income through the cycle collateral measures and, importantly, also a positive neutral level of the countercyclical buffer, as opposed to having to raise it only when there are signs that problems are building up. Now, it is monetary policy, which is best suited for just the margin of taking macro prudential policy as given because monetary policy is more nimble. And indeed, I would suggest that in the process, monetary policy can also take into account some of the longer-term implications for macroeconomic stability of financial cycles, given the major impact that monetary policy has on credit, on asset prices, and risk-taking. And, finally, a word about sovereign debt, which is the kind of elephant in the room. Now, we should remember that the sovereign is the ultimate backstop of the financial system. So a weak sovereign necessarily means a relatively vulnerable financial system. And, moreover, initial conditions, by that I mean before the flare-up inflation, were unprecedented. We had debt, public debt at historical peaks, a ruffling line with World War II levels. We had interest rates at historical lows, even negative. And, as a result, despite the very high levels of debt, the debt service burden never felt so light. And indeed, this provided a strong incentive to build up for the debt. Now, higher interest rates will severely test this. Some back of the envelope calculations would suggest that if interest rates were to go back to the level they had in the mid-1990s, which was a reasonable level, then the debt service ratio of the public sector would go back up to what it was at the historical peak, which was World War II. I'm talking about medians across the globe. In addition to that, what we have had are large-scale asset purchases on the part of the central banks, which have added to some of these sensitivity to higher interest rates. Because from a consolidated public sector balance sheet consolidating the central bank and the government, these amount to very large debt-open market operations that retire long-term debt, but replace it with effectively debt, which is indexed at the short-term rate. And by that, I mean the bank reserves. Again, back of the envelope calculations suggest that for the central banks that have been most active in this type of operation, 30 to 50% of the long-term debt, government debt is effectively at index at the overnight rate. Now, this will show up as lower remittances to the government because of profits or losses on the part of the central banks and therefore lower government revenues. Now, structurally, the sovereign bank nexus is very hard to address effectively. And you can think of this as a kind of a killish heel of the macro-potential frameworks. And because of that, but not only because of that, it's essential to ensure the stability of fiscal positions in what has become a tougher environment because of multiple demands, shield the public against the energy, price increases, upgrading military spending, facilitate the green transition and meeting the looming needs of aging populations. So I think that this is going to be a important long-term financial stability challenge in the years ahead. Thank you, Pablo. Thank you. Thank you very much, Claudio. So let's now move to Ricardo, please. Thank you very much. It's a pleasure to be here and join you at this conference devoted to understanding the risks that the many risks that are affecting macro-financial stability right now. As the previous speakers have said, as well as President Lagarde, we are currently facing a very challenging environment for policymakers in the space of macro-financial policy because there are multiple shocks affecting the financial sector that are external to the sector itself, but which as we well know from the dynamics of macro-finance, the sector will tend to propagate and generate and amplify. We have both an energy reconfiguration in Europe. We have all the geopolitical changes in the horizon. We have as well the scar still from the pandemic. They may still be reflecting themselves in the health of the banking sector, as well as certainly in terms of the labor supply in our economies. Out of all of these three, though, there is a fourth one, a major risk facing our economies now, not just a risk, but a reality, a shock, and that is elevated inflation at levels well, well, well above what they were before. Inflation in the last year was, since we are in a financial stability conference and one likes to talk in terms of standard deviation shocks, the last year is 4.5 times the standard deviation inflation in the previous 20 years in the era. It is a four or five sigma shock in terms of just how large inflation has been in the last 12 months. Rightfully, the main focus at the ECB has been on eliminating this risk to central bank credibility inflation persisting and then delivering on its mandate that inflation should be 2%. This is a conference not about ECB monetary policy, but rather about the ESRB and macro potential policy. And so as a result, I will talk about how to bring inflation down, why it went up, will take us given that inflation has gone up, and I will also take us given what I think are relatively uncontested truths of monetary policy, which is that interest rates are going to have to rise, they've already even risen in order to combat that high inflation. And finally, I will also take us given a trust in the ECB that it will deliver low inflation that is at this high inflation period is temporary. So in a period of elevated inflation, where interest rate increases are inevitable and may have already entirely happened or there's more to come, and where inflation is only going to be temporary, how does this in itself pose a shock to financial stability is going to be the focus of my remarks for the remaining eight or nine minutes. And I want to make three points in that regard. The first one, perhaps the most obvious, perhaps intellectually less interesting, which is not to say that quantitatively less interesting, is that a temporary burst of inflation can translate into higher inflation risk premium for many years. Insofar as again, investors, consumers, households start revising up that standardization of inflation, realizing well, five sigma events happen and maybe just that you had underestimated the sigma before, perhaps in perceiving that inflation may be higher or at least it's a risk of inflation, we may see that reflected in terms of higher compensation for risk in sense of the nominal interest rates that are charged throughout the economy. On that regard, note that it is important to note when it comes to financial stability that the last 20 years have been really quite remarkable in how much the government bond R-STAR has fallen. A big fact of the last 20 years that affects the entire financial stability because after all, government bonds are at the heart of any financial system is that we've had a decline of the R-STAR on government bonds of the interest rate at which governments are able to borrow, which has not been accompanied by a fall in the R-STAR of the private sector at the return that one obtains in private investments, at the return at the interest rate at which corporates have themselves have to borrow, say. That gap that increased wedge between the R-STARs has been tried to be explained. Immediately, it means that governments have had their budget constraints greatly relaxed and has allowed, for instance, for the fiscal room that was so useful and so needed just a couple of years ago to fight the pandemic. Well, when we think about what explains it, always to the front comes stories, our explanations or theories that emphasize the safety of government bonds. Well, when we think about the risk of government bonds, there's, of course, a risk of default, which I would like to think continues to be quite remote for the countries of the Euro area, and then secondly, there's inflation risk. That is the risk that as a bondholder you face. If inflation risk goes up, you would think that, prima facie, you would expect that what we would see is a closing of this gap, a closing of this special government bonds and an evaporation of this revenue, this debt revenue that governments have enjoyed by being able to borrow at such a low rate. Therefore, an increase in inflation risk premium would go to the heart of what has allowed public finances to be sustainable, what has allowed for a relative tranquility of government bond yields in spite of large fluctuations in government spending and government debt and large prices as we've had over the last 10 years. So this is certainly potentially important. However, what needs to go next, the next step is to go qualitative to quantitative and to think of how large can this inflation risk premium be? Here, I am guided by many estimates of inflation risk premium, say, from the United States for the last 34 years at Cleveland Fed, through the work of Joe Albridge and others has produced many of these series, and we tend to have inflation risk premium that can oscillate. I'm thinking here that 10 year horizon so that we're related to government bonds that will oscillate between maybe 20, 50 basis points. That is that have a standard deviation of something like 20 basis points. In my own current research with my colleague Ian Martin, we've been trying to use a series of techniques to at least provide bounds for inflation risk premium are given the difficulty in estimating these. And we end up with bounds, which are very, these are no arbitrage bounds. So they really have to hold that go between inflation risk premium being somewhere between minus 20 and maybe plus 80 basis points. These are really ranges. And so that tells me that even if there is a lack of trust of investors on inflation being at our risk, I would expect inflation risk premium to adjust by maybe 10 basis points if I'm a pessimistic 30 or 40 basis points. Is that put a burden on the government budget? Absolutely. Is it a burden high enough, even in this worst case scenario to cause a financial stability problem? I do not expect that to be so. However, I want to leave one point of doubt and that comes from my enormous respect for the research that's being done at the ECB research department. As shown in several speeches by especially Philipp Lane just a couple of weeks ago in showing inflation expectations extracted from using very good models developed at ECB of inflation risk premium inflation expectations, the model that again is being reported at least as being developed in-house. I don't have access to it, but that has been showed in speeches by Philipp Lane shows inflation risk premium in the last 18 months having increased by 110 basis points. Now this seems to me very scary. This is what has led to even though the increase in break-even inflation having increased expectations in markets quite a lot in the five year, five year range. Again, in many speeches, BCB emphasizing, no, we don't think this is an anchoring of credibility inflation. It's entirely inflation risk premium, but being entirely efficient risk premium does mean that because the break-evens have increased by 120 basis points, that's been inflation risk premium increase of 100 basis points. I'd like to think that hopefully that is not right, but again, I really feel it's my duty to mention it since it has been a part of the inflation scenario saying the inflation risk we've ever increased by such large amount. And while often that's used to say we shouldn't worry about anchoring of inflation, I see it as a very scary sign because I've never seen an inflation risk premium that moves by 100 basis points would be against what led to my good hopes and expectations that I just mentioned. Second risk is that beyond the agate risk and risk premium that comes in inflation, is that inflation being an agate risk is not diversifiable and therefore is gonna mean that some agents in the economy are long and some are short. And here in this case, since we're talking about the financial system, let's talk about the financial system as opposed to the economy as a whole. Some institutions are gonna be long on inflation risk. Some institutions are gonna be short on inflation risk. Some are going to win or make gains from the last 12 months and expecting inflation. Some are gonna make losses. Some of those gains are gonna be larger offset by the next 12 or 24 months and the success of ECB at bringing on inflation. Some are not. It is not common because we have lost that habit for after 40, 50 years of inflation stability to think of inflation as a source of gains and losses because inflation was so small. But when you have high inflation, there are some clear winners and some clear losers including and especially in the financial sector. Moreover, over the last 10 to 15 years, we've had the development of a very large, very deep inflation swap market in which manufacturing institutions have started buying and selling that inflation risk. Meaning that in some ways they may have either offset or in some cases enhanced the inflation risk that they have in the horizon. I think one gap we have in our knowledge now is precisely this, who is holding the inflation risk? As a rule of thumb and certainly the data work that I have done myself in trying to use the available public level statistics on this is that as a rough approximation, banks sell inflation risk and pension funds buy it. In other words, banks sell insurance to pension funds who have long-term liabilities against their inflation. That would suggest that over the last 12 months in the next 12 months, banks will make losses and pension funds gains in their swap contract or at least lower losses than they had before. Is that shock, that source of loss for banks enough to jeopardize bank stability? I don't think so, but if I think about one large macro risk that is perhaps not been stress tested enough, that has perhaps not been quite analyzed enough, that is the one that I would point to. Are there some banks out there that have sold a lot of inflation protection and are about to find that they therefore have to pay a lot of insurance? Third risk on inflation. For the third one, let me go from the inflation to the interest rates that follow it. For my remaining, I think two minutes or 90 seconds, but I'll take two minutes. Let me remind the audience, which I think many, certainly my panels in the colleague do not need a reminder of the terrible crisis that the euro area went through 11 years ago when the mere existence of the euro was threatened as the sovereign debt crisis affected so many countries. Both then and as well as in the years after, there's been a consensus, as consensus go in academia and policymaking, that a very important ingredient in that was a so-called diabolic loop between banks and sovereigns. That is the fact that when the bond prices fall, banks would suffer large losses. Those large losses would reflect themselves into both an increase in the probability they need to be bailed out or a cut in credit and tax revenues, therefore justifying and enhancing the initial falls in government bond prices. This has well been relatively well diagnosed and even by 2015, I would say, it was relatively understood how to solve it. We needed some combination of a euro wide safe asset that banks could hold, some combination of a penalty for a bank to hold the bonds of its sovereigns when those bonds of that sovereign become very risky in bank regulation. And third, some form of EU-wide deposit insurance that would break such a tight connection between banks and sovereigns. There were many different views on how to achieve these three legs of the triangle. At a more expensive side, some thought that we should have euro bonds, completely euro wide deposit insurance and risk weights on government bonds just as with any asset. At the other extreme, at the more narrow one, and that was one of those more narrow ones in these debates a few years ago, maybe we could just have a sovereign bond back security, which would come with no joint liabilities, a deposit insurance that only affected, only moving forward, but not recovering past debts. And thirdly, maybe just some concentration limits on government bonds. But there was certainly a lot of room to disagree, including on how much political commitment we'd want. In the end, I do not think I'm being overly unfair to say that very little progress was done. DCB, DSRB noted how important this had been, how dangerous it was to keep this loop alive. But in the end, at the European Council, decisions were not made to advance this in any particular direction in a particularly strong way. Well, now, where are we now in 2022? Interest rates have to rise or have risen already, had to rise or have to rise. Let me not try to predict monetary policy, but at least had to rise in order to control inflation. And here we are worried that an increase in interest rates will lead to a fall in the price of government bonds or increase in their yields that may trigger losses in banks who are holding a lot of these bonds and a diabolic loop that could lead to a financial crisis. DCB has intervened very aggressively and correctly in announcing the TIP program in order to prevent the diabolic loop from at least catching on fire. But the fact alone that we're worrying about this is somewhat tragic. And so insofar as both President Lagarde and as well as I think Alfred mentioned how it is important for the European politicians and legislative bodies to take seriously these financial fragilities that were identified by these bodies. This is one of them, a main one, one that hopefully should be still well alive in the hearts and minds of politicians and policy makers and they should take very seriously right now for it would be tragic if it was not the case. And I will conclude on that note with a few sentences on what is macro potential policy. Claudio, in many ways, is the expert in the room on what macro policy can do and how to define it. But let me add something to what he said to his wise words in terms of the application or the interaction between macro potential policy and monetary policy. One perspective of macro potential policy, one I mean, again, a compliment, Claudio, I think highlighted the more important ones, is that macro potential policy was created by central banks in part to keep monetary policy independent. Monetary policy has to be independent from managing the public debt. We know that, independent from trying to create the electoral cycle, but also independent from financial considerations insofar as we can actually raise interest rates to control inflation when needed without worrying about breaking the financial system. Now, you'll always have to worry a little bit in the same way that when you raise interest rates, you have to worry about the recession you caused and the public debt problems. But you would, in part, create macro potential policy to release monetary policy, to be able to raise interest rates, to be able to lower inflation. Therefore, in some ways, it is now from this perspective that we are now in a high-ranking cycle, having done so much about macro potential policy for 10, 15 years, that the proof is going to be in the pudding to what extent can the ECB governing council confidently vote on interest rate increases and raise them without fearing breaking the financial sector because macro potential policy has done its job, has done its role, and is keeping the financial sector immune from crashing as a result of what needs to be done to lower inflation. Thank you very much. Thank you. Thank you very much. Ricardo, last in my list is Lucrecia. Please. Thank you, Pablo. It's a pleasure to be here. I must say that yesterday I went to a presentation of Nuriel Rubini's book on mega trends. And I was tempted to start with those risks, which are basically at the end of the world if you combine all the things that we have been mentioned. But I will have a much more narrow focus, and I will focus on actually three questions. So the first is really about quantitative tightening and liquidity. The second is more about financial stability than inflation. And the third is on long-term questions on steady states, governance, putting together regulating the different functions of macro and financial policy. So let me start with the first. And with the observation that the beginning of the tightening cycle, we are not anymore in a situation in which pursuing monetary and financial policy objectives imply an endogenous expansion of the balance sheet of the central bank. So this is the end of what I call a divine coincidence, although Alfred thought that also before this crisis, we didn't have a divine coincidence, but we did have a divine coincidence in the sense that whatever we did to ease financial constraints or liquidity constraints led to an increase in the balance sheet. And then that was the same for, you know, chewy for monetary policy purposes. Now, today with tightening monetary policy, but the emergence of financial stability risk, policy may require to tighten and ease at the same time. So the first question is about liquidity and the liquidity risk that we are facing in the tightening cycle. And the question on a positive sense is how we can use these balance sheet tools to do both easing and tightening. And this leads to the question, how do we understand the interaction between regulation and monetary policies? So how we can use balance sheet policy to tighten for monetary policy purpose and to ease for financial stability objectives. Now, let me just say in something that, you know, maybe there will not be consensus around that, but in principle central banks have the capacity to act as market makers if stress emerges in the financial markets and implement QT at the same time. Of course, if this is the case, if the shocks is not a mega shock, okay, systematic shock. And, you know, for example, they can sell long by QT and by short for the financial stability purposes. And we have seen many examples, successful examples of that. For example, I'm here referring to, you know, the recent small crisis in the UK, which was successfully dealt with by the Bank of England with very little asset purchases. At the end, they only, you know, spent 20 billions in asset purchases. And also successfully, this was successfully done in the US, you know, in recent times when tensions in treasury markets appear. In a way, this is also the idea behind the TPI, you know, the new instrument that the ECB has put on the table. The idea is there is that even in a quantitative, in a tightening cycle, you can intervene in segment of financial markets to address issues of transmission of monetary policy. This has not been tested. We will see how things will be if we get there. Now, having said that, however, what I'm worrying about is that there are structural reasons while this kind of central bank interventions for financial stability purposes will have to be more frequent in the future. And this actually, to me, it poses a fundamental question of architecture and, you know, the relationship between financial regulations and the user balance sheet. Now, let me give you some examples. So, okay, this example, the first example, especially relates to the US. It has been observed that even with a system of ample reserves, so that more than $1 trillion in the US, there have been episodes of liquidity stress in all jurisdictions in the US especially, not only during COVID, but also, you know, at other occasions. And, you know, and people have been worrying, have been asking whether this is a paradox or not, okay? And there are many reasons to believe that this is actually not a paradox. One thing that I think is quite worrisome and it has happened since the great financial crisis is that, you know, structural transformation in the financial markets, which lead, okay, so to this high probability for liquidity crisis to emerge. On the supply side, you know, the regulations on capital charges on treasuries have penalized the banks, the market makers to run large balance sheet. Those institutions do not want to run large balance sheet. Indeed, the inventories of market-making banks have collapsed since the great financial crisis, but on the demand side, we have seen an increase of concentration of asset management. So now those institutions, the asset managers have huge balance sheet while the market makers have small balance sheet. And, you know, this leads to a kind of structural mismatch which is one of the reasons why the market has been pro to liquidity, to liquidity issues. If you talk to investment bankers, they will tell you, we cannot, you know, so, you know, provide that kind of function of market-making as it did in the past. Of course, you know, it's a matter of prices, but, you know, there is a discussion, a regularity of discussion on, you know, the fact that those regulations that we implemented for good reason after the financial crisis that surveys hoarding incentives during time of stress. Now, if we go to the Eurozone, a second example, we, you know, there has been a big discussion about the dash for collateral rather than the dash for cash that we have seen in the U.S. And, you know, this is clearly has emerged with quantitative tightening. We have seen a shortage of collateral. There are many reasons of that. There is no time to go through them. Some of these reasons have to do with regulations. Some have, you know, relates to the current situation of extreme high volatility. But today, you know, the problem, I mean, in the Eurozone, this is kind of a fundamental problem because partly of the problem comes from the fact that, you know, there is a shortage of high quality collateral due to the fact that, you know, we don't have a euro area yield curve so that when this demand for high quality collateral arises, that goes into the form of demand for German bonds and there are not enough of them around, okay? So, you know, in all jurisdiction, the sovereign market is the bedrock of the financial system. In the Eurozone, you know, this kind of flow in the design, which of course has, you know, good justifications, you know, for the political and fiscal framework, you know, lead us particularly, you know, make us particularly vulnerable to this kind of, you know, liquidity issues or shortage of collateral issues during period of high volatility. Now, of course, there are policy remedies for doing that. I mean, you know, the reverse repose or flexibility of asset purchases, et cetera. But the question I want to put on the table is that, you know, what is actually the design that we have in mind, okay? So if there are the structural changes that have led to this kind of, you know, or pro to this fragility and, you know, vulnerability, you know, to changes in volatility. On the other hand, on one hand, you know, it is kind of reassuring to see that the central bank have the power to act. That's a good example of the UK or the good example of the US. But actually you could think asymptotically to a system in which actually the central bank replaces the market in the market making function. And then the question is, is this really what we want? Okay, so and if it is not, how should we design regulation in a way so that, you know, everybody does his job, in a sense. That is, you know, I can see that, you know, we need some clarity of what is the direction of travel. So that is my first point on liquidity. So I want to, you know, I wanted to put the kind of provocative question on the table. The second point I want to discuss is inflation and financial stability, you know, beyond the liquidity, you know, fighting inflation is to stabilize expectation is obviously a must. The question is how fast and at what level to stop. This is not, you know, the forum to discuss about monetary policies as Ricardo said, but, you know, from a macro perspective, the question today is where is the natural rate of interest and this will guide us the endpoint of the tightening cycle. Now, however, with tightening financial risk grow, okay, Ricardo emphasized the risk of high inflation, but of course, you know, there are, you know, bigger risks that we're facing today. So I emphasize liquidity, but of course, there is credit, there are surprises, leverage, and indeed, if you look at the index of financial condition, it's really going south. And, you know, it's correlated negatively with the probability of recessions we have seen from Bloomberg that the probability under section one year from now is 80%. So we need to ask at what level of the real interest rate that the credit constraints will generate a fully fledged financial crisis. Now there are fragility, you know, accumulating, but we know that it's very easy to go from one regime of moderate vulnerability to, you know, to a situation in which the spreads will spike and we know that from empirical regularities that those are very much, you know, that there is this non-linear correlation between output and financial stability. Now, Marcus has said that the rate hike cycle is going to and sometimes in early 2023, but the rates will stay longer, higher for longer. So this, you know, would spell ongoing pressure to the leverage, especially in 2024, where there is a fair amount of corporate debt to be refinanced. And, you know, although some that the leveraging is desirable, you know, there is a question, you know, that at some point, okay, so that there is that other interest rate, this is a point that has been studied quantitatively by paper and then you are fed. There is another equilibrium interest rate which is the financial stability equilibrium interest rate. And, you know, the price stability and the financial stability equilibrium interest rate may not be at the same level. And of course, you know, then the question is when that financial stability equilibrium level will be binding, what will happen to monetary policy? So I guess that this is also the question that Ricardo asked, you know, will the financial stability concerns dominate over monetary policy is the macro prudential framework that we have robust enough. So third part of my discussion is more about the steady state questions. And here I have basically in two parts. One is more nerdy is really about the plumbing of monetary policy. And, you know, of course we are now going into QT but okay, there is a question. So what is the size of the central banks balance sheet that we envisage in the steady state in normal circumstances? Now, since the financial crisis, central banks have operated in a system which is called system of ample reserves. So accommodating demand for liquidity. Now the balance sheet is shrinking, but at what level? Okay, now a common view is something that Ricardo and I wrote in a recent report is that, you know, the balance sheet should be at least as large as the demand for reserves. Okay, so that's kind of an application of the three in my rule, but not larger. However, we have seen that this demand for reserves is quite volatile and, you know, prone to strategic issues, hoarding and so on. Indeed, there is recent studies from the BIS but also from the New York Fed that show that even in a system of ample reserves, we have strategic cash hoarding so that the rates in the market or reserves are still very sensitive to shocks. So this creates a dependence to central bank liquidity as I had argued in my first point. And this, you know, in a way, this is an argument for keeping the central bank balance sheet large, you know, for precautionary reasons, but of course there are a lot of problem with keeping that balance sheet large. And these problems have more to do, you know, with fiscal footprints, moral hazard, the kill in the markets. I mean, all those questions that, you know, are the byproduct of, you know, central banks being such big intermediary in the market. So again here, I think that there is a problem of an interaction between the regulatory framework, the central bank size will have to be understood in that discussion. I see that this is not a discussion that we have been focusing very much in Europe, but I think that's an important one. And then of course in the Eurozone, we are confronted with the deeper issues, which is the fact that we don't have, you know, that kind of Euro safe asset so that the central bank, you know, is called for action even in a more kind of structural sense in order to defend the stability of the sovereign debt market. And here not just talking about movement in bonds which are justified by fundamentals, but, you know, this kind of adjustment which gives a particular privilege to the German bond. So, okay, so having said that, so this is the plumbing, but then, you know, there is, you know, more macro questions which, you know, is with large balance sheet and monetary and fiscal interaction. Now, this is again is something that Claudio has already mentioned with increased interest, with movement in interest rate which now are much larger than anticipated, the risk that we were all aware of in, you know, the balance sheet of, you know, the maturity mismatch that we have developed in the central bank's balance sheet you know, means that, you know, the possibility of those losses which are just a theoretical and kind of curiosity are now materializing. And in fact, we have seen that, you know, including a bank of England that's running to a negative capital. So some banks are getting to negative capital, some are making losses. Now, as we know, this is not a problem per se, but it creates issues of governance between the different authorities, between the monitor and the fiscal authorities. And this is particularly difficult problem in the eurozone when there is quite a lot of, you know, lack of transparencies about how the dividends are distributed, the capital of the banks are recapitalized and so on. Now, long-term, this issue of monetary and fiscal policy goes beyond, you know, this kind of, you know, infrastructure issues. And I think actually if we go, if we look at the real long-term issues, it is likely, I don't see any, I mean, I know that in all reports, the central bank's right is a fiscal policy have to be, you know, you have to be careful, you know, the measures to sustain households, they have to be temporary and measure and so on. But we know that the risk we are going to face, the climate transitions, you know, the geopolitical issues, possibly new health, you know, episodes materializing, which we know, you know, are also linked, you know, to climate change and so on would mean that, you know, they will have to be more unfunded government spending. I mean, that is a trend, okay? And it's hard to think in a situation in which, okay, this is happening and without having the possibility of financial repressions, which we had in the 80s, okay, what is going to happen about the relationship between the fiscal and the monetary authorities. And it is hard to think that that system of real separations that we have had since the 90s is going to survive. Thank you. Thank you. Thank you very much. Lucrecia, thank you very much to the four of you. So we have still 15 minutes for discussion. What I would suggest is that I pick three questions and I will make these three questions in advance and then you pick up whatever you want to react. Those questions have been raised to certain extent by the audience as well. And are related to banks, first, second to non-banks and then third on the bank sovereign nexus that some of you were also identifying and emphasizing. So maybe the first one is very much related to a point that was made by Claudio and at what extent you think that the macro-prudential policy should play a role and a stabilizer role as compared to fiscal and of course monetary policy. And you were very clear, Claudio, on defending a positive neutral CCYB, okay. I guess a related question to that one is to what extent do you think that this would be done on top of the capital requirements that we have today? So, which if this is the case, of course, it could lead to higher capital requirements over the cycle or alternatively, this would be done at the expense of reducing other structural capital requirements, okay. Which I guess in the end, all this question is very much related to what are your views on the optimal levels of capital requirements for banks and whether we have achieved that level with the current regulation. That's the first easy question. The second question that was also raised by some people from the audience and perhaps here we were not so concrete and so specific in the initial remarks that you provided is about the non-banks. So the specific question that a city was raised by the audiences, well, we have currently bank-based macro-prudential framework in Europe and the audience was asking about what are your views in terms of the critical steps and the dimension we should consider to develop macro-prudential policy framework for non-banks. Okay, perhaps whether we can be a bit more specific here. And then third, on the bank sovereign next to summing, of course, Ricardo was very explicit on emphasizing this point and also of the lack of action in Europe in order to solve this problem. There was a comment by the audience saying, well, but to certain extent we have overlooked or you have overlooked Ricardo in your remarks, the establishment of a resolution framework in the European Union. And the specific question was whether this is an oversight or an statement about the resolution framework that we have and maybe putting it in a more general term. To what extent we think that this is really a problem. Okay, now in terms of, can be a problem in the following years also related to what Lucrecia said at the end of her remarks and what could be your priorities in terms of solving these problems. Regarding, you were mentioning several proposals that were made during the sovereign debt crisis. But most of them have not been applied in practice. So maybe to be specific on what would be in your views the priority to solve this problem could be also an interesting answer for this specific question. So we have like, yeah, five, maybe I can even add five more minutes, 10 minutes for quick reactions to this question. I don't know, maybe I can start with Alfred and we'll continue with the same order that we did with the initial intervention. So please Alfred. Yeah, maybe I start us off on the question with regard to macroeconomic and non-banks. I think one, some of the challenges to overcome is when you're looking at that maybe have been dealing with the non-bank financial intermediaries in the EU, it was a focus on micro-prudential regulation in particular consumer protection issues. And so we need more analysis and a better understanding of the macro-prudential angle and focusing on systemic risk. I think that is one bias to overcome. I would say one, the second issue is non-bank financial intermediaries are across countries and micro-prudential regulation and supervision is country-specific. So that will require more effort in terms of cross-border coordination. Maybe that could include the ESRB and ESMA in terms of finding a solution. And that is also an issue which is a general problem with non-banks getting rid of overcoming the data gap issue. We still lack the data we have available in the banking system. And again, cross-border coordination and cross-border work could probably be helpful in terms of overcoming the data problem. Thank you. Thank you very much Alfred, Claudio. Well, thank you Pablo. Yes, you gave me a very easy question. So let me say first of all, I'm going to answer it on a personal basis. If you ask me, I'm very much in Paul Walker's camp when once he was asked, what's the optimal level of capital? He basically said, I don't know, just raise it. I think we've made a huge progress over the years, but it seems to me that partly because of political economy constraints, we tend to, although we try to raise capital standards, it's always a bit difficult to raise them as much as one would like. So that's the short answer. If again, if I had to choose, if you have the level of capital, maximum level of capital as given, would I have more of a, if you like counter cyclical capital buffer relative to a conservation buffer? I think that yes, if you have that constraint, there is some room for maneuver to play around there. I always felt that the, and I was involved in the development of the counter-cyclical capital buffer, that the 2.5 ceiling was rather low if we wanted the buffer to act as a proper buffer. And I think that what there has been, as you know, a huge debate recently as to whether buffers are usable, not usable, and so on. And I think that that's partly because there is a bit of a, I wouldn't say confusion, but sometimes there are two things that are conflated. The structural or conservation buffer and the counter-cyclical capital buffer both have one objective in common, which is avoid banks entering into resolution that is hitting the minimum, but they do it in different ways. The counter-cyclical buffer is doing it in order to avoid collective retrenchment when things go bad, which could amplify perverse dynamics in the system. The conservation buffer does it by increasing the penalties as the bank get close to the minimum. In a way it's like a form of prompt corrective action light, call it prompt corrective action light, which means that banks will never, never be willing to deep into the buffer voluntarily because they are subject to penalties. And because of that, I feel that maybe there is more room to play with the proper buffer as opposed to with a penalty buffer as the conservation buffer is. But more generally, let me say that if, as you know, countries have quite a number of pillar two type regulations. And I think that if you have the stomach, based on what I have just said, I think there would be room to improve the clarity of purpose of those various buffers and tools, align them with the objective and also align the control of those various pillar two measures with the right perspective. So if it plays a macro potential counter-cyclical role, then you would have a macro potential authority dealing with it if on the other hand there's more bank-specific role than you have a macro potential authority, micro potential authority. Thank you, thank you Claudio. Ricardo. Very good. So on bank resolution, two points, one more general and one more specific. I certainly welcome the bank resolution advance as a directive and implementation bank resolution in the Euro area. I think it's a step in the right direction in many ways. I think it's fair to say it's a system that hasn't been fully tested yet, but that certainly in principle an ex ante seems to be an adequate one. However, note that to say that when it comes to the issues that we are discussing of these bank sovereign nexus and the way in which it can be amplified, to think that a resolution system by itself changes those dynamics, it won't. I mean, if anything, a bank resolution by itself can amplify them by itself. I mean, you really have to have, I know of no bank resolution system in the entire world that any date in time that does not come with resolution still coming with dead weight losses, with disturbance, with propensity for runs, in found systems to prevent it for panics, bank resolution in its isolation. So I think bank resolution by its isolation does not solve the nexus, but certainly can weaken them, specialist complement with other policies. But moreover, and specifically on bank resolution, we haven't had a lot of experience with it, but let me note the experience, perhaps one of the more notable ones of the few cases that we've had of the new directive, which is the case of the Banco Espírito Santo in Portugal, that left a massive bill for taxpayers. Yes, to preserve fancestability, and we're very happy about how maybe at the SRV and ECB, that problem was handled the resolution, but the Portuguese taxpayers are not very happy with the very large bill that they've ended up having to foot, and which they're still paying actually, so even now the person, the company that bought the bank is still getting payments from the taxpayer to support it. So I think again, and this just shows again, was it not for the solidity of public finances in Portugal in the last decade, and how well-run they have been in a very prudent way, I'm not sure if we would not have seen a loop, but this came at a large loss and expense to the Portuguese taxpayer, and let's not sweep that under the rug. On the priorities, I'll be very brief because I hope that this will be a cue for Lucrezia and given the lack of time. I think when we talk about the priorities, I am sensitive to especially the creation, not the creation of the expansion of Euro-wide safe assets, either through the expansion of the pandemic bonds that were created or through its complementing with much larger ambitious programs of sovereign bond back securities and others. Why? Because that not only adds in this dimension, it would also add in the implementation of monetary policy and it would add on two points, it would help on two points that were crucial, that were importantly highlighted by Lucrezia. One on this discussion of ample reserves in that then the ample reserves would be matched by a Euro-wide safe asset on the other side of the balance of the central bank, allowing a clarification of what they are there for as opposed to a confusion. And as Lucrezia herself highlighted, a certain treatment of different sovereign bonds and different perspectives that comes with ample reserves. And second, also because precise as Lucrezia said, and so I'm really going to completely adopt what she said 20 minutes ago, if we are going into a future in which you're going to have tightening cycles, different directions, tightening and easing at the same time, then I'd really want to separate what is EU-wide, say EU-wide bonds versus what is intervening in one particular sovereign debt market versus another because of some macro-prudential risk on the other. So it becomes even more. So not only sovereign by noxious, but also with the two arguments, as Lucrezia said, ample reserves and these different tightening. It seems then that the expansion of the creation, the expansion of a deep EU-wide safe asset market seems to me to be the priority. Thank you, thank you, Ricardo. Lucrezia, you have the last word. Yeah, the last word. Well, I mean, Riccardo and I we spent the best years of our youth thinking of European reforms without much result. So, I mean, at the end, resolution is important. In my view, more important the deposit insurance because the deposit are very senior. On the other hand, the issue is fiscal, okay. So when there are banking crisis, banks are nationally in debt, like it has been said. And then there is the big resistance by member states to kind of delegate these gifts to a European authority. To a European authority. So the doom loop will stay with us because of the correlation between bank risk and sovereign debt risk, but also because the correlation between banks and the real economy. And this is going to be really material. Today may be more than in the past because the ECB is more present in the government debt market than it was 10 years ago. But at the end, okay. So this to me is a fiscal and is a governance issue. So if there is no risk, fiscal resharing and there is no resharing through the financial markets. So then in a monetary union that is resharing through the balance sheet of the central bank, okay. There is no other way. And this is not very healthy as we all know. So if there is a direction of travel, it should be in the direction of agreeing on a common ill curve, a robust euro. And so that means, we know that this cannot be done even because it's against the country. So recently I wrote something with several co-authors and lawyers to see what are really the constraints, the legal constraints for going in that direction. So I think it is going to take time. This is not something for tomorrow, but okay, the pandemic response was a positive step and they use in exceptional circumstances of these kind of tools, it will create precedent that will make the discussion easier in the next 20 years. I don't know something like that, but we need it, okay. Because if we don't do it, okay. Just don't be, the central bank will be there or otherwise goodbye to Europe. Yeah, thank you, it's very, very clear, Lucrecia. Okay, so I think we have now to close this panel. Thank you very much to the photo of you. It was indeed very, very interesting. I'm pretty sure that the audience has also found the conversation very interesting. There is a lot of food for thought in your remarks, food that will feed for sure our discussions at the ESRB and maybe even at the European Council in particular this last part of the discussion, hopefully. So thank you very much. I hope that you have a nice day and back to you, Connie. Thank you Governor Hernandez-Tecos and thank you to the panel members for this very insightful discussion.