 ... in se predstavila v seštih, in o tem, da je zelo površanje ekologi... ... pa je vse, da je pridah površanje, da nekako Danijel Gross... ... zelo površanje, vse, da je to vršanje, in to je pravno pričil. Zato vse predstavila, da je pravno pričil. Skoh imam se na vseh vseh o motivaciju na ta panel. Moj je, da je to, vsaj, ki je zelo vseh? Zelo, ta sešan na vojstav, je pritivno vsezat v mladivni poslust. Zato je, da se na potenku se skupaj, in vsezat na mladivni poslust, in včasno na različeni, da po občaj te molezat vsezat, to se izgleda za način stimulenje v sveč, kjer tudi je vseverno famineil eskoli, da se zaj se odstavila večo najbolj na lasti ponadručenje v hvaljnenu polici. Zostaj, da prišli ekonomi predujemo za drženje polici ješnji tudi, teža po razližjenju, da se je odstavila vsevedo ljube in krijse, ki je vzgledaj, da monetari policije je vzgledajo za ljudev, je odprinjala za veliko naša spanšnja ekonomi, in je odprinjala z kreditkrije in bavljajjev, ki potem je odprinjala z vsem vsem. Vse se je vzgleda vzgleda za tudi, da je tajteni vzgledaj. Tudi naredil začnega čezva postavno začnega postavnje prd. Prd. Značilo to, da se naredilo vzelo, da je nezavrujemo prekrasovati postavnje prekresizet, nezavrujemo, da je nezavrujem vzelo, da je nezavrujem potenšljenja se tudi potenšljenja, da je težko prisipten, tako želi smo všeč, da je to svoj pošto in neko je pošto. Kaj je vse zelo? Zelo več, in nekako je zdaj, ki smo v svoj zelo, če vzelo v 2005-2006, In tudi se preko izgleda, da se prirožilo način, že se prirožilo makropručnje wažnek, kako je, da je, da je, ki je, da je, kot se. Mojte začneva rečente, ki odstavljali, da je gavrnodin Lenučeška, ki je izgleda na k materijstvo. Ani izgleda je, da smo videl, da smo začali na tudi, da je, každje, je začala vzliznjenja pačena in početnja, da je početno vzliznje. Kajšči je bi sajšoot, in vsega in vsega asetne markete, especially v sej vnega in v Evropni nr. in v stukne markete potenčenje, especially v U.S. skupaj začnega za obježenje v banku in priješnje banku in nekaj in na nekaj skupaj sem prišel, tako da so smo nekaj prej avšegi, da so svoj tudi nekaj vsega, nekaj, da so smo vsega prve kratenča prikratenja. Tko bomo, tudi vsega, je Jeffery Frankov z IMF zelo vsega. No, nismo počutu še zestinajati, potreba se pozajati počut in ne zestinjali, in nekako od Rocketjevoje se odtrafi. Naeselo, ne bo zapustiti, da smo tukaj naroditi počutih evropij Nelerinakih karstvih, ki so tudi priče na Evropi in na Evroflj, inkrejem, dovol about the major faults that european regulators unfortunate have not addressed after the crisis. One is large sovereign exposures of banks versus domestic governments especially in fiscally vulnerable countries such as italy. So the sovereign bank next is still alive and well and could start operating anytime. Second, structural overcapacity of the banking sector, leading to low profitability or weakness of banks. In some countries are gravated by the legacy of large stocks of non-performing loans. And finally, to top the list, there is no shortage of possible detonators. Say, trade war, leading to a substantial slowdown or even a crisis in China. Italian populist, we saw this morning the announcement of the new budget in Italy with 2.4% projected deficit GDP ratio. Potential resumption of euro area, sovereign crisis, Brexit, you have it. So there is a considerable list of possible fuses that could actually blow up. So then without any further due, I give the word to the panel on essentially these issues. Whether macro prudential policies should actually be set differently in relative to the recent past in view of all these elements. So Esther Faja will start the panel. Esther is a full professor at Frankfurt Goethe University. And she will give us insights from her evidence on the relationship between monetary policy and macro prudential risk, stability risk at a macroeconomic level. Then Peter Preit will talk about the relationship between monetary policy and macro prudential policy, but also other policies, such as regulatory policy, and how macro prud tools should actually be used, if understood correctly. And Per Kalesen from the Danish Central Bank will give us a practitioner's viewpoint from the viewpoint of a small country, Nordic country, and then hopefully Daniel Gross will also come in in time and also talk about the relationship between macro prudential policy and monetary policy. And Pierre Richard Genard will be connected with us from the University of Manchester, will be connected with us telematically, he will actually give us a kind of more international perspective on macro prudential policy, will tell us how in emerging markets macro prudential policy could be set so as to potentially control for the effects of normalization of monetary policy in advanced economies. So that's kind of like the menu, the floor to answer. Is there a pointer to change slides? I think pointer is here. Okay, then I will speak from there. I think it's here. Okay, perfect. So thanks a lot for inviting me in these interesting panels and to Marko for organizing it so beautifully. So I think given that I'm the first, I mean I kind of introduced the question or the motivation for what should be the role of monetary policy or possibly the role of the coordination, the possible coordination of monetary policy and macro prudential policy for the futures. We're coming out from a number of years of quantitative easing and of course the setup of the banking union. So what I'm going to ask basically is what would be the role of monetary policy for risk. There is one thing that we have already known from all of those years, which is the fact that expansionary policy produces some bank risk taking channel. Most of the evidence and most of the theoretical works that was done so far, there I mentioned only a few that I know more closely or other papers that have been widely discussed, is that expansionary monetary policy could of course induce banks to various forms of risk taking, like search for yields or excessive risk taking, but most of the measures on the empirical sides were on bank level data, which is like credit registry data, survey data, other type of risk indicators from internal models. One reason for which this risk taking channel might ever be relevant for monetary policy or at least what the policy maker would tell you is that is this risk taking relevant if it is only at the level of one bank, well we may contain it even with micro prudential policy, we don't even have to go to macro prudential policy. So the question becomes relevant for the policy maker in terms of exiting from the quantitative easing or maybe asking for more coordination with macro prudential policy only to the extent that expansionary policy or other forms of policies that might trigger moral hazard do have aggregate effects, so effects on the real economy and if they trigger increases in systemic risk, so whether this becomes really relevant at the most systemic level. So because this question which is actually very, very simple was missing from the literature. I did some work with Zorin Karauz, a junior person in my chair and you know using somehow very standard techniques but an extensive set of data. What we did was to ask what is the impact of monetary policy on measures of systemic risk. So is it true that expansionary policy is increasing systemic risk or not because if it increases the risk of one bank, we tackle that and we don't worry anymore and we keep doing it just based on what GDP growth is. So I mean there are a number, to make sure that our results are robust we do a number of checks. So first of all we construct different measures of systemic risk the most famous one ranging from COVA, so conditional value at risk based on equities and CDS, long-run marginal shortfall of various forms and then we look at evidence across different countries also focus on the U.S. and we also try to look at the causes of this whether this is triggered by a classical leverage channel as Ray and Miranda Grippino or Bruno and Shin are proposing and we also look at different type of policies so we compare conventional versus unconventional using shadow rates, using the balance sheet of banks we identify monetary policy shocks and then this is techniques where known in central bank you can just look at the regular policy rate or you can identify policy shocks at high frequency with the narrative approach so we try a number of things. I will show you four or five graphs we have actually several in the paper but the response is invariably consistent so an increase of interest rate reduces risk any measure of systemic risk and the decrease of interest rate increases any measure of systemic risk and what we find is that one of the main channel is leverage so it's more of a risk taking on the liability side than on the asset side and Ray and Agrippino actually say this is due to expansionary policy from the US so the European monetary policy doesn't affect that much we find that there is equal responsibility shared responsibility of both policies so just four figures but again, if you're curious about all the type of robustness shocks, we also have referees going in through those things so here is the basic figure we have a panel VAR across a number of countries which are mentioned down there so Germany, France, Spain, Netherlands and Italy we are showing just the response to the shadow rate which is one of the measures that is used for unconventional monetary policy but we have the equivalent for conventional monetary policy and for high frequency data and as you can see an increase in the shadow rate reduces risk in some cases like measures of realized volatility of delta cova that decreases on jump in other cases where the prices take longer to price for instance for equities as opposed to CDS where the markets take longer to price the decrease in risk occurs more at medium you see it in the last three panels here of course at later dates this one is so this one is basically goes to zoom even more into the real quantity because we have a response so the third column of panels is basically an increase in balance sheet of central banks and as you can see an increase in balance sheet of central banks which is an expansionary policy increases any of the measures of systemic risk we consider so long-run marginal shortfall which is the more persistent and you know on impact realized volatility response my more but also delta cova ok, here we do I mean the same exercise for the U.S. so we say it's just the European thing or it's the U.S. or by the way we also check pre-crisis period post-crisis period even in the pre-crisis period it was there so here we do for the U.S. we have a huge amount of information from other variables so we use this you know fava which is basically where you draw a number of controls so that you make sure responses of financial markets are not you know are not capturing other facts and so here again what you can see I mean there is an increase in the interest rate which is the left panel the left second panel and an increase in interest rate again decreases all the top panels which are all the systemic risk measures in this case our identification of the monetary policy shock is through this narrative approach by Gugajanak et al ok next I mean so this this is again just to zoom on the causes of this on the channels so the question is ok but you know if we have to use macroprudential policy or if we have to coordinate monetary policy we try to zoom a little bit into this and so here what we do I mean it's very difficult to get this bank leverage data but in the end we managed and we managed even to compute the market values which actually requires quite complex procedures but here what we show you in the third column is the leverage response to an increase in the interest rate and in the last column again the systemic risk measures and what you see is that significantly I mean in most cases although I mean this significance but the leverage goes down when there is an increase in monetary policy together with risk so there seems to be some synchronization about the risk on the liability side and the systemic risk and then the last thing I want to tell you as again so this idea proposed by Sheen but Lenny as well Lenny as well of the global of the global leverage cycle so you know this is Pensionary monetary policy in the US has an exorbitor privilege they are extracting a lot of benefits out of this but they are basically exporting risk to other countries so the question is do this might be the impact of US monetary policy might be bigger more important than the other ones so I know this graph is difficult to read maybe you can read it later when you have the slides there the US monetary policy and the black line dashed is the response only to the ECB monetary policy we actually show there are also of course the error bands but if you look if you zoom into the panels what you see is that given an increase in both interest rates again risk goes down the responsibility is equally shared so the impact of US monetary policy and European monetary policy is basically more or less the same so there are no bigger spillovers at least from what we can see here from from across the ocean to conclude this is only opening up the question of what is the impact if there is any if there is any unintended consequence and then of course this should be tamed with macroprudential policy this doesn't tell you anything by the way on the welfare consequences of risk it might be that we are all happy that there is a lot of risk in the United States they always say risk is triggering innovation so that might all be good this thing just limits itself to say we knew that there was a risk taking channel on the individual bank side we didn't know whether this had contagious effects or macroprudential or macroexternality such that it would turn into a systemic risk taking channel and I think this evidence points very strongly into that direction ok thank you very much Esther so the floor then Peter Bright from the ECB I think it's the fifth time I will address the topic about monetary policy and financial stability in one week so I wonder why actually and I think the timing is not a coincidence I think it means something so that's my first point so what is the narrative the narrative is the following first point economic conditions in Europe have improved very much over the past three years and expected to remain favorable in spite Markov of all the headwinds that you mentioned hopefully are not materialized but economic conditions have improved at the same time this is important at the same time this is conditional on the persistence of a high degree of monetary accommodation high degree of monetary stimulus so that's a combination of course the normalization process this is expected to be long and the story of course is low rate for long times and what are the implications for financial stability we say this normalization process which is long is necessary to bring back inflation to our aim so that's my first point the second point of course and we are well aware of that that comes from history is that it's in good times that financial excesses are being built up in good times so are we in good times or not in good times when this transition that you mentioned before and that's why you know we are so attentive to that sir on one hand hi Daniel just I pause a second so we can listen to what I say c'est une entrée réussie Daniel come over so on one hand you have this policy of low rate for long times on the other hand of course it's in good time that the risk are being built up as the second point I was making so there is at this juncture attention of course between you know this monetary policy which is necessary to bring back inflation to the aim and the build up of risk you know in good times which we have to assess so that's my second point the third point of course and that's I think what we have been doing here is what is our assessment then because we are in this transition period well there are two parts in the assessment financial stability reviews I looked before coming here again because I deal with monetary policy now so I don't see and you mentioned that Marko too no generalized financial excesses in Europe there are pockets of excesses but we don't see how do we know because I'll go a little bit to what Esther was saying and that's for the discussion because I'm not making a speech here it's just a kick off a discussion we look at leverage of course we look at maturity transformation we look at about funding fragilities complexity and then I am a bit puzzled I'm not so sure I know you had I was unfortunately not here we come from London but you had this what is leverage today you say it's difficult to find but you find easy measures of leverage I don't know how you measure leverage it's not easy it's difficult to find but it's difficult to measure even if you can find it it's difficult to graphs and the interaction between leverage and liquidity is of course the tricky thing because you have to combine the two and of course we have the shadow banking system and then I started to prepare this meeting to look a little bit about public documentations because I'm not a member of DSRB but I look at what is public and the more I read of course the problem of course but I know from what I read that I'm not reassured as a sort of citizen looking about what is being done in financial stability it may be that the size of a problem the fact that we don't understand leverage very much in the shadow banking system I mean leverage and liquidity issues together we don't graph this and I see the attempts of the FSB with AOSCO of course to measure and benchmark which are very difficult to do anyway so that's I got to my question what is our assessment? first assessment no general financial excesses there are pockets and then you have something behind you don't understand very well and you say well if there is a shock at some point how is it going to pass through in the system so then I have some reservation there the second issue of course from the monetary policy side and I think Daniel you will address the other thing is that we cannot exclude also in the description I made before miscalibration of monetary policy because I say and that's the policy in the assessment of the governing council I think it's very well founded but we have to be modest so you cannot exclude that this policy of low rate for long time is a little bit for too long time I know that many people will argue that I will argue the opposite but we also have to envizage that sort of possibility so then when you say aha if you get it wrong what are the consequences of being wrong of course and then the the consequences of being wrong of course depend of the trust you have in the macro potential framework of course because what you said Marco before in the boom time because in the great moderation time of course the regulatory framework was I hope very different from what it is today and then you have to make this assessment if I get it wrong in the policy which we think collectively in the governing council that it's the right policy but they say who knows and then you have to look at the macro potential framework it is and I talk about regulation here not only about the sort of counter cyclical policies that you may need to put in place but also about the robustness of the macro potential framework is of course the that we are a transition phase I'm not talking about the shadow banking here but I talk about the fact that there are still a lot of legacies from the past crisis of course in the banking system that I don't know how the BRD would function in practice I have no idea if a systemic institution would be hit by a shock how it would work I mentioned en passant there is a stress test that you are being doing and I think always I wouldn't say funny because it's not funny but interesting when I see that you stimulate very big recessions, two recessions in a row and the banks are very resilient to two recessions in a route in general, I mean they are very resilient they lose 3, 4, 5 percentage points of capital indeed but who would believe here that our economies or political systems would be stable if you have two recessions in a row given of course the fragilities we have already know I'm talking here coming out of ten years of not so good economic conditions and testing two recessions that would hit us next year and the year after so of course I think it's right to do the way we do it's not a criticism for that but of course as I say how resilient the system is I think immediately about the political and social resiliency of our systems of course and there we say that's a major risk that we have in our societies in financial stability in general I think that's not original to say that the last point is looking forward and looking forward of course is what you mentioned here in what we should work on is what about the macro prudential instruments and here I want to convey maybe a personal impression that the macro prudential instruments in the hands of central banks with the top-up by the ECB are if I understand the frame limit there are things which are not in the responsibility of the central banks there are some which are and some which are not and which are not the number of things you discussed here you go through a political process so the risk you have in the instruments is to say that politicians do not like some of the measures because they are very much exposed and then that you use the others which are in the CRD basically the top-up of the counter cyclical buffers and things like that which are not necessarily optimum instruments that you have in the past also I think it's interesting the debate in the US as I read it between the stress test and the counter cyclical buffers and why do I need these macro prudential instruments but that's in the same environment where the responsibility of supervisors central bankers is there but there's another debate about the responsibilities of the other authorities and I say me as a central banker usually we have to be very careful because we already have appeared after the crisis as you know the only game in town and then you get additional responsibilities I mean as perceived by the public that you have in hand the tools to manage financial stability and that I think is something we have to be very careful about not taking all that responsibility where the authorities would prefer to be passive think about what happens in mortgages so difficult maybe you are going to talk the difficulties when you want to come with some instruments macro prudential in the real estate but I mentioned solvency laws and things like this and the last one but that's in five seconds because we will discuss that later is the international context and the spillovers of course because while we have an assessment which is I think right I think the assessment that we have here we do our best in the stress test in the pockets trying to address the pockets of exuberance but it's clear also that the shock may come from other places where there is indeed financial instability issues and that we have to think a little bit and what would be the reaction to these sorts of shocks thank you very much good timing maybe Per you go first what is this noise here is it twice? you can use this yeah thanks a lot for the invitation what I will do is to speak on recent developments in the macro prudential field in my own country small northern country so it requires a few words on where we are in terms of the economic development which fits pretty well into the title of this session affected by macroeconomic boost but also with domestic considerations now the strange thing I have really not experienced that as my close to 40 years in this economic field is an expansion which is still healthy after some 6-7 years that's very unusual strong employment growth continues to surprise on the upside low moderate GDP growth continuously surprising to the downside that implies low productivity growth public private financial balances are fine waste development inflation are moderate as they are everywhere we do believe that we have supported this moderation by some macro prudential measures I will come back to that but it's all in the context of very low aggregate credit growth as you can imagine that inspires some pushback from the financial sector on sort of any kind of macro prudential measures you may come up with basically I think there are two things we can do potentially with macroeconomic policies one is containing excesses and the second one is preparing for the downturn of dealing with both issues here now this is the house price environment where you would notice two things the first is that the development we have had since the financial crisis for the country at large single family houses is much more moderate than what happened ahead of the financial crisis in that sense is a success of moderate recovery the second thing is that owner occupied flats are continuously going if not through the roof but approaching the roof this is a phenomenon contained to Copenhagen and other larger cities but it's obviously a clear observation point this is the numbers on credit growth and if you do what people normally do and what was recommended before we installed all this counter-cycle buffer stuff that is calculate a trend credit to GDP gap as you can imagine credit to GDP ratio is far below the trend why? because the trend was pushed up so much ahead of the crisis that you should be very careful to rely on such an indicator so we try not to rely too much on it but it generates this explanatory problem now one thing has been different this time and that is despite a significant pick up in the wells to disposable income ratio we are continuously seeing sort of an increase in the savings ratio here measured by the consumption ratio consumption divided by disposable income that has come down very sharply since the years of overheating and it's still not going up why? is it because people have been affected by mental shock risk aversion we haven't seen before is it because they have made so much savings out of lower interest payments because interest rates have become so low given the very high level of household debt they have saved a lot of money but maybe they consider this to be transitory and if that's the case they may hold back their consumption by alas this is a very welcome phenomenon but what we otherwise have seen in the country would have a tremendous boost in private consumption that would no doubt have led to overheating but that's part of the reason why credit growth is so contained now in terms of macro potential initiatives they are sort of divided by two, one we can call change in framework conditions and the other one I'll call nudging in the sense that there are more targeted measures in the future but we have done at least four measures there are others but four small measures all four measures 2013 an interest rate stress test measure on household repayment capacity the idea is that they should be able to regardless of which kind of findings they do they should be able to pay amortization and the fixed term interest rate they have a much cheaper loan then we have introduced some limits to how much expansion you can have in the credit institutions of deferred amortization and variable rate lending for households on the nudging issues what we did was to conduct some kind of stress test element of households you should be able to in terms of your aggregate wealth to withstand the fall in house prices of 10% if your LTI was above 400% or 25% if your LTI was above 500% and the final one which is probably the most effective that is a requirement that you cannot have certain kinds of mortgages including deferred amortization and variable rate mortgages if you have LTI ratio is about 405% there are quite detailed measures and in particular the LTI measure has the virtue that it implicitly targets what's going on in the large cities because if you have skyrocketing apartment prices that will be quite it will be quite exposed if you measure value compared to the level of your income and it seems as if we are not quite sure yet of some interesting and warranted effects in the Copenhagen housing market now to prepare for the next downturn I think we are potentially facing quite a serious issue in the next downturn internationally very limited scope for monetary and fiscal expansion that implies as I see it we can simply not allow banks to be part of the problem again we need to be more careful this time I do believe that if we work with the counter-sexual capital buffer we can build it up when it's very easy to raise capital therefore we can release it if there is a threatening credit squeeze in the future downturn that's basically the idea of counter-sexual buffer and my next graph would be that we cannot this is just an illustration that our fiscal and monetary policies base is very limited because debt is much higher and the interest rates are much lower well known and this is probably the most important slide deal a bit with that how do we argue the case for a higher counter-sexual buffer for the time being in the absence of say vigorous credit growth we insist that in normal times the counter-sexual buffer should not be zero positive we should not wait until we see the final end of a peak up in the financial cycle and we point to a bunch of various indicators, risk perception property prices, credit standards of course credit developments as such and other indicators we supplement it by other information and that adds up to an advice being given on the buffer rate you see in the bottom of the table we have given advice twice now we are moving quite slowly but the buffer has now been decided upon it happened actually this week with a new advice that will be implemented from third quarter of 2019 because we have, we just think is probably in mistake this 12 months that before after a government has taken a decision until it's implemented that's quite a strong requirement but it will come up to 1% and then we have given forward guidance the financial sector is asking to ask for forward guidance on what's our intention in future so if there will be no strong change in the tendency of building up risk in the system we will go ahead with yet another recommendation in the first quarter of 2019 but as you can see then we are up until mid 2020 and I just wonder whether this recovery will continue until mid 2020 in the financial part of it will the right side is the actual indicators we currently use to argue the case for raising the council circle capital buffer we do have a bunch of indicators implying higher risk taking stronger competition because banks they have abundant liquidity but they cannot really find demand for their lending so they compete increasingly there is a very large difference in between banks we have the proper prices increasing total lending is still at a high level they do distribute a large share of their earnings and that implies there is plenty of scope to come for here I mentioned the issue of monetary and fiscal policy globally just to compare 0.5% as the council circle buffer requires that the financial institutions will reduce their combined dividends and buyouts from some 95% this year to maybe 87% something so it's very, very easy for them it's still obviously the owners who own this capital so we don't take anything from anybody but we require it to be part of bank now final graph is this is actually also happening in other countries we have 10 different countries buy and large in the same situation not a tremendous amount of credit growth but other indicators pointing to the fact that you do need a higher council circle this is not solving all problems in the world but it might make a slight contribution to having more health sit down to in this time I'll stop here thank you Per then the floor to Daniel Daniel you may want to use Daniel Gross from CEP and is also part of the advisory scientific committee of the SRB many thanks for having me and apologies for the late entry it wasn't planned that way but I presume you have all made the experience some days things don't work out as you thought they would let me try to basically elaborate slightly on the title which is macro potential policy in recovering economies with the underlying of the recovering and then I wanted to leave with you a very simple thought about the interaction between macro potential policies and monetary policy so I think to be clear in the recovery economy we mean one where there is still an output gap but we would just like to give it a little push so that it goes as quickly as possible towards closing the output gap and I think Peter mentioned already earlier that then you have the fundamental problem that you would like the economy to lever but not too fast to kill off the recovery and so the question is therefore you have a sort of tug of war between trying to get the leverage down to prepare if you want for the next downturn and killing the recovery now my simple answer would be what we are seeing is sort of frozen conflict as we have many of them in Eastern Europe basically and I think this fits well with what we heard about Denmark we had enormous built up leverage mostly private but also to some extent public and then we have now a recovery where we see basically a standstill with lots of ups and downs and I think Peter mentioned it's very difficult to make a picture because some indicators point to excesses others indicators don't but broadly speaking I would say there's a sort of a standstill and my question is is that a standstill or is that lack of progress towards preparation for the next downturn in terms of lower leverage and my own preference would be to go rather to that second interpretation rather than saying everything seems to be fine because this time we have recovery without credit growth and I think that's what you said earlier given the upwards trend that we had over the the crisis we should be more careful than usual right now and that by the way is the same thing what we are observing in fiscal policy we are entering the downturn then we ask ourselves how much austerity how to calibrate it we don't want to kill off the recovery but we also don't want to enter the next recession again with very large deficits and my view would be that we can view the stability pact in fiscal compact basically a sort of loan to value ratio but a debt to income ratio for government so they are there broadly speaking macro potential pool tools and now we are coming to the recovery with rising asset prices and I think what we are having right now is monetary policy one foot on the accelerator macro potential is slowly getting down on the break and I think the case of Denmark which I regard as an associate member of the euro we see that very well monetary policy as taking over from Frankfurt is very much expansionary but macro potential is trying to work against the other way around and basically the tug of war rises because with lower interest rates for monetary policy you would like to have agents spend more by taking on more credit but maybe they already have too much credit or some of them so that is why you don't want actually those who have had a lot of credit already to spend more by the others and I think that is the problem there is a nice recent paper which Schuler presented at the AAC which shows that actually macro potential policy can in some instances be viewed as equivalent to monetary policy however his results apply mainly to emerging markets now why is this important in my view this is important right now because we remain in a situation where financing conditions remain really exceptionally favorable what you see here is the difference between the growth rate or rather the interest rate minus the growth rate and that has been now negative for some time comma and is expected to remain that way if you take current forecasts of growth rates and interest rate forward rates for quite some time and exceptionally of course within the euro area and we all know that when you have a situation where the interest rates much below the growth rate it's very difficult to become to distinguish between solvent and insolvent debtors because anybody who can just stick around for long enough will see his income or debt-to-GDP ratio basically go down to zero and that's exactly so what you would like to do with macro potential policy you would like to avoid having too many of these guys around so and I think this brings me to one aspect or one tool of loan-to-value ratios which actually somebody told me are not loan-to-value ratios loan-to-appraisal value ratio because if you have a booming economy and you have banks becoming much more optimistic about the appraisal value then they can basically nullify the impact of any formal LTV you have but let me put that aside and basically if my view would be that LTV works by basically constraining if you want credit constrained individuals who have to save more in order to buy for example a first home house and that means that basically only the high net worth individuals can get a credit but they are the ones who don't need it so my proposition would be that in such situation actually an LTV or macro potential policy more in general making monetary policy less effective at the limit if you think of an economy with two agents creditors and debtors if you tell the debtors you cannot take any more debt then monetary policy becomes ineffective ineffective because the creditors have two impact from lower interest rates they have an income effect which makes them poorer and substitution effect works of course against but it's largely neutralized whereas for the debtor they cannot take any more credit and they have the income effect working for them but they cannot do anything with it and I think this is the situation in which we risk coming right now and of course for the euro area what specific is and that was mentioned earlier by Peter that we have to some extent national macro potential policies but to some extent in the euro area we have a repeat of what I said at the level of individuals we have some countries in which represent creditor nations not because the nations are creditors but because they contain many agents who are creditors and then if you have a situation whereby you have LTVs in the creditor countries then as a risk that monetary policy becomes ineffective because those who could spend are not allowed to and those who don't want to they're not doing it anyway because for them the substitution effect doesn't work and especially for the euro area of course what you then risk is that you have monetary policy trying to push macro policies are neutering most of it and in the end you have the stalemate whereby you have to have monetary policy with rates low for very long basically because the impact is so small and therefore maybe it is useful to think about in my view at least an earlier exit to macro policy rather than to monetary policy rather than think even with monetary policy until we have reached our inflation target but subsequently put in place macro policies would actually take out most of the steam of monetary policy because then probably what we're going to have is we have these excesses due to the I-G difference in some pockets of the economy where we don't really see them they might be smaller but there will be the ones where actually the new expenditure takes place and I would regard this as more dangerous than perhaps making the opposite mistake which is possible that you perhaps exit monetary policy too early but at least then you know you don't have to use macro potential policies to stop things which would otherwise arise so let me stop with this one point that we should be really thinking about coordination of these two policies and what we do when the two work in opposite directions thank you thank you Daniel so at this point if we have the connection going with the fifth panelist Pierre Richard Agenord from the University of Manchester maybe we can have him actually take the floor virtually can you hear me? yeah loud and clear very good, thank you well we've heard from previous panelists the challenges that normalization creates for the United States and Europe especially in a context where fiscal imbalances are large in some countries I'm going to focus my remarks on the global implications of monetary policy normalization in major advanced economies I do have a set of slides that cover these remarks in detail but I'm not going to use them given the amount of time that I have but I understand that the slides will be posted on the conference website fairly soon so what is the environment that we are considering? well clearly the post global financial crisis environment accompanied by low real interest rates and a massive increase in global liquidity has been accompanied by a massive increase in debt in all regions essentially debt by the non financial corporate sector so that's the key fact that I want to highlight to begin with but there are two other important facts to keep in mind one is the fact that the globalization has continued at a fairly rapid pace over the past few years and this has been associated by an increase in bank related capital flows but also greater scope for regulatory arbitrage the second point is that financial spilovers have become more and more of a two way street we have spilovers from advanced economies to the rest of the world but increasingly what we've seen is that there are feedback effects of what has been called now spilbacks from a small group of large developing economies toward the major advanced economies and I want to focus my discussion essentially on that particular group which I have referred to elsewhere as systemic middle income countries SMICS I view largely the concept of emerging markets as obsolete especially when discussing issues of spilovers and spilbacks so let me briefly address three issues the risks for these SMICS associated with monetary policy normalization in major advanced economies second what can macro potential policies do possibly combine with other policies especially important for that group of countries what can macro potential policies do to mitigate these risks and third more specifically what type of instruments should these countries think about and given what we know regarding the performance of these countries so regarding the first question as I said earlier what we've seen again in the immediate aftermath of the GFC in some of these SMICS is a currency appreciation excessive foreign currency borrowing and a build up of domestic financial imbalances in several of these countries what we've seen is major increase in private sector credit and increases in property prices which has made these countries fairly vulnerable to monetary policy normalization in MA's why well the reason is that when as we've seen since April when interest rates start going up in the US and other major advanced economies the appreciation of the dollar of the US dollar leads to a fairly large capital outflows which translate into large depreciations of domestic currencies this is very clear for countries like Brazil and Turkey for instance now the depreciation tends to weaken the balance sheets of course of highly indebted borrowers and this tends to increase domestic spreads in banking but also what has happened since especially is that some countries have started to increase interest rates in order to mitigate those capital outflows so the increase in domestic borrowing costs coupled with a greater risk premium due to deterioration of the balance sheets of borrowers both have combined to tighten domestic financial conditions and this is particularly worrying for these countries because the business and the financial cycles in these countries tend to be highly correlated much more so than in advanced economies and one reason is the fact that of course many of these countries have banks finance a short term working capital leads to greater extent than in advanced economies so there is a very strong potential for adverse supply side effects which combined even if you have some appreciation associated with high interest rates you still run the risk of higher inflation so the policy tradeoffs that monetary policy faces have become much stronger in the context of normalization of monetary policy in advanced economies at the same time as I mentioned earlier the potential for spillbacks is greater now so this creates no major advanced economies incentives of course to internalize at least to some extent the potential dangers or risks that situation in smiks could create for them but the right question especially when it comes to macro potential policy is whether some degree of international coordination could generate a superior outcome as opposed to each country essentially internalizing the effects of these spillovers based on their own national mandate the second question is what can macro potentials do in a context where indeed you are facing tradeoffs in terms of output inflation and domestic financial imbalances and that these tradeoffs can actually worsen as a result of large capital outflows induced by high interest rates in advanced economies the question of course is can macro potential policies help to mitigate those risks well the evidence on the performance of macro potential instruments and that covers a wide range of countries not only smiks is that these instruments tend to be more effective in strengthening the resilience of the financial system essentially by building buffers than in preventing the development of financial imbalances themselves but at the same time what the evidence suggests especially for smiks is that targeted instruments such as DTI and LTV ratios have proved highly effective and my belief is that there is also scope for more aggressive use of some other counter cyclical tools and that brings me to my third point which is what type specifically of instruments could be helpful for these countries well my own review of experience with counter cyclical capital buffers in some of these countries is that they are not easy to implement quickly for various reasons you need to give banks some time to build up the buffers and in fact these countries have been using other tools and they have other tools at their disposal now one tool that they've been using quite consistently over the years is reserve requirements in many cases reserve requirements were used as a substitute for monetary policy especially when facing external financial faults but more and more the idea is to get central banks to view it as a counter cyclical macroprudential tool and they have proved successful in some cases Brazil being one of them in the immediate aftermath of the GFC another instrument that many countries have put in place in recent years is dynamic provisioning systems especially after 2008 in Latin America right now 5-6 countries have them in place now again based on Spain's experience clearly the evidence on the performance of these tools is rather mixed and they haven't been really tested in these countries as of yet although they may well be pretty soon but the sentiment is that even though they may not be able to prevent the build up of financial imbalances especially credit growth rapid credit growth they can in combination without the tools be used to stabilize the real financial cycles the challenge of course is to calibrate these instruments so to conclude briefly what I can say is that the path to normalization is a narrow one for many of the major advanced economies and stillovers from this normalization process assuming that it remains elderly are a major challenge for central banks in middle income countries especially in the systemic ones because some of them already facing large financial imbalances and that means that there is limited room for maneuver with monetary policy and macro financial policies is important to address these trade-offs but in addition to that there are other tools that they are disposal if indeed exchange rate stability is a key concern and the experience proves that it is for these countries then sterilize for an exchange intervention which has been used massively in many of them in the past few years remains an option capital control should not be excluded either so that I think is an important point that the policy mix may need to be broader than simply monetary policy combined with macro financial regulation, of course the line between macro financial regulation and capital controls is blurred at times depending on the intent as you know but the policy mix may and should be broader than these two policies and there is also a need especially if the normalization process becomes somehow disorderly there may be a need for more flexibility in pursuing inflation last point here is simply that indeed there is the possibility is possible that greater coordination across countries of macro financial policies may be beneficial as you know Basel III includes the principle of reciprocity which already provides some starting point for coordination of capital buffers but the broader issue is to what extent given the importance of back related capital flows to what extent is coordination useful to mitigate the cross border effect of regulatory arbitrage can we find indeed a superior outcome for the world economy at large thank you thank you very much so here let me try to get now the discussion going on within the panel as we heard there are very very different positions so let me go back to the questions that essentially I think this panel is about and the question is whether we should activate macro prud today macro potential tools today based both on the recollection of past experiences Governor Lane was saying yesterday and per Kalesen in a way has also said today that you know we cannot afford essentially banks to fail us again and to cause a new a new crisis as in the past so this is one viewpoint essentially which is butters by the evidence that Esther has presented at the beginning and we had a monetary policy very relaxed for very long this is likely to have increased restaking at the aggregate level and that's one argument for actually starting seriously to think about activating macro prud tools the second argument is the one that Governor Kalesen has given us that we should in a way prepare now that the sun is shining start preparing for the rainy days when essentially we monetary policy will become restrictive and asset prices may actually drop with a snapback and cause potential instability so these are the arguments for acting now on the other hand we heard more words for greater caution if understood correctly from Peter Pratt and also we heard a kind of somewhat different position from Daniele he says that in a way here we are in a kind of standstill with monetary policy being expansion so even if we activate actually macro prud policy this is not going to do any good because in a way it's just going to muffle the effect or moderate the effects of monetary policy so we'd rather go for much faster monetary policy normalization so these are very different positions and again I want to remind you of what we heard this morning from Franks from the IMF who actually also was very cautious and he mentioned one point which has emerged in a way in the last intervention by Genor monetary policy is kind of global it fills all the cracks whereas macro prudential policy can be targeted specific bubbles specific instabilities specific countries and so on and this is also something that Peter reminded us of and that's another reason maybe for activating macro prud tools selectively in some countries in some sectors right now so I would like to now this kind of issue again to the panel and try to make some progress and see if we can make some progress towards consensus or rather not so maybe we can start with Peter again if you want when you say macro pru I always have in mind time dimension and cross section dimension so it seems that you have more the time dimension in the discussion look at the cross section dimension was still urgent things to do so what are the main scenarios we could envisage listening to there are not many basically you get the big asset price correction repricing of risk globally and then you have to think about the scenario how it would transmit we heard just in the previous intervention the smiks and that sort of transmission but also from a central bank what works me in that scenario to redemption that you may have because many funds on the asset side are liquid they have some liquidity lines with banks so I don't know who provides the liquidity and that's the opacity I was mentioned before and that works me and of course who is the candidate there when you have a run on liquidity institution of course the central bank so when you say should we activate macro potential instruments well I say you should about looking about the liquidity risk in asset management companies because if we think that scenario that the res pricing of risk is a possibility then I would like to have a scenario and testing that sort of scenario not only seeing what banks are doing in this session but I want to see a little bit more I am not very qualified to speak about that as I say before I use only public information on this so maybe you will reassure me but from my point of view as a central bank I see very much we have the possibility to create liquidity and then immediately if the problem is worldwide you get of course this question about market maker of less resort and that's one of the things in mind in that sort of discussion so I think that the work when you talk about macro potential policy I think that we should really rush up in that direction the other thing which we heard is the push and the pull well it's the accelerator yes still that Daniel but as you also said Marco the pull is more targeted that's a little bit so we disagree about this you still need a substantial degree of stimulus to bring the economy where you want it to go but of course you see pockets and you see perhaps for example in the most recent figures about confidence indicators where the industry plateaus and confidence goes somewhat down it's still a very high level but when you look at construction in general it really goes up very strongly so then you go of course in things you don't like to do too much but still in the environment what you think that that policy has to continue I think it's useful what we heard from Per and the targeting on the real estate I think it's something that makes sense I want to also in the Danish experience very interesting to see the experience because how you take these decisions and implement the decision because politically these extremely sensitive things and we see that many several countries want to implement these very much difficulties and then as I said before they use the other sort of instruments macro potential like buffers in banks tightening capital requirements for real estate loans but it's not necessarily the best way to do it I think that's a very interesting discussion to look at the politics of macro potential instruments more than what we do in general and I found it very interesting because you didn't mention it looked very smooth the way you presented it so I'm very curious and the very last point is on what we call normal and that leads me to because you deal with not only banks with asset management but with pension funds and insurance now another scenario which I have in mind is because we had yesterday in the general council a very fascinating discussion on aging and the impact on public finances of course but there is another discussion about low rates for long time maybe you know the right or wrong but which may mean that central banks are only one part of the issue of low rates maybe also the other part which is related to demographic believe it or not but I mean that's a discussion and then if that would be the case of course you may also think about scenarios where long rates remain low for a very long time for different reasons than just monetary policy so your normalization and that's a little bit the discussion in the US today but your normalization of monetary policy does not necessarily lead to nominal long term rates which are quite higher than what you see for example in the US as you know in markets usually they will peak not much more than what you see today again it's an assumption but when you draw scenarios and you try to see the resilience you cannot exclude also that the peak of nominal rates would not be what some institution thinks will be given of course the promises in terms of pensions of course and so going back to normal is something also which I would like to see a little bit tested much more Per, you wanted to say something Ok, three points the first was this smooth no, there was quite a lot of discussion around every single measure pushed back from the industry they did lobbying and who could potentially prevent this fortunately we have a tradition if you sit around a table and work reasonable with stuff for a while then it can be solved out some of us might have wished to go a little bit faster than what's happening but I think it's by and large second point I think Danny you have a point on some of these macro potential measures obviously taking some heat out of the monetary policy stimulus which is happening you pointed to a specific factor with the LTVs I'm not convinced this is a dominating factor but I think that's one of several obviously if you take out the the stimulus or these part of the stimulus through lower interest rates to the housing market to commercial real estate market you take out part of the monetary stimulus I don't think that's a reason for changing the composition because it's only taking out part of it that it's only taking out part of it in some countries and not all countries so it's still rational to do what's happening here but we have to acknowledge that on the countercicle capital buffer though I would surely agree with those having said that this is not something which is going to contain our excesses this is taking place in environments with very high profits at least in my country so it's very easy for them to capitalize appropriately but it will work as one instrument which can potentially help us in the downtrend third point is more generally are we by doing what we are doing overly risk avert so to spik we had this very interesting presentation on commerce bank and what happened there and one interpretation of what happened after the financial crisis is a major beef up of tail risk aversion which in the first round affects the financial sector and demand but given that we have seen employment actually coming back big time in most advanced countries at least not any longer any employment or unemployment problem in most countries remaining there some countries where this is left over we are stuck with more apparently permanent productivity change environment but if you look to it broader I think this tail risk aversion could be something also affecting not only business investment but think about cyber security think about physical security if we all becoming quite upset about security and tail risk events that will have an impact on the economy which can last pretty long I don't think there is any alternative given that we burned all our macroeconomic ammunition last time we cannot allow ourselves not to be risk averse but it does have an impact we nearly want to add something to the case of Denmark I think is very interesting because basically you have to take monetary policy as given and then you try to squash down the excesses which arise and I think we agree that then that takes some of the heat of the economy we can discuss whether it's a small part or a big part but this situation in a certain sense is analogous to any single member country of the area so any single member country which has a national macroeconomic policy will take the overall policy as given and then maximizes so to speak from a national point of view the use of macroeconomic policies like in Denmark to squash down but if everybody does it then basically nobody takes into account the fact that by doing so that country also diminishes the effectiveness of the common monetary policy in the end therefore you have an equilibrium where one after another in the countries where you have excesses they squash down and thereby neuter a large part of the common monetary policy which then has to stay lower for longer there's an externality there and that is why this set up which appears natural at first sight common monetary policy national macroeconomic policies in the end will not perhaps deliver the optimal outcome Esther, would you want to comment on the macroeconomic... Daniel's point is very charming and I think that there should be a way to measure this uncoordination externality I think it's very relevant No, I have only two small points which is like you know, I'm not so I'm not so reassured to your first slide the lessons slide was like we have recovery and we have and I counted there was the word moderation three times but we have already had that, I mean just before the crisis there was a lot of moderation and a lot of claim of success of monetary policy and you know, we were all happy so I'm not so reassured by the idea that there is again the great moderation because last time it wasn't it wasn't very good that's the first thing and then the second thing, on the cross-sectional dimensions I think the reason for which it's good to put emphasis on the time dimension as Marko was doing is because there probably we have more information on the cross-sectional dimension if I understood correctly Daniel's slides there is this issue that we don't have information about shadow banking or other sectors that we might want to smash and so the cross-sectional dimension of macro potential policy might be less effective so you know, you pump liquidity and maybe this liquidity sucked particularly by sectors like shadow banking where the appetite for risk is huge and there's no possibility to smash them down and so that's another and now on the type of externality which is not taken into account that in the cross-sectional think there is an informational friction that's it I would like to involve Pierre Richard in particular on one point Pierre Richard that I don't know if you can hear me can you hear me? If I understood correctly towards the end of your intervention you were saying that we're raising an issue of timing that in many say, middle income systemic countries as you call them maybe in a way a bit too late to go for macro prudential policies of the type that we were talking about like Pierre was mentioning about raising counter cyclical buffers and stuff like that that in a way in situations such as Turkey, Brazil and so on the policy the policy problems have already a different sign because these countries are already facing the instability from the normalization of monetary policy in advanced countries did I understand you right or? Yes to some extent indeed if you look at Brazil and Turkey in particular there is a issue of raising counter cyclical capital buffers in Brazil for instance right now would not be the best response the problem is my thought was actually a bit more general which is essentially that there are timing issues in the sense that whenever you decide to increase those buffers you have to give banks some time to do that and in fact these countries have used other instruments that are directly under the control of the central bank I'm talking about the reserve requirements which have proved highly effective and fairly easy to implement now keep in mind that I'm talking about countries where reserve requirements are a lot higher than what you observe in the euro area for instance the 2% or 3% unless I'm mistaken that you observe in the euro area countries you are talking about much higher so the potential for manipulating those instruments reducing them drastically if needed as Brazil did in the immediate aftermath of the global financial crisis is much stronger now if I may I just wanted to add two more points to what I said earlier and I think the first point is really that when looking at advanced economies and I think it's extremely important to understand that the tradeoffs that you're facing are not only macro economic stability and financial stability there is the essential issue is that of exchange rate stability it's always been a concern for these countries even those who adopted inflation targeting early on where supposedly the exchange rate would be left to float a bit more or freely actually these have never been the case in practice and this idea that these countries face a fear of floating is quite old and it's related to competitiveness considerations the fear that appreciation would really drive the economy into into recessions but I think what I want to stress is that in the current environment after this massive increase in global debt and that these countries have faced the key issue is actually the impact of the exchange rate on balance sheets and the possible adverse effect that it could have on the banking system in some of these countries despite massive reforms Brazil has been, for instance, leading in many areas in terms of adoption of Basel III so if you apply in a naive way the Timbergen rule well if you have a third objective then you need a third instrument and what countries have been using to a very large extent is foreign exchange intervention some have used also capital control with a broader issue but the point that I would like to make is that in the environment that we are facing in fact foreign exchange intervention may be motivated more by financial stability considerations than by competitiveness or other considerations so the rationale so it's really this view that foreign exchange intervention in some ways is also a macro-predential instrument in the current environment so the second point I wanted to make briefly is regarding coordination we know that coordination of monetary policy works does not really work well internationally except in specific in crisis situations that's what history teaches us and in the current process clearly major advanced economies remain focused on their national objectives at the same time I think that the precedent that the principle of reciprocity in Basel III has created is indeed the idea that there is now an explicit framework that induces countries to cooperate now the question is remains how much each country can gain from this coordination and whether it's beneficial for the world as a whole it's an issue that I've been spending quite a bit of time working on with colleagues at the BIS and the evidence appears to be mixed there is some gain for the world economy which is not large but very often some countries are going to lose even though it's beneficial for the world as a whole so the question is how do we implement those those cooperative agreements in practice? I guess that the outlook is not great for coordination right now in the world more generally I would like to use the last eight remaining eight minutes for questions from the floor so if there are any questions or remarks yeah there? Hello, Alessandra Jovina I have two questions first one is about emerging markets so what we were saying I just want to confirm if I get it correctly so in case of U.S. continuing rising interest rates should emerging markets then act counter secretly so lowering interest rates to in this way support the economic growth second question was about the assessment of the consumption ratio the lower consumption ratio in despite the high wealth ratio so we understood we conclude from that that the savings were higher despite were higher in contrast of the private consumption increasing so could we expect that the financial market condition are strong enough to react in case of a downward turn of economic cycle after our expansionary monetary policy so I guess this second question was the pair I guess it was my diagram on the consumption ratio you are pointing to at least one reflection is if it's true that part of the explanation is that consumers are not facturing in full the gains they have seen for lower interest rates on their debt then maybe they wouldn't react tremendously if interest rates are coming up again and might act as a stabilizer frankly this is the most surprising part of the economic development which is also an answer to your point about moderation my point on moderation was not a prediction it was an explanation on what had happened in the past first this is surprising that it has been as moderate as it is and second we did to look ahead to the risks we are having there there is a clear risk that if this risk aversion disappears there is a potential upturn in the economy maybe it is too strong Daniel once well this is exactly what I was trying to describe when you have this monetary policy expansionary and then you basically don't allow the poor to take out credit and consume and you observe an increasing savings rate and the only recovery you can have is basically on the external side and therefore I think this is exactly the picture you might get when you have an expansionary monetary policy and restrictive macro-potential maybe Pierre Richard you want to answer the first question about what should be the monetary policy reaction in emerging markets Yes, this is at the heart of the problem that central banks are facing are faced with where you have several objectives and one instrument does not affect the objectives in the same way if you increase interest rates as I said earlier in order to mitigate capital outflows and raises borrowing costs for banks and eventually for customers and that will also if you have a cost channel which tends to be quite strong in these countries because they borrow a lot short term to finance working capital needs then you may have actually a contraptionary effect on output so what is the alternative as suggested by in the question is whether or not can they lower interest rates well not really because actually if you lower interest rates in a context where interest rates are increasing in advanced economies you are going to have more capital outflows which is going to lead to more depreciation and therefore further weakening of the balance sheet and another thing to consider in that case is also the possibility that exchange rate depreciation is very strong what we know from the evidence in the case of Turkey for instance less clear for Brazil and some others but in Turkey the path through is very very quick which means that lowering interest rates in order to try to mitigate adverse effect on activity is actually you are going to end up giving you more depreciation further weakening of the balance sheets of heavily indebted borrowers eventually and possibly a high inflation fairly quickly because of how rapid the path through is so there is no monetary policy by itself cannot address all of these issues so hence the need to combine to combine that with macro potential instrument or as I said earlier to go further and actually have also a third instrument which would be for an exchange intervention Richard Richard, partner? Do members of the panel see anything more than anecdotal evidence that the low for long interest rate environment has led to the accumulation of systemic risk imbalances that involve systemic risk whether in advanced or emerging market countries Anyone? The search for yield Daniel says no No evidence always in my mind what is the counterfactual it's again the same when you don't that at some point of course you get the other question of course and that's why we are here to discuss so the assessment is to say well to some extent we don't know I mentioned this probably referring to the previous intervention a lot of illiquid bonds currency issue in asset management companies with some redemption risk which amounts are sizable as we know so I would say probably I don't know that's not my business now but I would if I would have to look I would look into that of course as a first candidate and then I would say I think what had to be done was right in policy monetary policy I think at some point when the economy recovers these questions come I must confess that I was amazed to see the figures about currency exposure of bonds basically from sorry smx but broader than the smx I mean beyond that also that's true and therefore my point the point I'm making I think it's not only looking at the cycle but looking a little bit the structural aspect in terms of regulation in some of these but I don't know as I said before because I'm not in that business potential exposures you mentioned exposures I would like to remind everyone of the persistent problem of sovereign exposures of banks in particular of Italian banks which have kind of resumed have already increased considerably in May, June and therefore the fact that we keep having this kind of potential bomb in terms of macro-rudential risk within the financial system the euro area financial system which if interest rates rise considerably could actually be detonated and start at least within some countries a process of huge instability and we have already gone through that particular movie so we know that is a big danger so Per? No, I mean the question on systemic risk whether it's systemic or not I'm not sure we will see that exactly but we will know by one time but there is certainly risk out there in the evaluation of housing and stock prices in many quarters of the world is certainly an observation point I'm not sure it's only foreign or sovereign risk we are talking about here but to the extent that the very low interest rate environment has been embedded in expectations and people are not sufficiently prepared for a reversal of that that's certainly also a systemic risk but in very general terms I think this has turned out somewhat better than one could have feared if you had asked me 10-15 years ago if what I would have thought about in the economy on the background of a very strong employment increase 7 years ahead where interest rates you can actually have mortgages with negative interest rates what that economy would look like I'm not sure I have predicted it was sort of civilized as is happening now so something has definitely happened it may be also a reflection why monetary policy has been in extreme its reaction to something which has been quite extreme on the other side Daniele, you wanted to add anything? No Ok, so I think we have to call it to a close sorry we are 8 minutes late but I hope that your ideas are somewhat clear regarding the needed stance for macro-prudential policy in Europe in particular now Thank you