 watch every day from 8.30 to 10 to get caught up and prepared for the trading day. I'm really excited about this panel. We are going to talk in a broad way about European financial integration and I think it's a fascinating topic because there are a couple of myths about European financial integration that at least I, who had lived in New York for the past decade, have come to in some ways believe, one is that it's purely for political purposes. We are always told it's so that there won't be another world war here. I think there are however stronger economic underpinnings for the desire to integrate financially and hopefully we can talk about that. One of the other myths about European financial integration that's more of kind of a kooky right-wing social media thing, but now that we're all exposed to that, we see it so much, is that European financial integration is a way for the Germans to kind of take over Europe again without firing a shot. It seems harsh but a lot of people actually think about that as one of the flaws for integration. We'll talk about why that's not true and hopefully we can get some discussion about the correct way to communicate financial integration and then we'll decide how far we've come and how far we need to go. I'll introduce the panel here just very quickly. I'll just go starting with my neighbor here, Stefano Micosi, Director General of Asanime. It's a think tank focused on capital markets, corporate taxation, competition regulation. Also a professor, now an honorary professor at the College of Europe and he's taught there for many years and serves on a multitude of boards and for businesses, for capital markets, for policy studies. He has had the international research group at the Bank of Italy and he was director general for industry at the European Commission. He'll represent not only the national side of things perspective but also the European perspective. Let's see, Elisa is right next to him. Elisa Ferrer, I didn't know the actual order when I put my notes together but she is of course the Vice Governor of the Bank of Portugal. She also is a member of the European Parliament for a long time, 2004 to 2016. She served on the Economic and Monetary Affairs Committee there among other things and she was instrumental to key legislation that established the single resolution mechanism and the single resolution fund. So she's been a really key player in this and she can talk about integration from the perspective of now a national central bank as well as from the European legislative point of view. So particularly valuable, maybe those two hats are sort of fight against each other once in a while. Then we have Sir Paul Tucker, he's a knight which impresses me but of course he also was the deputy governor of the Bank of England. I think very interesting about Paul is that he's the one person here who's not or soon to be not European right because he's British, they're leaving and also he left Britain to go to the birthplace of the American Revolution so they left there. My wife is Belgian I should say. He is a professor, a fellow at Harvard Kennedy School, chair of the systemic risk council there and has served on a lot of integral boards, G20 boards for example, so he has done a lot of work as far as integration is concerned and it'll be really interesting to get his opinion. He's also a director at Swiss Rea among other things. So then we have Ignacio Angeloni right next to him currently the ECB representative on the supervisory board of the SSM, the single supervisory mechanism. I'm gonna try and avoid acronyms as much as possible but there's so many with SSM, SRB, BRRD and I'm gonna establish ground rules in a second so we can try and avoid that. He started work for the ECB in 98 then he went to the Bank of Italy then in I think 2005 and then back to the ECB as an advisor to the executive board before taking over macro prudential policy and financial stability as director general and he's become and he's basically negotiated for the ECB to form the SSM so very integral part of that as well. Then we have Jordi Gaul next in the chairman of Keisha Bank since 2016 but he's been at Keisha Bank for a long time he served as the executive director of strategic planning chief economist there among other roles. He's also advised the European Commission in Brussels on economic and financial affairs and he can contribute really from the valuable perspective of the supervised. I've heard a banker say the supervisory victim so we'll get his perspective there and then we have Dirk Schoenebaker professor of banking and finance at the Rotterdam School of Management he's also a senior fellow at the think tank. Bruegel he's written a number of books about these things and I think it's great to get someone from Bruegel because not only as a watcher but also as a judge of how these institutions are doing. Some of the ground rules I just wanted to hopefully we don't all speak as long as I just spoke because we have only an hour and a half. Hopefully we can avoid all of the acronyms because there's so many and if we want to communicate this to the public in a way that's non-threatening it helps to just not you know play alphabet soup the entire time and I encourage you all to please intervene. So if you for example Elisa disagree with something that Ignacio says jump in and don't feel rude about it to make this a conversation. Why don't we start with Paul I'd love to get your your take first of all on the importance of financial integration in Europe. Why are we doing this we're all behind this I guess and we probably everyone on this panel is for it. Why should we be pushing for this broader European financial integration. For two reasons first of all let me say it's a real delight to be here. Is the microphone now. Okay it's a real delight to be here thank you very much to you and Danielle for inviting me. I think it's my fourth time at a conference in ECB this year but my first time ever at a conference about supervision and I think that's a terrific thing essentially for two reasons because resources will be more allocated more be allocated more efficiently in Europe if there is a healthy integrated financial market which will help to make the people better off and most of all and this is why the Capital Markets Union project is so important is that it helps to transfer risk. Now those sound quite abstract but what we have at the moment is a monetary union without the necessary financial and economic structure behind it and this makes the people of Europe less well off than they could be and the whole project a lot more precarious than it then it could be. I hugely welcomed the creation of the SSM and I hugely welcomed Danielle's appointment as chair for two reasons. It's hard in many of the capitals of continental Europe which are quite small towns for the supervisors not to be captured even where they are good people and good professionals and there has been a problem of capture of bank supervisors across our continent for a very long time and it's extremely hard for people in office to talk about it and it is quite easy for people like me who are not in office have that behind us to talk about it. The second thing it's tremendously important that the SSM be led by somebody for whom if I can presume it is their last job so that and that when as you were speaking Danielle in responding to the question do you aspire to be loved or liked by bankers and what I heard and what I wanted to hear was no I aspire to serve and be respected by the people and you're only free to do that if it is your last job whether you're the governor of the central bank or the head of supervision and and I think the SSM can hugely in in slow motion change the integration of finance like I am we'll talk about it later I'm concerned by the nature of the national presence on the SSM board where I think still reflects a degree of of capture but overall I think this is good for integration of financial markets in Europe and I think that matters enormously for the welfare of the people what what let's talk about that now the nature of the national presence on the SSM should that jerk let me ask you because I know that you think the national presence in the individual resolutions that we've seen recently has been too strong and what do you think about the national presence on the SSM let me first thank you let me first start with two observations I think supervision has done a lot and last year with Nicholas Farron I looked at the first 18 months of the ECB and they did a lot but what we see is that integration has not been improving and then I come to the national one because if you look at cross-border flows I looked from 2014 so cross-border flows between banks you can measure it on the aggregate level and on the individual level bank by bank so same conclusion it is flat you would have expected an increase because of the integration of banking union and I think although the ECB is doing a great job and the harmonization project has been with a lot of vigor I think there are still two captains on the ship so if you have an subsidiary you have a local license and then the national supervisor where you are even if it's inside the banking union can ask for capital liquidity and you mentioned waivers but national people cannot really spell that word so they don't use the waivers and and I think it is not only about rules it is really about two captains on the ship because there are two schools of thought we can solve it by more harmonization I think we can only solve it by getting one captain less on the ship so make it truly European and having European decisions and keep get the nationals out of the equation because we have a single jurisdiction now in the euro area that's very controversial but so I think it is really we need one captain not two captains on the ship let me let me I want to also I want to hear from Geordi as someone who's you know chairman of a national bank and also from Elisa who has an opinion on on waivers as well she can spell it I'm sure but I don't think she's for it first let me ask Geordi about the flows I wanted to go back to the issue and is related to these to the issue of integration I mean we economists know from many years it's already well known that integration is on net good there are welfare gains to cross border financial services and to the freedom of establishment but we also know that whenever you have opening up an integration of previously isolated or our target markets there are winners and losers so we know there are redistributional problems and this is true in other industries and also in financial services so it is not at all surprising that in the process of European banking integration we observe huge resistance from national member states now whether it's unless we have additional political integration it's very hard to get one single captain and the same happens with regard to the other argument that favors European integration we want to have financial integration in order to better distribute financial risks in the marketplace that is true but citizens in Europe would like to see quite often not only private redistribution of risk but also some degree of public redistribution of risk and that is missing so it is not surprising that it is hard to get the ship going because there is no agreement between the overall single jurisdiction and the national jurisdictions and the national jurisdictions and I'm sure Elisa has a view on that have the national politicians and the national jurisdictions the national regulators have of course a local constituency with preferences which may not be exactly the ones that correspond to the single union to the whole union and it is hard to move forward integration on this basis. Let me get Elisa's take before we get to Ignacio's response because you have a national constituency but you also served on the European Parliament and are obviously incredibly pro-Europe so how do you balance those things? I have been and I have but first of all let me just leave a note of compliment for this discussion because I think it's important that we discuss a project that is very complex and that we have moments where we discuss what we have to fine tune eventually and I think we have got fine tune a lot of things. Secondly let me praise because now I'm part of the board and I am proud to be part of the board the work done by Danielle by Sabine and by old staff because in three years we did an immense amount of work but having said this I agree that we have we should ideally have one captain but one captain is a captain for the good times and for the bad times what we have in Europe is not a banking union is half of a banking union banking union has three pillars we just have two and this is like a cake half baked a half baked cake can be really really very bad for your health so okay I agree and I was listening to Danielle and she knows what I think about it she was praising the the mergers and the merger of I mean and the consolidation of the BPI in cash a bank and I speak here with the under the control of my good friend Jordi Jordi well yes nevertheless God forbid but if if anything would go wrong with cash a bank if you had to wind out the bank just imagine God forbid that but okay let's put in theory let's put in theory because we faced popular I mean we saw what would happen what has happened in the case of popular you have the supervision is done at the level of SSM the resolution is decided at level of the resolution board but then if it happens that you have to I mean you go into a winddown situation and you have to pay for the guarantee of deposits then you have a bill that you send to the Portuguese taxpayer and you had nothing to say or you had very little to say not there is no proportion between your capacity to decide and your responsibilities and liabilities so before we have this alignment of liabilities and responsibilities at the European level we cannot think that a national supervisor can be comfortable with subsidiary that operates in our country that even if it is a small one like in the popular case but in practical terms the cover deposits amounted for 2.2 billion which for a small sovereign is not easy in the case of cash a bank BPI has more than 12 billion of cover deposits and it is absolutely unacceptable that you have this mismatch I feel he very much in catch 22 because when I speak to my German and my Dutch French is well we cannot have European deposit insurance as long as we have the national features they should have said it before yeah yeah and you say as long as we have to or not you but in general we as long as we have the national features we cannot have European deposit insurance so we will never get there okay but then we cannot have waivers on capital we cannot have waivers on liquidity we cannot have a complete centralized way of addressing the supervision and resolution we have got to live with the present situation that's the life we have so we are stuck we are stuck in the middle we have got to move yeah but we cannot pretend that being stuck that we are we have a full thing and the other element is that at this stage I'm sorry to address this but when talk about NPLs we are in a competitive world in which a considerable number of banks that manage the NPLs through bailouts before 2013 the banking communication of August 2013 and then the BRRD so they did it before so they are now fresh run and kicking competing with others that could not for several reasons do it or didn't do it and now we are so the way you manage the new legislation is another element that comes with this half half of the bridge situation so unless we move forward and here I would make a caveat saying I don't see I don't see the the common deposit guarantee as as a risk sharing issue I see it as a risk reduction issue because if you don't have it the way you have managed BRRD we date percent minimum bail in you are bound to trigger a bank run at any moment and then resolution becomes much more expensive so I think we need to go to fine-tune this situation but we cannot have the best of both worlds that's that's the question Ignacio how do you respond to that I mean these are issues that you grapple with on a daily basis obviously first of all Matt thank you very much for helping us in this debate I'm hearing a lot of skeptical voices we are stuck no progress let me let me speak on behalf of the glass that is half full we need to understand what we are after what is financial integration to me concretely financial integration is law of one prices same conditions for lenders and borrowers and savers roughly everywhere in the area once you adjust for risk obviously but also risks have to converge otherwise prices are very confusing so law of one price and a sufficient amount of cross-border business happening why do I say sufficient you don't necessarily need to have you know in all segments of the markets people investing and lending in one country or the other certain markets are inherently local I mean a a a Portuguese saver can deposit its funds in Latvia most likely will not do that but not because he cannot do that because it's not practical to do it so what did we see after the we have to look at the last 15 years or so so we see after the euro we see the huge quick massive integration of money markets almost immediately interbank markets I mean the the cross-border ratio of this is about 50% so it's huge it's massive there as well deposit market which is normally local if you calculate the ratio of cross-border to total you take an average over the area is about 26 27% it's huge if you think of it but half of it is within the euro area the rest is from outside of the euro which is a good thing as well because it means people from outside the euro area depositing their funds in euros in European banks the lending market is a little bit less the retail lending max about 10% so but but that's sufficient because when market are potentially contested it means that competition exists anyway even without a mass of cross-border flows you have an integrated max so this has been I think this has been achieved largely there's progress to be made but that definitely I mean if we look at the relative to 20 years ago there's been a massive change what is difficult to sell I find is the is the message is the communication side of it the ECB has been engaged for a number of years we have a data set we publish a report and all these ways a very difficult message to sell because integrated first of all European in banking integration so every Europe and banks there's a lot of skepticism nowadays about both notions Europe and banks so you have to overcome that plus it's a technical thing you have to explain the benefits but the benefits are real so I think all of us it's a take it on me also the ECB to the extent that this is not effective yet enough to make an additional effort to explain to the people to the public to the politicians the huge benefits that the common cities and have been able to by the way in your report there's a great graphic that shows sort of the advancement of European financial integration over time and it initially grew quickly and has since over the last couple of years as we see this kind of political turmoil as well as populist decentralization movement it slowed down Stefano we were talking about this at dinner last night why do you think that there's been this big anti-Europe sentiment this anti-integration sentiment this sort of move back to populism and why has that slowed down financial integration as well there are there are peculiar features in the monitor union that we have that explain why a major variable in determining financial integration indicators as you have in the report by excellent reports by the ECB reasons why integration depends on political instability meaning by political instability that when you have increasing doubts on the future of the union you see indicators of integration receding this is what you have and there is a paradox here some people say before we proceed we have to clean out all the legacies and have a perfectly balanced system country by country then we can integrate the what we observe the paradox is that as long there is political uncertainty on the future of the union the markets will not tend to integrate the kind of good integration as defined in the ECB reports that we want that is equity markets long-term debt markets credit markets and retail banking integration recedes when there is political instability but the integration of those markets is what makes the monitor union resilient because you have a lot of private risk sharing now political instability this is the paradox pushes back private risk sharing meaning as Elisa just said that we fall back into a system in which in the end if there is a shock you will need public bailouts so we should recognize this fact to understand that we must move forward by removing this kind of political instability before we can proceed and the commission in the latest edis proposal has done just that because they say okay let's forget losses sharing let's forget insurance joint insurance of risk let's just do one thing let's start the system with the liquidity line that will prevent liquidity shocks from destabilizing the monitor union and this is their first phase notice we are transferring anyway the power of control to a european authority so the objection of moral hazard is garbage it doesn't stand and once you have although it's although it's quite often voice I know but it is not analytically and technically founded and one of these days we have to sit down and show that some of these arguments have no foundation and then once we have this liquidity line and we remove the political risk from banking union then we can work hard on MPL's on sovereign risk reduction which is already happening but without the continuing threat that political instability will break the system and we can discuss how to do it this ties with something which I believe it's it's very important financial markets all over the world need reference prices in particular a key price is the risk-free asset okay the price of a risk-free asset it's a benchmark and we have built a monetary union where we don't have such a price well there is one is the German boom and of course for obvious reasons we haven't been able to advance in the construction of of a proper properly shared risk-free asset so the minute having a national risk-free asset doesn't work for the entire European well we I mean countries which are not Germany and in particular of course countries in the periphery or in the south have lost access to the risk-free asset and this has tremendous consequences now if we want to ensure that our system is not subject to political instability we have to continue on building that risk-free asset which is to a degree shared by all member states which belong to the eurozone your robot otherwise well there are several innovative proposals out there proposals that take into account the legacy issue and it's important because the legacy affects the structure of the banking systems and the MPLs but we should move forward otherwise when we get to the newest stage where quantitative easing is gone to a degree the current mirage the idea that now we see stability will be gone and the possibility of another shock to the system it's crystal clear to me when people ask me what keeps you awake at night I say this what keeps me awake is that we have cash a bank is a bank within the eurozone it's run with euros and the potential of another 2012 it's extremely dangerous for for such a bank one proposal as a step in between because I think Stefano started with liquidity a step one I would say there is now also momentum for step two between France and Germany to reform the ESM to a proper European monetary fund as because if you do liquidity you need to solve see backstop and then we can start with European post insurance debt restructuring and then only at the final stage we can think of euro bonds but I would let me just your microphone dropped yeah I would really argue that in addition to liquidity that we take now the momentum to reform the European stability mechanism as as a backstop to the banking system and for sovereign debt restructuring and then we make clear that there's only one captain in Luxembourg that it's quite clear that if there is a cry because I agree with a Lisa we need the captain for good and bad times so only when we solve the bailout issue and the backup and the better you have organized it as a lesson from theory the less you need it that's a great news so it is more the organizing it like the omt we are not using it but given that it's there that creates confidence Paul so there's something slightly too abstract about this so the for me the single best indicator that there has been a problem with financial integration is that something should have happened and it didn't what should have happened and would have happened in a completely integrated market is that the strong banks of the north would have opened branches in the countries with weak banking systems in the south and you would have expected them to do that because they would have absolutely cleaned up because you would have taken your money out of the local banks and put them in the branches of German banks or wherever and why wouldn't you do that if you were running one of these banks you wouldn't do that and you hinted at this but actually you said it but abstractly rather than concretely it's because you would worry that the country in which you'd open the branch might leave the money for union and in the circumstances in which the country leaves the money for union your local assets are likely to re-denominate into local currency assets and get impaired because of the recessionary hit whereas your liabilities you're going to have to stand behind denominated in euro and if you think about the the complexion of say the Polish banking system or the Mexican banking system those are probably the two best examples and some of us are old enough to remember this what happened when their crises occurred in the 80s and 90s foreign banks moved in because they were safer and it is a this this goes to your concern about deposit insurance it is something but it's always car this debate is always cast in terms of banking and the blunt truth is there is a single monetary policy but there is not a monetary union there most of the money we all carry around or use are the deposits we hold with banks there are 20 monies within the European monetary union there is the money that Mario issues the notes but that's inconvenient to carry about most of the money we use our deposits held in 19 national banking systems and I will try to refrain from naming a country but you could think of big countries and say if I hold my deposit there for a while am I absolutely certain to get one euro back no you are what you're going to get back is one euro times the probability that the deposit insurance scheme and the state behind it will be able to stand behind that one euro and is that probability 100% everywhere absolutely no it is not and once you start thinking about it like that that actually we haven't got one money we've got 20 monies the questions about banking union and monetary union and risk transfer through some kind of catastrophe and employment insurance system some to and Euro bonds perhaps all of these are joined up and there is a risk today and there's nothing much that the SSM can do about this other than get on with its work there is a risk today that because growth has come back thank God that people want to push these issues to the margins this is based on you know there are still flaky foundations and a recession will come again and Mario and his successor have much less in the tank and even if they had things in the tank the underlying fragilities well will eventually engulf us and whether my country may not be in Europe but believe me if it engulfs continental Europe my country be washed into the middle of the Atlantic Ocean I just want to also point out sometimes if a country risks leaving the monetary union the bank actually leaves that country you know or yes or if a country if a region risks the bank could move on out as we've seen recently but I want to hear Stephanie's response to that because you brought yes team and to take the point one step further still the reason that makes the monetary union such a peculiar construction the monetary union that you have is that we have one money administered in Frankfurt and several fiscal and economic policies and because of that no one country controls the currency but they can run divergent policies and so the simple result of this is that investors will never be sure that the common money will be available to support the sovereign markets or individual countries in case of a shock and this is what makes this peculiar construction always potentially unstable until you cannot provide the guarantee that joint provision of liquidity will always be available at that time to the banking system at that time the banks become you don't have any more they read the nomination and you get one tie the banks become the same thing now the question has been how can we do this without you know taking up the risk of these damn southerners with all their legacies and and the way it is now proposed to do it is let's start this so we give the message to investors but only with the liquidity line risk sharing we start later under the control of a European authority and only when the European authorities are conditional on approval by European authority when we come to that point after another asset quality review legacy risks will be assessed and probably by that time gone so we can play the game of risk sharing and here you have extra delicate super delicate problems on the role of the European stability mechanism and the simple thing is that the liquidity lines must come from the ESM where else that therefore becomes the neutral fiscal backstop why neutral because losses we will leave to fall on national insurance systems until the second and third phase so there will be no losses from the banks thrown on to the other members of the liquidity support scheme under this approach which is now the Commission approach everybody has said the Commission is backing up they are now only proposing a liquidity line but this line of liquidity is the key to take off the table the renomination risk then we can play many other games without the fear that the sky will fall on us it's insufficient liquidity line cannot cannot be enough cannot solve so busy yes because I think this is this is absolutely absolutely crucial what what Stefan as as as said and that that connects with what was said before that we have got to I think we did the most difficult part of the process of banking union because we did common supervision common resolution with the entities and they are they are running and all these so what what my appeal is that we are completely aware of where we stand and that we don't dream that we can do things for which the counterpart is not yet there but of course all the progress into the finishing of banking union is welcome but until we get there the danger is that by imposing excessive M rel on all the banks you create you accelerate the process of consolidation not through the market but through the regulatory angle and this is absolutely contradictory we what we what we we are doing by by by being too demanding on cleaning up the NPLs is you may create really a fire sale in the market because you are not sensitive to the constraints under which you are operating and here just for we're already at fire sale right I mean we're hearing about assets that are going for 13 cents on the dollar so there can't be okay so what will be the consequence of that I mean even for collateral inside the bank so if we really want to create this kind through the regulatory angle if we want to create this stress on certain banks and I'm sorry I make it here another caveat being completely aligned with the general picture that you that you have drawn Paul but please when you talk about the strong banks of the north don't forget that now you can say that but the strong banks of the north were massive bailed out before 2013 and that it was them who created the most of the crisis through excessive exposure to financial market can I just ask not to be aren't we those still much better off now than we were I mean Jordy's what keeps him up at night is that another crisis happens like in 2012 but in 2012 you got on the ball created the SSM and the SRM and aren't we now much better off than we were then this panel sounds more and more like a heated discussion in a bar which was not intended but I think is very good exactly my intention on Paul I agree that cross-border branching and subsidiary opening is a very important indicator and to some extent we are not there yet but even there glass half full French presence in Italy is very large Spanish presence in Portugal and elsewhere growing Italy in Germany bilaterally so these things are happening and as the banking system is restructured also in the small and medium size segments this is happening more and more so I again we want to proceed more but I think this is this is happening to some extent now in terms of the basket of things to do I mean this is already quite full I mean things to do that have been signaled by panel members are piling up but two things I wanted to in addition to eddies the positive insurance Stefan Stefano and also the point of completing legislation and making legislation more homogeneous that the point that Danielle mentioned earlier this morning there are two other things in my view one is the single resolution framework we have a very good regulation we have an authority they're working but there are things missing not so much in terms of instruments they have the instruments formally but the funding the funding of the single resolution board is very very weak there's no backstop and the fund is building up slowly so at the moment we are still not in a position in which the single resolution board can be effective so we need we need to work on that and the other aspect that I would like to raise not often mentioned is the competition authority as the market integrates you have more competition across board so you need a stronger in parallel you need a strong competition authority to go because you have more possibility of large players coming in and more competition rates now we do have a competition authority in Europe which is quite strong and very active in a number of sectors including banking so far they've been largely concentrated on state aid control which is important state they control historically has been very important it's still important but as we build in banking I'm talking as we build European authorities as much less cope for states to prop up national banks using supervision and a number of other things so I would expect the state aid component of the general competition control framework to become gradually less important and the market competition control to become more and more important and so I would expect and I would hope that the competition control are you know gradually shifts its focus more less on the state aid control and more on competition because that's very important as a complement of banking integration I would like to express to continue the VAR conversation to express a bit of it this they sent they sent in view on the issue of observing integration of European banking through branch opening and entering into new markets at least for the kind of business that cash a bank is at I mean which is retail banking retail banking to me in as you is one of the examples of a market where the natural markets are relatively small there are barriers to geographical expansion among others you need a substantial market share whatever you are in order to be profitable and having a large an important brand name doesn't help you unless you have a significant market share in the market given the fragmentation of resolution and deposit insurance the funding and equity or liquidity funding advantages of being in many markets are not there the scale economies scale economies are exhausted pretty soon you face many jurisdictions with different legal commercial law insolvency law and others so that acts as that's complexity and removes advantages of size so how we are not observing large increases in cross border activity in retail banking small ones like the one at cash a bank and VPI in a neighboring country which is for good reason I mean to me I wouldn't expect this happening it is unclear also that we won at the European level this to happen because then you have banks which may be too large to fail they might be diversified geographically but but who knows I mean there is a recent study that shows that the investors may prefer to play that diversification investing in different local players which are strong so I would like to to put a lot of caution on this goal of achieving cross border mergers but I mean one of the things I was thinking of though when Ignacio originally said that if you know what when I was a younger you got paid for depositing your money into a bank there were interest payments on those deposits and I would definitely invest my savings in a did you say Estonia Estonian Bank Latvia Latvian Bank if I got a better insurance interest rate than I did here except the fact that I those things that you mentioned are very important I don't know how the resolution laws work there I don't know ask Iceland exactly can I make one comparison to the US because when the interstate restrictions were lifted then we caught the super regionals and then quite soon there became nationwide banks like for example Bank of America started from San Francisco and is now in one of the biggest US banks and that's the big thing we don't see yet happening in Europe because in the US they had the Fed more importantly they had the FDIC then you'll cross it a really nice comparison with Nevada and Ireland and so as a counterfactual it is possible so there are barriers for taken away and I think what SSM is here doing is a great job so they are fulfilling that precondition if we take the other ones also to the federal level then we can get the Bank of Americas in Europe and I think they will happen at some point which not all national governments would like and so there is opposition to this but that is that is exactly the point the crucial point in this because it all started when we started banking union we had this vision of bringing more basically more stability to finish a market and cutting away the link between sovereigns and banks that triggered the whole thing so when we looked at an inspiration model that the American case was there but the Americans started by granting stability to the market and trust that's why the origin of the thing was the FDIC federal deposit insurance company so that then the other banks could could play hard and become but then the basic trust of citizens in banks was guaranteed through that but the states the states in the US also have a different fiscal regime of course I think but that is the crux of the thing and and the you in the FDIC and in the American case you have a credit an open credit line quite robust into the Fed whereas here we started by by risk control and we are still saying risk control risk control whether at the same time and here I agree we did the proposal the proposed by by Danielle saying okay we have got to transform BRRD into into a regulation but probably we have got to check if it is adequate independently of the business model to ask for 8% they lean before you can intervene in the bank or to even precautionary cap because with 8% you get away not only in junior debt but senior debt and even deposits so the propensity for instability with this legislation and the revision will take place I think next year because there was a review clause because of the doubts you don't you cannot use the resolution fund because of the 5% and you have got to be lean independently of the business model so I think we need to have a more more clarity on the vision that we want to have for for European banking system because if we if we don't if we just go for okay cross border mergers without any limit then you you are killing diversity you are creating what 50 big banks in 15 years and and and did we control actually the to big to fail so I think it is what we have reached is sufficiently important for us to go on deepening the thing but we cannot do it by without understanding where we are well I think all of these comments kind of come back to Stefan those point which is that you can't have total obviously financial integration if you don't have national integration into a almost a federal European system you've got to have the political way out will there before you can get the financial reach the financial goals that you want to but the interesting thing I think about the ECB at what I've noticed as a reporter over the last years covering this is that the ECB has the independence and the agility to move more quickly than the Commission and oftentimes leads Europe in a way and Ignacio I want to ask you about if that's if that's intended is that a is that a goal that you say listen we're gonna go ahead and do this work and then try and bring everyone else along there's no doubt that the financial integration is has been for many years among the strategic goals of the ECB but then you bring the federal Europe along politically that may happen I mean we we don't have either the the potential nor the mandate for you know bringing Europe along with us I mean there is a legislature there is an executive there are many other things but certainly you are right the agility is is key and the importance of our mandate as as monetary policymaker which historically brought many things along I think that gives the potential that I think that gives the potential but let me I think one one conclusion that is emerging here is that the main obstacle to more integration is the link the multiple links that still exist between banks and their national governments multiple links regulatory links legislative links financial links both ways banks rely on government still largely for their support and the state relies on banks for its funding so this brings to the picture the question of holdings of sovereign bonds in banks and this is an issue that is very delicate because we know that sovereigns are very important in the financial sector so you you want to touch them with a good deal of care but it is a fact that these exposures have created the big segmentation shocks in the last in the last ten years or so after the crisis and so from a prudential point of view and also from a more general point of view of stability of the euro area we need to think about that issue we need to approach that issue I know that there are different views I know this is delicate but it cannot be an element which is absent from the discussion yes first of all I don't think we should let the important statement that you made Jody on the fact that there are no good reason for integration of banking markets I'm not a banker and I'm not sure about the answer but as while I take your argument about the difficulty of integrating by conquering markets starting from a national base I think we should look more closely at the experience of cross-border banks that exist one is only credit and Jean-Pierre mustier today is with us and I think the story there is different at least in principle this kind of integration M&A and there is a report in the ECB there is a chapter in the ECB report on financial integration showing how this activity has basically come to a help for a number of reasons but which are not all physiological again the issue should be looked at but the question is this cross-border retail banking integration may become one major element of cross-border private risk sharing so if it is not viable I think we have a problem if we want if you receive the future of this construction with nationally separated banking system we have a problem the lingering instability danger so I think this is a question that we have to examine again I'm not sure that I'm ready to share your conclusion I'm not sure I have sufficient element not to share your conclusion but I think this is an important element to which we should pay attention I mean I mean I'm starting to get some comments and questions from the audience and one of them I think is pertinent to this and someone's pointing out the important issue is decide what clients of these banks need do they need domestic banks do they need international pan-European banks and clearly a mix I mean you have experience with these no surely clients that need you to be in yeah and but I mean one thing is to have international presence and to follow your clients when they are brought the other is to have local franchises established in the different parts of the union I fully admit that there are banks which have a half cross-border presence that chorus border presence was built in previous times we have to go back to the issue of technology and the way we provide services nowadays does it make sense today to open develop branch networks overseas as compared to what happened in the in the 80s or in the 90s or in the 2000s so so the things have changed and a bank that today wants to expand internationally probably has to think about the digital dimension as opposed to doing it physically doing it by taking over other banks is of course a possibility but there some stability on the regulatory front would be most welcome because with uncertainty about the capital requirements it's also a hard proposition I wanted to to also make a very general statement on the issue of of the question of the ECB promoting further integration I think that at the European level we have already for too many years gone ahead through with integration through the backdoor so to speak and banking and we've seen it in this discussion this is a business where further integration like B of A moving all across the United States cannot be separated from additional political integration because of the differences with insurance schemes resolution schemes commercial law and solvency law you name it and if we try to push banking integration through the backdoor these backfires through populism and opposition to the idea of European Union and an elected officials moving ahead with the agenda and and this ties with the other issue and I'm sorry Matthew you mentioned the issue of of sovereign risk in the balance sheets of banks I understand that having sovereign risk in the balance of banks facilitates domestic treasuries funding I fully understand that but again this is a legacy issue once again the countries that joined the monetary union and the banks that were working in those countries had the free a risk free asset that risk free asset is gone should we should should we change these on the regulatory grounds no until we have an alternative and again it's a political issue yes because they're risky but again this is a political issue it's risky but it's it's exogenous it's an issue of monetary but but Paul when it was in our books it was not risky we wanted a reunion because risky no exactly and so if something goes from being not risk to being risky because of monetary union it's better to face up to to that I think this discussion by the way is not making a distinction between branches and subsidiaries I've been four years out of office and so I may have forgotten but I but I think that a deposit with a branch is insured by its home country and the point I was making earlier is the indicator of lack of integration is that the strong banks well banks from strong countries like the one we're sitting in haven't branched into other countries and we should think deeply about why wouldn't they do that because they could build scale really quickly because what people want people customers want all sorts of things but what the deposit customers in a bank most want most of all is to get their money back when they want it and you are going to get your money back when you want it from the branch of a German bank because Germany's got a massive external surplus and a relatively low debt to GDP and that is not true of other banks of other countries and so the indicator that we should be concerned about is why haven't German banks cleaned up because their bosses could all be doing their shareholders could be richer they've got massive incentives to do so unless branching is actually a risky thing and it is a risky thing because actually as you say I think you and I are in the same more or less the same place because of the residual risk that those member states will leave the monthly union and they will have euro area do not euro denominated liabilities and local currency depreciating assets and this is an elephant in the room which you those of you that are constructing Europe need to face up to can I say one other thing about MPLs am I allowed to do that? Yes I have a question for you as well from the audience. One number on it because I check it always you see a slight increase in branches compared to subsidiaries within the euro area so it's going very slow yeah and let's look at the big example of Nordea they move from subs to branch because they were fed up with all the local issues so I think the market can take the hand by themselves if so this happening a little bit very tiny tiny absolutely absolutely tiny yeah the position I think the position you adopt on MPLs is absolutely fascinating because it's kind of it's rational locally and it's extremely dangerous for the collective and you now have national incentives so the MPLs policy is a lot better than it was but it's not great and I watched your speeches I watched about two years ago pretty tough speech Mario gives a speech slightly softer you give another speech harder than Mario it's slightly softer than your than your first and I was sitting in Harvard and I almost wept and the problem is that if you don't have it doesn't have to be fiscal union it's now let me make another step first so the fact that we're not dealing with MPLs is one of the reasons one of the reasons why these banks are trading at a huge discount apparent discounted assets that's because the asset the market knows that the assets are not worth what they're shown as in the in the books this is a terrible place to be but if you don't have any kind of catastrophe fiscal safety net dealing with the MPLs facing up to the fact that lots of these banks are still very badly impaired could tip the local economy into a recession a massive in economic terms a massive asymmetric economic shock for which there is no collective insurance and so you when you were sitting where you were before you had incentives to we must deal with MPLs and we need some kind of fiscal transfer system where you are sitting now and we've known each other very many years you have incentives they might God no we can't do that because I'll tip the local economy into recession and there will be no transfer of resources and let me tell you investors if everybody in this room disagrees with that this is what every investor from outside the euro area of any significance thinks because it is obvious that there are banks around this continent stuff full of assets that are worth hugely less sadly than their book value and I think you are doing the very best you can constrained and I applaud you for it please yes yes I think I think you have a point the problem is that I'm not saying that it is black or white I think banks and banks are aware of that they need to get rid of MPLs that goes without I mean there is no question about that what is the timing is it two years is it five years are you supposed in two years to to assume in parities for the stock or just for for for the new loans or for the ones that that materialized so that is it's the fine-tuning I'm asking about I didn't move from one situation to the other I think I still have the same vision that I had I still trust that are ways in which we can evolve from the ESM into a European monetary fund that can actually create the backstop that was foreseen since the beginning in relation to the single resolution fund that was foreseen since the beginning also since beginning there were there were elements of stability that were taken at the European level and the crucial thing now is that we miss these elements for stabilization of financial sector we don't have them at the European level if you if you find one you know I'm agreeing with you about that yeah there is none there is none so the crucial and the critical thing is if you consolidate the banking sector not through the market normal mechanisms but rather through regulatory pressure and so if you do it through regulatory pressure you are bound to trigger a crisis and the the instruments that we have to manage a failing bank they don't bring stability they bring instability even in that in that sense if you look at at the state aid framework they they they ask for a private contribution but they don't go into senior debt in the in the in the United States you don't see senior debt in danger even less depositors so if you if you if you have this this legislation as it is if you are not prepared to move it and to change it and to adapt it in order that we have certain elements for stabilization of financial sector we cannot go that far that quick because that's that's my argument so I I'm very very faithful to to our common project but we have got to be very wise and very objective where we stand at this moment and that's that's the basis of my argument so let's evolve but let's evolve it and the proposals that were presented by the papers by Bruegel for instance in relation to the evolution to create an ESM that tackles at same time the the there are I'm not saying that I agree with everything that is written there but there are strong ideas that build on our common compromises in the past I mean they have got to be to be brought forward because some of the work that is being done now by ESM and by the SRM they don't produce the stabilization impact that we wanted them to just because we miss pieces we miss a revision of BRRD we miss the stabilization elements of the backstop and a minimum progress on eddish and of course we have a monetary union that is not complete but people can it's not easy for the common citizen to understand exactly what we mean by this but if their deposits are in danger let's talk about that they will understand very let's talk about that let's talk about just the completion of banking union because I'm getting a lot of questions from the audience on on this subject one of the questions I think we've already kind of answered but we did it quickly are idiosyncratic shocks manageable by means of the liquidity lines is is this sufficient to control redominated the redomination re-denomination risk and you both have said no I believe already and I said it's a beginning but it is a beginning it is a beginning we announced that we are establishing the full system but we start with the liquidity line this takes away the risk of a liquidity shock you can only do one thing at the time to proceed to risk sharing we will need more risk reduction because today we are not ready for that and this is the key point so my liquidity line is a bridge it's not the solution but we need this bridge to move forward because otherwise we are stuck as a political tragedy here is the liquidity lines of that kind which I agree at a step forward or indeed the target to system which is an intraday liquidity line all the ECB operations are presented as not being being as being immune from the German and other exist objection to resource transfers but of course they are contingent resource transfers that's what a loan is because people can and I feel very depressed I felt depressed about this for years that no German politician will explain to the German people that of course there is a resource transfer system and the monetary union would have cracked apart into smithereens it is a contingent resource transfer system and I actually think there is a moral duty on politicians to explain to their respective publics how the system works and the reason this matters the reason the moral point comes in is that if ever there is an absolutely gigantic default and the ECB's capital has to be rebuilt Germany and other countries will have to chip up the most and then people will say well why why why is that and the answer is well because you gave them loads of money that you didn't get back and it would have been much better politically to be open about it in my view tell us and also recognize what I call the paradox in the system that you have today with fragmented market you have much less private risk sharing through capital markets and credit markets and so much greater risk for what you just described equity markets are the key to that so if we reduce the risk of re denomination and move forward we will have greater integration of private markets and greater risk sharing building through private markets so we are exactly doing what our German friends would love but they are blocking this progress let me ask Ignacio a related question that we get from the audience as well what we're talking about here is you're a Europe that different Europe's running at different speeds someone asked what will Europe of two or more speeds mean for financial integration is that completely unacceptable to you is that not within the way is that not part of the framework of your thinking in in the SSM and and the and the question continues can you imagine an edis which is a guarantee common guaranteed insurance deposit insurance for a small group of Euro area countries Ignacio I'm expressing my own views here I think the idea of multiple speed Europe is already in the facts and it is increasingly in the facts I mean we have lived for many years with the Commission giving us an objective in terms of your European Union integration so including the countries that belong to the Euro area and including the cuts that don't belong to the Euro area now with the recent developments after the crisis and with Brexit I think this is gone I mean the main project is clearly the Eurozone now the question whether we should have multiple speeds in the Euro Eurozone I think that's not possible I mean the fact that there is a single currency brings everything else together otherwise they agree we are so strong so there we have the big project that that this is what we are talking about the issue the issue we are confronted with is the fact that in order to build a truly resilient eurozone as we have seen in this debate we need further political integration and we face the resistance of non eurozone countries one of them was Britain it's gone we were very keen on further no no no integration yes we were not not only was on not only was on yes yes yes yes yes well I didn't look this way I've been present when our former Prime Minister has talked to other Prime Ministers about it we were extremely keen for further deepening of the Euro area for many many years all right I'm surprised to hear that but no no no no no no no the British government successive British governments it is not in the UK's interests for the Euro area to be fragile because it is next door to us and we made absolutely clear at the most senior politically level many years ago that we favored much deeper integration even though that would create a massive power on our doorstep that would be uncomfortable in other ways that is what you say is just not right okay I'm not going to argue on this but we face now the opposition of other countries certainly Poland to give an example although I may be I may be also opposed on that by someone at the audience and the Swedes are not that happy I understand so that will be to me a critical point to what extent is the European Union allowing the two speed to go ahead well someone just says how can you talk about Edis the deposit scheme without recognizing the real problem the unlimited coverage of German deposit insurance small saving banks and yeah I think in the end there are two issues on the two speed because one issue of two speed is significant or less significant banks and if we go ahead because I think the good news is when the SSM regulation was designed of course we have to split significant and insignificant banks but when it really matters like a license or you do a merger or you do an exit and select going to church so you nowadays only go to church for being baptized and marriage and when you die and not every Sunday anymore but at these moments they go to the ECB so that's very important then there's no distinction between significant and less significant banks in that sense I'm a strong in favor that Edis would apply to all banks significant and insignificant and in that way you would get rid of that certain local are promising full amount but I've never heard who's behind these local re-insurance schemes on paper they are self-reinforcing like a group of savings or cooperatives but who's behind it that question is not answered and by doing properly Edis with the ESM or refined ESM in European monetary fund behind it makes the Eurozone extremely stable on the banking front because the better you have organized it the less often you have to use it and then we get rid of the on paper limited insurance but just the 100,000 for all euro areas by the way I think church going is probably a little different in Holland than it is in Spain or Portugal okay yeah okay sorry there's still not I'm ahead of the game no European church integration yet please you are suggesting that I didn't completely understand what you were saying that less significant banks should create a sort of IPS across in other countries so that you you have this kind of private or voluntary contribution and you don't trigger BRRD I propose that the less significant banks also become part of Edis so we get rid of the private they don't have to get rid of the IPS of the of the private that's something that goes on top makes it clear you just have one scheme because all these intermediate schemes and this private schemes are not helpful in the discussion yes but it helps them not to have bailed in massive bail in when they get into trouble and that's that's the crucial thing and that's that's reason why small banks are in trouble if they if they get in trouble they become systemic because you the most of them they don't they don't have bailinables I mean they don't have the junior net and so they most small banks can be resolved through a standard purchase and assumption technique where you transfer the deposits and whatever assets are good so you are saying that the Mrel and BRRD should not apply to them the the directive added ambitious components to the G20 plan that I chaired the group that produced so what you mean is that the BRRD and the Mrel should not apply to small banks I didn't put it as strongly as that that's that's the obvious conclusion can I we're doing a horrible job at avoiding the acronyms and I'm guilty of that as well that's well that's okay I think we're we're already with SSM and SRM and Edis I think is skirting but we get a little bit BRRD maybe is a little too much now I have one that even I don't get someone says rather than and Paul I'll put this question to you because you kind of brought this up rather than wait for banks to venture beyond home markets why not focus on creating products like a commonly insured European ISA I'm not sure what ISA is I think so this is an investment no no go on go on got one currency with 20 different forms of money but rather than look for banks to provide the solution for that by venturing out of the home markets why not perhaps and look what you can do from a more consumer focus point of view so offer a common European savings product that all banks could offer but is commonly insured or perhaps do something like create a credit passport for instance that people could have their financial data on and use it to access services throughout Europe because it's very difficult to go and open a bank account in Latvia or to open a account in Spain whereas if you had something common that you could just carry with you in your purse or your wallet I think that would help integration in a way that would be very obvious to people so I think I think I think it's important to distinguish in this debate about deposits money from the other services the other services all matter but they don't have this kind of existential element that kind of banking collapses can bring about and on that the first thing you said we know it would be a kind of Trojan horse of course but we're all in favor of Trojan horses a kind of is a type thing that was mutualized if that was a way in to that I mean in a sense I mean I can say this because I'm not in office those of you that are need to find a way for Germany to back out of a policy that is not actually in the interest of the German people over the medium to long run and people don't like no one likes losing face and so they're not going to pop up and say oh by the way we didn't analyze our own interest correctly and so we'd like to change change course the kind of thing that you describe maybe other things that have similar characteristics or a way of in slow motion kind of changing the trajectory my response to this goes to our debate the the debate between you and I really is about the pros and cons of forbearance and forbearance it in a in a normal monetary fiscal union forbearance is a really really stupid thing and I've seen people do it it's not a completely stupid thing in the circumstances in which many European countries Euro area member states find themselves but it is still a gamble that part of forbearance doesn't go away and so if forbearance is is the default strategy it is immensely important that at the same time that you're trying to find these Trojan horses that can lead you to a more secure place because the risk is that growth will not raise the boats up and actually you will end up with a horrible economic downturn a few years hence and the people will say these this project just does not serve our interests whereas of course it can serve their interests it is only because it is poorly designed that it doesn't serve their interests and that it is poorly designed is not their fault for God's sake it is the fault of the elite I want to get back quickly to the to the cross-border discussion as as far as bank consolidation is concerned and just ask you again Jordy I mean Madam Newey said she's optimistic that we're going to start seeing real cross-border consolidation in 12 months that was I think a very optimistic statement from her she's left now so do you actually see that happening does it make any sense to you I'm not asking if Kaisha looks at other targets outside of the Iberian Peninsula but does it make sense I have to say I don't see it happening in a strong way in the coming 18th months I see that part of the case for cross-border mergers is still not there because of all the political restrictions that I just mentioned I have to say that we went through an M&A a cross-border M&A that Madame Newey mentioned and we acquire BPI it took us two years and a half to finalize the operation because of voting caps and what not I mean the market for corporate control at the Eurozone level it's still not an integrated market and there are as I said before domestic legislations and rules which prevent the easy access the easy acquisition of interesting targets it took us two and a half years and we had been in that bank for 15 years with a substantial share of the bank 44% in fact that in the latest years so it is hard I think that one of the yet we and yet we hear reports of for example yeah BNP Paribas or Unicred and being interested in Commerce Bank newspapers publish lots of things right so you know about that so they are rumors and there might be rumors now what I want to say is that we've heard this issue and the central bank has said this repeatedly and the supervisor also that but that Europe is overbanked now one way to reduce the size of the industry and to extract synergies and to reduce branches and to reduce employees and to increase efficiency is to avoid overlaying of branches and employees and therefore domestic restructuring even if from the point of view of integration we don't see it as us making progress it actually makes progress in terms of reducing NPLs and increasing the efficiency of banking systems and that's what I see happening now moving to this beyond to the second stage and getting to the B of a I think it will happen when we have additional political integration that solves some of the issues that we see with resolution and it will it will take a few years and by that time I doubt it will be through conventional banking because many of us will be working not in banking institutions but in what I call sometimes platform banking you'll be working for John Crian's robot teams let me get back also to the NPL issue Paul because you brought this up earlier someone in the audience points out a price to book value at Barclays of 0.5 at RBS of 0.6 and standard point chartered of 0.6 are they insufficiently impaired was I so it would be really not these are not the people identified themselves but so actually I think there I chose my words carefully as well I said it's one of two main reasons why you can get a discount to to book the other reason of course is a business model that doesn't generate earnings or in at least one of those banks they effectively have impaired assets through the kind of litigation overhang but but where you point out all the UK banks are in a mess to that doesn't invalidate what I said about it's kind of you know cheap shot no one signed the question here just getting these little that's that's I was hoping someone would raise their hand which is the normal kind of more used to that really why don't we I think we've pretty much come to the conclusion that the political will needs to be there for further for further financial integration Ignacio do you think that's the case and do you see it coming or what what are your hopes say for the next two three years of your work two or three years is more difficult I was going to say it's really in the cards in the very long run I mean this content is too integrated in so many ways that the only strategic direction that makes sense is to rationalize and integrate all now it can be very bumpy in the process but you know that's where certainly supervision is moving in that direction and politicians are I think hopefully increasingly convinced and that's the way to go here that the window of opportunity seems to be there now exactly if Macron can really find an interlocutor now if we don't do it before the end of this I think we are in for big bumps and don't wait because we will go through then exactly the not only the next recession but the end of QE yes in the long run there is no alternative but I think the game should be played in the coming six months exactly that's exactly what happened last time because the SRM there was some difficulty about how to build the resolution fund and in the end Parliament caught a lot of power against Germany to make it because it was the end of the legislation and that time a good deal was was made because we complain it is too slow but it would have been slower without a deal so I think the end of the legislative area that is the time to because then parliament is away nothing happens afterwards so that can help another thing that people are I think had not fully realized that the project is to integrate deposit insurance and resolution and to build the European finance what is the name of FDIC fed the deposit insurance corporation so it's one authority under which we want to bring all controls one authority that is already established that has shown his teeth in handling the first resolution exercises and I keep on repeating this because people seem to overlook we are talking of bringing the matter under the control of an established European authority we are not talking of leaving free hands to the you know rotten banks of southern Europe and this point keeps on being overlooked there is no more al-azad because there is no open risk implicit in this transfer of powers because every transfer every single decision of intervention by the eddies will be taken by this European authority I don't think it's a secondary aspect but people seem to overlook institutions matter I agree the bottom line is I think we've just established the glass is more than half full because of Tyler's work of Elisa of Ignacio of Danielle of Sabina and that we need to seize the day in order to fill it up so thank you very much for the panel I think it was a pleasure thank you