 I'm happy to introduce our moderator Raymond Franken financial journalist, and he will introduce his Thank you very much Susan and thank you very much for SLB and ECB for hosting this event Which I think it's the right moment of course 10 years after the introduction of banking union to take stock of where we are in This panel I hope we can elucidate you as audience on the operational resilience aspects and the challenges and opportunities That are still in there The panel here is with Elena Caletti. She is a professor of finance at Bocconi University And also chair of the internal controls and risk committee at Unicredit Italy's biggest bank and that's a non-executive independent director role next to her Christian Osseg chair of the Bankenverband the German banking association and the president I'm sorry the chair of the executive committee of the European banking Federation and Next to me is Fernando Restoy chair of the financial stability Institute at the Bank for International Settlements in Basel The Institute was created. I believe in 1997 after the Asian crisis According to your website and of course we'll be joined online from New York by Elizabeth McCall member of the supervisory board at the European Central Bank Elizabeth. Good morning to you very early in New York We understand Good morning. Good morning. Thank you. Yes. Before we start with the actual discussion. Let's run a quick audience poll Let's see what you as as viewers as audience is actually believing are the most biggest risks in terms of Resilience what are the chapters that you actually have Identified we'll be discussing some of those of course there are aspects like The current framework Banking Union also technology and cyber security and Big tech as a as a as a something that banks are increasingly reliant on and of course emerging risks in the economic Context that we are seeing at the moment also with inflation and the context provided by the Ukraine war so if you go to Menti meter you can answer the questions and see let us know actually what you believe are the The the the the the the most challenging aspects and the most biggest opportunities Climate change also among one of them The ECB in the last few days actually ran a similar poll on Twitter and the outcome of that one was actually that credit risk is seen as the the biggest challenge in the in in in the in the area of Operational resilience next to bank profitability and cyber security Now let's start the actual discussions over here Elizabeth. Let's first come to you. You've been Very much working on the the current framework that that is in place You have defined the number of supervisory priorities Is the framework doing what it was supposed to do Thank you and very interesting poll. I I agree with Some of the information that you've already put forward and thank you for allowing me to join you Virtually today. I had a personal family issue that has kept me from being with you In terms of the supervisory priorities, we have a very important process at the ECB where we Really spend time internally in each of our business areas. We spend time with the supervisory board We spend time with each of the national competent authorities and we gather Maybe it's maybe it's right to use the word of polling Process where we really try to put our finger on where the where the risks are in the system And where we should be dedicating our resources in terms of our overall supervisory priorities It's something that we do annually, but we have a forward look for a three-year period of time Interestingly, we just are going through the process in this week to check ourselves with the work that we did last year And last year when we put our priorities together for that three-year horizon We really had three things that we focused in on the first was Making sure that banks emerge from the pandemic healthy and here Our big focus is really on credit risk and what's happening on the balance sheet of the banks the second is Are the structural challenges that were there in the system even before the pandemic? Are these structural challenges being managed? Are they being met? You know when we went into the pandemic we had certain issues with the banking institutions such as sustainability of the business models and the profitability ongoing profitability of the banks and the third real area and is is emerging risks Which emerging risks are out there that we need to be taking account of and here we focus in on Cybersecurity risk the interconnectedness of the market and the interest rate rising interest rate environment that we're in The kinds of things that can happen To the institutions as a result of the changing market environment So these three areas we tested ourselves and said Um, you know as we began to emerge from the from the pandemic, of course and appallingly We are facing the war in ukraine and you know, this has had of course You know tremendous effect on on lives of people and it's something that We we we we pray for peace It is also having a tremendous effect on the overall marketplace And so did this event An ongoing event has it changed our focus on supervisory priorities? In fact, it really underscored that the priorities we selected last year Remain quite relevant and in some ways it made some of these priorities that we established even more relevant for example You know having a look at the changing interest rate environment We're continuing to operate in in an overall market environment. That is experiencing a series of supply shocks and rising Costs of food and commodities, which will have an impact on balance sheets and borrowing, etc It also underscores the need for our banks to be focused in on cyber security risks, for example We it raises concerns that there may be Increasing cyber attacks that we may see down the road. So Yes, the answer to your question is You know, we're very focused on the supervisor priorities We've validated that and made some slight changes in emphasis just this week in the supervisory board and We're hard at work with our staff on making sure that we follow through on these in our supervisory program Liz before we go to the rest of the panel one specific question on the lessons learned If there's one single biggest lesson that that the ecb has learned in terms of working with these priorities, what is it? I Think that's a great question The biggest lesson is that you should have a short view and a longer view And not something that you just do annually with a blank sheet of paper Um, and why do I say that? Um, you know the the risk horizon is of course constantly changing Um, but it is not the case that you can Deploy your resources Uh to a changing environment for every single thing that you're doing on an annual basis You have to have some continuity in the way that you are viewing the institutions um While also retaining an agility a nimbleness to shift as the markets shift So I think the the biggest lesson learned is to have a long term a three-year horizon That we can operate in and not just a single annual program Some of the things that we need to be doing need to be done on a longer term basis Thank you, Liz. Let's move to the bank for international settlements to Fernando You've in the past criticized the the the european structure for supervision for resolution And identified in one of your studies very significant shortcomings That was a few years ago. Do you still see those shortcomings in the way it is implemented today? Okay, okay, this is obviously a topic which is central to many of the discussions that we have we have had on In this conference And in many other conferences and gatherings over the last few years, right? I think it's clear that uh, the banking union was created Not with a sort of a wonderful ideological Political motivation to try to foster additional european integration. Of course, it does contribute to european european integration That it was a defensive move and then we have actually to keep that in mind Maybe we wanted badly to break this awfully perverse pit-battle loop between, you know, sovereign risk and banking risk That was needed and that was the main motivation of the banking union when this was created What we put in place is a fully effective well-functioning banking union With a single supervisory mechanics applying High homogenous supervisory standards to all significant institutions In the in the currency union We have a well-functioning single single resolution mechanism that allows the resolution of Say significant banks Basically following common procedures pretty much online with the national standards on the matter and also And also with ability of making use of european funds european fully motorized Fonds like a single resolution mechanisms. So we have actually gone a long way in terms of Sort of putting in place and developing this back in banking union concept And therefore we have to have gone somewhere In terms of trying to reduce actually the chances for those perverse feedback loops But the fact is that we are No jitter. This is clear This clear From the euro group meeting last week. I mean certainly there is no clear progress in completing the banking union We don't have any Prospect, it is not a prospect to have a european deposit insurance scheme In the forthcoming future And what we have in some basically some Well Road map in the direction made the time to improve the crisis management framework And this is uh relatively really unfortunate because for the banking unit to make a good job in trying to You know mitigate sufficient the risk of this feedback loop Uh perverse feedback loop really the whole thing. We need actually Single supervisor and mechanics. We have a single resolution mechanism But so we need actually a european deposit insurance scheme On the top of that Certainly we have to improve the crisis management framework Does not work properly. So right now Is really a fact That most of the banking crisis in the european union Will not be actually handled by the single resolution mechanics. We have to still rely On national mechanics and national procedures National rules and we have to rely on national money Again is something that goes against the very objectives of the currency of the currency union And the same is true. Actually what respects integration I think it's a key part of the of the question as well I mean if we really want actually to Sort of denationalize banks risk We need actually banks to be less national becoming more europeans We need more pan european banks well large or small we need where we need them to be pan european And we have not made progress on that either So whether you look at cross-border transactions mergers and acquisitions Again banks in europe remain national And this has to do with the number of things Had to do with the structure of the banking industry in europe particularly some large jurisdictions Has to do with the number of elements there but regulation is most important the reinfencing Issue stir that reduces incentives for banks to expand their businesses to other european countries And this again this does not contribute actually to the ultimate goal To provide sort of robustness to the european integration european integration project We so we certainly actually need progress in those domains The c if we manage actually to do it But i'm afraid we don't have much time to waste on that and the signs Of fragmentation that we are observing in palliative markets recently What sort of is maybe a signal? That again we may not have that time actually much time In order to complete the job that we initiated Christian question for you the as part of banking union we have Also a single resolution fund by the end of 2024 banks will have Placed 80 billion euros into that fund under supervision by the srb That's a commitment from the banking sector that they are contributing When you then see the decision in luxembourg last week by the euro group ministers on banking union On going backwards or not making any progress on the deposit insurance system How does that make the banking sector feel? Thank you oh no and let me start by thanking the Organizers for inviting me and usually that's kind of a polite sense that you say in the beginning But i would like to combine that with a message and that is clearly the banking industry Supervisors head of resolution mechanism. We do not agree on all points But it has to be said that the exchange of views the dialogue That works extremely well that is of high quality and that is important in times of crisis Not only today but also throughout the last Years so that is something positive i would like to start with and if you allow one short personal note Elena myself we go back A long time over 20 years and over 20 years ago We were affiliated to the center for financial studies in frankfurt We would sit there in the audience and we would follow a debate like that with great interest And it's fun to kind of change perspective and to sit today here on the other side Yes The question you ask fenando kind of um single resolution mechanism Um Where do we stand and first of all? I think it has to be a knowledge that the srb has done a great job In setting up that institution building it finding its place in the european supervisory landscape And yet you were asking about the funds that the srb has collected Having that single resolution mechanism. No question. There is a need for a resolution mechanism We have to ask whether Costs and benefits are in balance I think you even mentioned the numbers they are now 80 billion In the single resolution fund that takes a lot of financial Substance away from the banking sector and especially in these times where it's all about Investment providing funding for clients. You can ask whether europe has gotten the balance right between Funds for a safety net and not harming too much bank's ability To provide funding that that is a question Needless to say I have a view on that and some people here in the room have a different view on that And that is something I said at the beginning we discuss very frequently and very lively um And the other point you brought up is banking union um I would like to start by saying that last week From my perspective and i'm speaking here for the european banking sector. That was a very bad day for euro It was not a surprising day. What we have seen that did not really come as a surprise And yet it was A bad day and it's a disappointment um, why do I say that that clearly and i'm less About Deposit insurance the point you mentioned and i'm less going on about risk rate of sovereign bonds or crisis management These three or four buckets that were discussed there when I say it was a bad day and there's a disappointing day for europe i'm referring to the Total lack of progress in terms of market integration If we talk about banking union for me, it should not be so much about it is I understand that for some member states It is a necessity to move on with market integration That is even Having a german head on As far as the private banks are concerned I'm willing to compromise on it is we don't need that. I'm not enthusiastic about it But I see that there is a need to get done with it in order to progress in terms of market integration um Well make a long story short no surprise In donny u's work and projects there was already Weeks before the final meeting clear that there was not much on the table left in terms of market integration That is very bad for europe um We commissioned a study with covenhagen economics a couple of years ago the benefits To really integrate european financial markets would be in the range of 100 billion per year We talk about huge um Benefits that we do not realize now. How did this poor result? come about of the euro group there Kind of we we followed that all very closely germany was really focusing very much on getting exceptions For institutional protection screens Now if you ask me if we want to have a level playing field we cannot expect to exclude 20 percent of european deposits From a european deposit insurance that does not work. We need to have less national options and discretions less exceptions like Do not touch on our institution protection schemes um Germany has invested a lot of political capital on the question of Risk-weighting of sovereign bonds here. You have a german position You have an italian position for italy risk rate of sovereign bonds is complicated From the opposite perspective then from the german ones crisis management, especially for italy Is a difficult topic And um, and I guess if I look at it from a french banks perspective I mentioned it the pillar two of banking union hugely costly not really a success story from The perspective, especially of large french banks. Um, I could say the same for large german banks The appetite to have a third pillar is very muted Um, so bottom line. We have the result that we have and that's clearly not a good result for europe Elena, we heard Johan teis at kbc mentioned that Banks are his bank is required to report 6,000 reports to the supervisors as a result of banking union. We have the significant Contributions to the resolution fund Is banking union asking too much from the banking sector? Well, first of all, good morning to everybody and let me say I'm speaking of my personal capacity So i'm not here to do any advocacy or anything just as a privilege if you want observers of also what's going on inside the banks Let me say I mean the number of reports that banks produce for supervisor Is indeed very high and I think also part of it What I think is a little bit frustrating is a part of the regulatory Requirements are really a little bit of a nature of tix the bokeh exercises where I think and this should not distract our attention if you want from the more core topics and Issues that we should be focusing on so rather than producing a lot of reports I think what what indeed I think it would be very useful is to concentrate on topics like Scenario analysis in particular in this current moment. What are the scenarios that we need to build? What are the scenario that we have both for icab exercises on which supervisor? Bays a lot of decisions and as far as I understand that they are completely decentralized in a way They're not uniform across banks From exercises more like stress test where scenario are instead given but these I think are topics That we should be focusing much more and also where the governance body should focus much more Another aspect is now we have in the mid reviews. We have the Update of the scenario for the FSR nine That's also another topic on which I think banks should be very concentrated because this is the first time where possibly We are going to see changes in the way banks are incorporating the new shocks and the new situation with the ukrain situation and in terms of banking union, I mean Christian said that he and I date back at 20 years ago, but I think the banking union debates Date indeed the 10 years and yesterday I was a bit frustrated I think as everybody else to see that it was exactly the same discussion. We were having 10 years ago I think Schoenberg and yesterday mentioned no, but between the risk share in the risk reduction We are not there anymore. That's not true. I mean the fact that we haven't progressed on Edis and probably regulatory requirements sovereign bonds is exactly because we are still back to 10 years ago In terms of risk share in a risk reduction personally I had the hope that covid the next generation you would have sort of Helped in building trust and confidence among member states and therefore it would be the basis For a renewed debate also on topics about the banking union, but I see that's not the case now having said that I haven't to say two points on the banking union. The first one is I think yes We are focusing on edis on resolution But there is another aspect which I think has been mentioned before which is integration in the ongoing concern basis not just when I mean in the resolution phases So I'm referring in particular on liquidity capital movement. I mean I leave this in unique credit. He lives in kbc. I think all cross-border banks leave this We cannot have cross-border groups and ask them to be formed and to operate efficiently If then on the other side in that going concern We have such a limitation to liquidity and capital. I mean we have a single point of entry And they should be completely consistent with this also in life And in terms of crisis management for medium institution, let me echo a little bit to christian I mean, I see what the large banks are contributed in this moment These are huge amounts And what my request would be let's make sure that the crisis management for medium banks doesn't translate into a More a ladder of medium bank versus the system and in particular versus the larger banks Thank you for that and before I put my next question to elizabeth Let me remind you in the audience that you can ask questions will reserve the final half hour Of this debate actually for audience questions Elizabeth We heard some talk about the the pressures on the banking sector the 6 000 reports at at at kbc What can the ecb do to sort of alleviate the administrative burden for banks? Well, I think uh, you know, I think it's a common complaint that there are too many supervisory reports You know, and I think it's fair also to point out where Supervisors including the ecb might be asking for the same information in different Uh different requests. So, you know, we have a whole project that's quite focused on simplification And we're really looking carefully at making sure that we're not asking For the same information in a credit risk review about the governance process And then in the governance process asking for that same information and not making sure that we link those things up one of the things that um, I've just taken on at the ecb is The digital agenda for the ssm and I can tell you that there's a great deal of development underway Transformation internally if you will across The users inside the ecb, but also with respect to the nca is there's a new project called agora It's a collaboration tool and the idea is that as the data that we're receiving is growing exponentially by the day and this is A common challenge shared by industry and by supervisors Are we able to see that we can link that data up and we can Connect the dots if you will will help us to be better supervisors. I think it will also help us to be far more efficient Let's move on to a different topic when we are talking about operational resilience and that's technology The emergence of big tech is clearly something that is becoming very significant for banking We see that national regulators are providing instructions to the banking sector to the financial sector in terms of outsourcing And what we're really talking about also is about cloud banking about moving the The data in the bank and in the bank away from the old server systems towards clouds that are often externally hosted You're addressing a number of risks. Fernando you you you are very concerned about this development. Why? Well, I mean It's so that we don't have to spend as much time on When explaining the disruption that technology developments are creating the In the market for financial services, I mean, it has to do not only with evolution Or the business models of banks themselves are relying much on technology and outsourcing But it's also to have new players new providers of financial services Uh Big tech significant tech, etc. And and also you have the new business models like, you know open finance or Or a platform based type of services of decentralized finance more recently, right? So you have all these all these actual developments A key aspect which is the one you are referring to is is actually that also technology has increased the interdependencies between providers of technological services and the banks The most popular example, of course, the cloud right so cloud competing services provided by technological companies to financial to regulatory institutions In addition to other actually activities that those big techs perform could be commercial activities or the provision The direct provision of financial services to the public. So all these things, of course, uh Basically constitutes a framework in which operational risk become really important So it's time now actually to consider what should be the approach in relation to to those enhanced operational risks In the past operational resilience Was actually sort of at risk by different Pieces regulatory pieces here and there we had to do the risk management with business continuity management Sometimes without sourcing as well And now what we are seeing is that the number of Authorities are going in a direction of putting together a more compressive a more more holistic type of approach for operational resilience And on that I think two characteristics of this new framework pretty much In line with the Buster committee items on the on the matter The characteristics are one is that is that they are pretty much firms based So are the firms themselves the ones which should actually identify the critical functions And services the ones that should actually define their own tolerance levels The ones that should test whether they're able to meet those tolerance levels And the ones that should actually put in place and strut it and study to ensure That those tolerance levels will be will meet on a on a on a on a consistent on a consistent basis And uh Well, this is this enough. I see that the door approach in european unison got different it is It includes a number of more detailed concrete rules that should actually follow by the by the firms themselves Although the door as you know focuses very much on one aspect of operational risk, which is basically ict ict type of risks The second element is that the focus so far is quite micro or micro potential So it's about how to actually strengthen, you know, the resilience of individual banks by themselves But we probably lack a little bit actually of more comprehensive overview of all interconnections between firms and technological providers of services to financial firms I mean just sort of Hiring the services Of a cloud service provider can be great for individual financial institution It can be economical and can be effective from the point of view operational resilience But to the extent of course we had this such a large concentration Of csp's is clear that Disruption or one of the csp's can create a huge systemic impact to the extent that Basically all financial and non-financial firms are the way rely on the services provided by those few Actually csp's and that's a problem And we don't have yet the clear framework actually to address those those more systemic issues Although the legacy of course is doing some work on on that Do you see a specific role for basal when it comes to managing these Risks with cloud service providers in a global context because quite often you have Yeah, the context you know what banking supervisors Will be necessarily the ones actually looking at that what we are seeing now is that in many jurisdictions Our regulators rely very much on on the duty diligence by the firms themselves Maybe complemented by some requirements for the contracts Actually to include some audit rights for the firms and for their supervisors This is more or less the approach which is prevailing in in most jurisdictions The different approaches that one actually foreseen in DORA, which is quite interesting and quite ambitious It's about actually establishing according to your question It's an specific regulatory and supervisory regime for those critical providers Of technological services even with some incredibly actually stringent requirement for those critical providers Of financial or technological services to european firms to be incorporated actually in the european union Which is quite a quite an stringent approach. They are going that direction to me. Actually, this is Absolutely warranted and this is for an approach in which it actually follow ideally at the global level obviously By going now to what something you mentioned at the beginning in any case what we are missing I believe and this is what we are having we have been writing about in the recent past It's about a comprehensive actually sort of regulatory regime For big techs which are active in the market for financial services Right now big techs are obviously subject to regulation To the extent that they have actually legal subsidiaries within the big tech groups Which perform regulated activities and therefore they need a license and they have to comply With different requirements different sectoral requirements for instance in the area of actual operation resilience But if you look at the big tech business model, there's a huge interconnection Between the different subsidiaries performing different types of financial or financial services including the cloud They rely on common technological and data infrastructure So simply this idea of going activity by activity and trying to well monitor compliance with the sectoral requirements for each of the activities they perform That's to make the trick. I think it's not sufficiently effective. You need a comprehensive actually sort of Over your comprehensive assessment Of the operational risks that the operational big techs actually generate taking into account all those interdependencies It's what we call that we need sort of an entity-based group-wide approach Is that something that basal is working on something specifically? It's something that BIS is working on right now But basically with the purpose of facilitating a structural discussion about this important matter I don't know when you look at this from the perspective also from the Internal controls and risk committee at unit credit How is ict risk addressed over there? It is indeed is there a need for a more comprehensive Regulatory approach to big tech in financial services. Oh, yes. I mean, I think there is need for harmonization For harmonization of regulation in general regulatory approaches So GDPR or they all have to be consistent with each other in order that bank so that banks can better Operate within this framework and know what the policies asking them to do But then the control function need to adjust and to sort of incorporate all these new Challenges into their risk frameworks and this is not that easy. I mean I think it was mentioned also yesterday in the last panel I think banks are doing huge investment in this area, but they are not a very attractive Places to work Even for people that are high tech specialists. I mean salaries and talent retention is an issue in these areas Inflation is not helping in that respect because it may also exacerbate the difficulty of attracting and keeping these people So it is a challenge, but I think they have the first of all the Awareness that this is a path they have to undertake and they have to go with I think I hear I'm not a tech specialist But I hear also Michael is in the board telling me clouds in itself is a very secure way of storing data everything So we may be worried with concentration But it is a better system than others that we currently have So in a way is a path that we have to undertake with the right attention So maybe cyber security and cloud banking are actually not separate topics within ICT, but go No, not at all and it's important that is strengthened both I wouldn't call it the first line, but it's more 1.5 we call it in unicredit because cyber security is not really first line of defense and it's not second So it's 1.5, but then also the control function second line. They have to strengthen quite significantly. So we are Relying on both of them to for the way forward Cyber security came up as the top three risk in terms of operational resilience and banking in the ECB Twitter poll Before we go back to to Elizabeth Christian a quick chance to comment on this Do you see a bigger risk in in big tech and and the dependence on that or in cyber security? Everybody here in the room knows that that that at some point in time There comes a moment where it makes click and then you kind of feel you cut it as far as Cyber operational risk is concerned when mark branson started as the head of the german supervisory authority My first meeting with him. He was sitting there and he said christian For me operational technology risks They're just as important as micro prudential topics Now you he was speaking to someone that spent 10 years thinking about buzz and liberalization all these things I was kind of amazed. I was kind of thinking how can you say that now you you might think I christen you were rather late in understanding that looking back. I would agree with you Especially when I spoke to us supervisors policymakers Bankers I always had the impression they did not want to talk anymore about micro prudential things already for many years I wanted to talk about micro prudential. They wanted to talk about technology operational risk, etc Much long before I was there and today I'm there and I'm glad to tell you that European banks were much faster than me realizing that and Elena was just referring. There is a huge amount of investment attention going into that And by the way also at the European banking federation. We have understood that we have a small handful of Strategic committees where we really bring together the key issues that we are focusing on and of course Gonzalo From the European Bank Federation is here. He's in charge of the micro prudential supervisory topics We have now one for operational technology risks as well. And now What what does it mean in a European context? And you also was you were referring to outsourcing cloud, etc We we need to outsource banks. That's our future cloud is our future We need to have frameworks where we can work in and operate properly. I'm not too sure that we have that Um sorted out yet. That's a discussion. We are still having level playing field looking towards Technology providers, especially large technology providers here in brussels very often when it comes to legislation For technology firms. I have the impression that brussel likes to look at the technology sector Kind of as thinking there are a lot of small only thousands of fintechs They need a lot of support here And that is also the regulation that I see emerging a lot is a regulation where I feel this is a regulation that Should help smaller technology firms to develop It's not really regulation that properly captures the risk that is emerging from very large technology providers Where the question is valid to think do they need to be supervised? maybe similar to the way Banks are looked at these days. I think that is a very important question Both from a stability as well as from a level playing field competition perspective Now you were asking cyber risk, etc When the when the war of aggression russia ukraine started we banks were all very worried We expected now a wave of cyber attacks coming, etc And andrea could report to that but from what I gather from the european banking sector We haven't really seen an increase there Look, we're all waiting And I don't mean in a positive sense for the For the big accident to happen. We have not really Seen that yet and banks are working hard to avoid that but it is a topic that we all are quite quite We feel we are well prepared, but we are we are fearful of the risks out there. Yes At the beginning of the year we saw financial regulators across europe remind institutions that they need to make sure that the The cyber security aspects are properly addressed also in the russia context When you look at the ecb, I know the ecb is also nudging and encouraging banks to make sure that those systems are properly protected Elizabeth are banks sufficiently resilient in the area of cyber security? Well, first of all, let me validate my my fellow panelists on The need to be focusing in on this technology aspect and the need to be focusing in on the security component and also validate christian, you know your comments about mark ranson and Also, you know the top of mind concern that supervisors have about Resilience in the context of let me just say broadly speaking technology and that covers A wide variety of things it covers the cyber security issues It covers outsourcing arrangements. It covers concentration issues that all need to be looked at in this way it's true that You know our expectations going into this this war were really raised on on Concerns about cyber cyber risks and it's also true that so far We haven't observed an enormous uptick in cyber attacks But that doesn't mean that we should be by any stretch of the imagination Placent in any way So we're placing a lot of importance on protection measures We're asking institutions to establish and test their response and their recovery mechanisms and we're Asking them to make sure that they're adapting to an evolving threat situation So a number of institutions engage. It's common third party providers for it related services and infrastructure It's essential that they adequately manage and oversee The outsourcing arrangements that they have in place that they have a deep understanding of the underlying risks That they ensure ongoing service availability The end that they strengthen operational resilience and they need to be focused also on concentration risk I give you an example Um, you know coming from the pandemic there was a an institution. I won't name any institutions obviously But an institution that we supervised had for strategic reasons outsourced IT activities To some consultancy firms that were operating in india over the last years and they had dedicated facilities in india and of course, you know, they were looking to Use a lower cost environment and reduce physical and logical security risks, etc But india was hit very hard by the pandemic and there were very restrictive lockdown measures that were put in place and of course staff became unavailable from one day to the next And even to the point where you couldn't reach some of these employees by phone And the bank then had to move some of its operations back to europe And at the same time relax some of its security standards to allow the staff Based in a day to work outside designated facilities, etc So these were good responses But what it led to in the end Was around six months of delay in the overall transformation of the bank's program And it also meant that the bank was assuming increased security risks for more than a year So the lesson here is about potential consequences of an overreliance on third parties And also concentration. So I think you know institutions are taking a harder look at concentration risk And their third party arrangements In the area of cyber security, I'd also like to give you an example and here You know, we have strong guidelines in place already The the guidelines that have been established by the eba on external icg security risks Outline some fundamental things that If they are followed through can help strengthen the resilience of an institution We did a horizontal analysis last year and we saw that About a quarter of the banks still have gaps in the area of looking at Their it asset inventory. So this january there was a major security Cyber security event that was identified. It was known as the log 4j and it was very highly covered by the media This vulnerability was a software flaw in a library that was extensively used for web applications and for other software And a key step for remediating this vulnerability and mitigating the risk Is to understand which systems are using that library So what we found is a number of institutions had difficulties significant difficulties in identifying the system And this demonstrates why it's important to have a a current and a complete asset inventory for timely identification of systems That become impact by known vulnerabilities So just to I wanted to give a couple of concrete examples of some of the risks that are out there And some of the things that banks are working on to improve resilience. Well, thank you very much for that very interesting Now let's move on to one of my favorite topics credit risk We see the financial markets that have actually suffered quite badly so far this year Unlike previous years lots of concern about the performance in the economy As a result of the russia war Against ukraine we have rising inflation Increasing worries over Corporate earnings expectations now also becoming part of this context And when you look at the the poll the twitter poll by the ecb credit risk emerged clearly with 40 percent of the voters as the The top risk for the the banking sector in terms of resilience Now we saw during the covet pandemic that bankruptcies actually Did not exist because of all the support through the economy from the the government programs the The conducive behavior also by the in terms of monetary policy by the central bank And you can imagine that we're moving into a completely different scenario Are banks prepared for? A new rise in bankruptcies A new rise maybe in non-performing loans The context of increasing challenges in terms of counter party credit risk credit risk in general Fernando can I ask you about that? I guess probably the the panel is elisa the one who could be in a better position just basically to speak about what is the Situation of banks themselves. I basically agree very much the way you describe the situation we were all quite concerned about About about the impact of the discontinuation of the support measure It's called how this would affect actually the quality of banks a portfolio So far, but we we see that there is no Not much of a problem there. I mean I was speaking to a banker last time That week and he was telling me actually that the the default rates actually For those loans that were subject to this sort of moratoria And now they are going back to the normal calendar Are exactly actually the same as the other other loans. We don't know what to say to this So basically no impact so far Where there is something hidden it's hard to say certain. It's hard to say for me Maybe elisabeth has a different view about about that In but is killing any cases that this important support measures have work To breach this very specific situation very concentrated in time that is clear And that's contributed massively actually to keep both economic and financial stability That said my main concern now is probably About the implications of those support measures On the sustainability of polyfin assistance in european countries that in a contest of Higher interest rates is ultimately contributing to the science of fragmentation that we are observing And that's obviously the main reason we have to face now at the micro level at the venture, of course This could have implications for for for banks themselves I don't know. Do you see credit risk as something that could cause trouble in the future? Well, I mean of course is the answer but I think now we are a level of uncertainty Still as fernando said we have not seen that much so far That is a bit difficult to predict but let me say there are pros and cons The pros is that the credit risk a different from cyber risk is the core of banking and the core of banking risks So in a way risk management the framework and also capacity within banks to deal with credit risk are certainly there And therefore from this perspective They are better equipped the banks are better equipped now having said that This is a different type of credit risk is a little bit similar to the one we saw with covet and why am I saying that? Because normally credit risk is I mean the assessment and the management is based on time series past information But with the covet we already learned that what is really important is more forward-looking analysis Because these are exogenous shock that come into the system In a way that past credit worthiness is not an indicator necessarily of future credit worthiness So what are banks required to do is really to develop this forward-looking analysis That they have already been doing during the covet the city pandemic But there it was more a sector analysis if you want and now is almost name by name analysis So the challenge is going even more granular than in the past with the credit analysis And that I think is a challenge now if we look at direct exposure of the banking sector towards Sector or companies that rely massively on energy I think I saw ecb sad is recently showing that direct exposure is less than 2% So it's very little But of course what's very difficult is to estimate the indirect exposure and the indirect effect that may come from it And here granularity again is essential and Let me just I was looking recently at an OECD study that I found very interesting It was the study on the impact of energy costs on individuals And it was very interesting to see how granular it was going So they were dividing between home energy costs and transport energy costs They were dividing between middle high and low income household Living in rural area or living in metropolitan city because of course all these element Impact enormously on the impact that increased energy costs will have on the household So this is just an example of granularity that we are having Christian when we go back to the crisis in 2007 2008 The european sector the european economy wasn't really as exposed until it became clear that the domino effect from the Lehman Collapse would affect the european banking sector and that's ultimately when you trace it down in history That's what triggered banking union as a response in terms of policy here in europe That was an unexpected crisis People now getting worried about the economy about getting credit risk possibly collapses Down the line somewhere more talk about recession in the u.s Is that how how is the banking sector taking in that risk? 2007 2008 that is very far behind us and we have a very fundamental difference here Banks have more than doubled the capital ratio that was quite a painful path But it was the right way to go and that is and I would come to that in a section But I would say that you ask fernando Our banks well prepared. I could always ask back well prepared for what? Right, we could think of a very different scenario here But I would say as far as kind of even what the ecb would call a worst-case scenario in a stress test world Banks are prepared Kind of your question Credit risk macro there are two dimensions for me to answer that And let me start with the question on stability. I want to be very clear. The challenges here are First of all unlike in the financial crisis a challenge for our clients And this the situation is very difficult because it's a number of different crises that are actually Interconnected lying on top of each other And I could think of inflation here global supply chains there, etc It's a very complex situation if you look at it From the perspective of a risk manager in a bank when he looks at his clients right now Elena said we have learned a lot from the pandemic That's right, but the situation now is in one aspect fundamentally different The pandemic always was clear to all of us. It's temporary So we had to answer a question. How do we get through this dip now I when I even speak to some of my banks on european levels I get answers that are the right answers to facts to fix something that is temporary We could discuss with supervisors. Do we need more moratoria, etc? Um But we all know the situation now is not temporary We're going to stick with high energy prices and all that entails for quite a while That is why we need difference answers now than we had to give During the pandemic a pandemic that we are not over with now, but My my main message is here banks are prepared to cope from a financial stability perspective What we would call a worst-case scenario out there But of course if we would stop all russian gas supplies From our side from the russian side today Things could get worse and then we need to revisit that situation. I would like to put also Take a take a spend a few sentences on the second dimension here And the challenge is not only to manage risks and stability The challenge also is that banks are there high expectations on the role banks now have to fulfill To fund the economy. Why am I bringing up that point? Because All the challenges all the risks We are Talk about today. They at the end And it is kind counterintuitive a counterintuitive, but if there is one prognosis for me for the decade ahead It will be a decade of investment We need to Sort out our global supply chains. We need to sort out how to stop climate change, etc. So Credit risk challenges, but at the same time banks are under huge pressure to fund the economy to finance the economy and now we could All of us we could come up with different numbers, etc Now banks have done well during the pandemic to be at the side of their clients To fund them throughout the pandemic years Um, I cannot sit here and be as confident As I was during the pandemic for the challenges that I had I'm very confident as far as Stability is concerned banks will always be able To fulfill their capital ratios, etc. But our banks today well prepared to Um cope with the funding challenge ahead. I'm not so sure. I see that bank capital To respond to client needs is already a shortage Today and we have not even seen the big funding needs coming our way in Germany I see a lot of funding needs coming from the restructuring of supply chains because a lot of even SMEs Now We might not like that, but they have understood that they need to relocate Production facilities into the EU maybe even to Germany and they go to the bank and say I need funding for that investment And for banks, it's not very easy today to respond all to all these funding needs so When we talk about credit risk the challenge that we need to get right here is Yes, we want to have a stable financial system I want to have a stable financial system But we also need to be able in this crisis we have To provide funding now. I understand that when I speak to supervisors The incentive is to make sure that there is sufficient capital for stability and then I speak to politicians and they It's it's their role to voice that there is sufficient Capability and capital available that banks can fulfill these expectations As far as funding is concerned. We are we are more at the beginning of this debate than at the end of this debate Very important point you're making christian on the need to finance the transition the Transition of course in terms of energy sources, but also in terms of climate change And that requires significant investments. We need capital markets union for that as well, of course but when you look at that need Elizabeth in in in the context of the current economy Banking supervision the whole system that we have in europe banking union very much is focused on financial stability Do you see much room to Let banks actually Finance that transition and basically the question is How is the ecb from the euro tower the ecb supervisors? How are you viewing this economic Change that we are seeing with inflation Possibly a recession Thank you for the question And again, I'm going to find myself agreeing very much with my fellow Analysts on the different risks that they see out there, but I want to I want to maybe Bring a little bit of a sharper focus on a couple of the issues And it's it's right to draw the trajectory from the pandemic and the credit risk scenario that we saw in the pandemic and You know how very well managed this picture really is as we look at The balance sheets of banks We benefited tremendously from global cooperation On fiscal supports monetary policy supports supervisory measures That really allowed for that temporary situation to be managed in in quite a Quite an excellent way with our fewer bankruptcies Existing now then I think any of us would have predicted at the outset Fast forward to today where we're facing an exogenous shock in the form of the war that is also exacerbating the continued supply chain issues that were already there from the pandemic and Lay that against the macro picture that I think we need to really be focused in on which is The banking environment has changed quite dramatically What do I mean by that? We have You know a situation where the shadow banking Market has grown Exponentially in the last decade We see New entrants into the lending To the overall economy that exists We see that in not an insignificant way There there was a tremendous Shift to lending that's taking place to the overall market from private equity for example and One of the concerns I would say significant concerns that I would personally have Is about what the impact of that is on the overall credit quality? In borrowers, so for example, the leverage finance market has also grown Exponentially in the last decade And you're seeing that There's a huge shift toward what's called covenant light But even more than covenant light a concern that I would raise is about the negative pledge that is now De facto a market component driven by the private equity firms where leverage borrowers Previously had constraints on their borrowing capacity Imposed by affirmative governments by the banks that they wouldn't borrow above a certain threshold Well, the private equity firms have Made a requirement that that be dropped. So now do we have complete line of sight? Into what the overall leveraged ratios look like do we do we understand? Very clearly what risk exists in that in that marketplace Um, all of this piece is happening, of course In a market that's marked by a constellation of risks. I mentioned the supply chain My colleagues on the panel have mentioned the rising energy costs The derivative impacts that that has on manufacturing business and what will occur there and of course, you know concerns about The flow of gas being reduced right tremendously. What will be the impact of that on an overall basis? so we continue to have concerns about counterparty credit risk in a wide variety of ways And I think uh, you know, it's really important that we make sure that institutions do have that name by name Look through credit analysis and very strong credit risk management processes in place in the banks now you also ask about You know the transition And it's it's of course the case that there's got to be a pivot in europe to Other types of energy that may not be so climate friendly in the very near term But in the longer term what this brings into very sharp relief is the need for Europe to move its climate agenda ahead even more quickly And it's also true christian is saying this that the funding needs that are there are are going to grow exponential not only in the area of financing the transition to For climate change but also in in the funding needs that are necessary for technology transformation So it's it's um, you know, we're very fortunate that we entered into the pandemic because of the great efforts of folks that came before me to strengthen the capital ratios in the institutions to strengthen the risk management practices in the bank And to put the banks on a on a very sound financial footing going into the pandemic It's going to be very important that we continue that strength. So we have sustainable ability to fund the economy on a going forward basis and we have to be very cognizant of some deepening risks that exist out there Elizabeth when you mention concern at the ecb over this counterparty credit risk in this current context Should we expect any specific steps from ecb supervisors towards banks on this? I think you will hear us continue on a bank by bank basis to be very actively engaged in dialogue with the institutions to improve their risk management practices Thank you christian do you mind if I just quickly One thought on what elizabeth had on leverage landing because it's a good example On the how difficult is to get the balance right between stability on the one hand and bank's ability to fund the economy um That the ecb looks at classical leverage finance PE driven transactions I understand now if the ecb comes up with the definition of leverage finance that suddenly not only captures PE driven transactions, but that is in a way So we likely and simple roots, but there if they are so simple That's only a large part of the european corporate world falls under leverage finance companies that have received for example state lending state support measures in the pandemic Now if if I use look at the ecb definition of leverage finance and I see how that applies to the client Well, I find a long list of companies corporates that have nothing to do with traditional leverage finance For me what elizabeth and she brought that up is a good example where the we chose that the question of stability on the one hand and ability to provide funding to Pretty ordinary european corporates is not an it's not an easy task Does the ecb need to look at different Factors to assess leverage? I'm The ecb knows that and we european banks talk to them a lot about that as far as leverage finance is concerned We think they should take a different approach there If I if I may I think this is a this is a discussion on the definition of leverage transaction that I also hear a lot internally In the bank and I do agree with with christen I think the ecb should make clear what a leverage transaction is and possibly Go for a definition that doesn't incorporate also lending to highly indebted corporates because otherwise It it's really becoming I mean I speak now countries like italy, but also as a result of the pandemic I mean we know that corporates in that and s has increased if we now incorporate That into the definition of leverage transaction We really risk to cut a big part of the corporate from what the banks can be do can do So that is an issue that I know andrea personally is very concerned with that It's very dear to him the definition of a ledger transaction But I think it's an error where indeed what christen is saying between stability And on the other hand lending and supporting the economy is the core and I I think there is scope for Some clarification at least of what we really mean with the leverage transaction very interesting to hear this I also see this in my work in covering the asset management industry And asset managers are looking at their investments dot portfolios and they're saying the traditional rules for assessing corporates Do not apply anymore. We are in a completely new constellation where you need to look at different Different factors different ratios than what you've looked at in the past Fernando I see you're taking notes But it seems to me that we may be facing a risk that we are driving into the future and looking into the rearview mirror Should it be otherwise, I mean So basically we have to So to look at the future look at the challenges that the financial industry Has to face the contribution that financial industries would actually make to the huge transformation of the economy Let's not forget about the you know The experience that how relevant is to keep actually some financial system That at the end of the day, there is no real trade-off between the stability and And the continuation of credit flows today to the real economy that of course there could be some adjustments here and there that That obviously some could be some disproportionate requirements that could actually have unintended effects Supervisors Internationals and the bodies are continuously reviewing actually those rules to see whether these unintended effects Are relevant or not, but let's not accept as a proposition that there is a trade-off actually they've had to face There is no way in which the banking sector can contribute to the real economy Is certainly it faces some difficulties to remain stable and sound I want to go back to elizabeth one more time on these issues Because from what I understand from elena and and christian here is that It sounds almost as if the cockpit screen in the in the plane that the ecb is driving is a little bit outdated Elizabeth would you agree with such an assessment? I wouldn't agree that it's outdated not not at all And I think in a way we're all in this together and Fernando is exactly right I don't think there's a trade-off at all between sound credit risk management and financial stability and ensuring that institutions Are there for lending to the overall economy and you use the phrase rear view mirror and I could only Smile a little bit about that because um, of course We always need to be taking on board the lessons of history and the last time That we allowed leveraged finance to grow in an uncontrolled way in the subprime crisis. Well, we all know what happened So I think what is um, extremely important is to be exquisitely Clear about a changing market environment about understanding that Lending to institution lending to borrowers that are not going to be able to pay at the end of the day Is something that is only going to hurt the overall economy just to speak very simply Thanks for that Can I make another example? Sure because um Fernando says there is no conflict between stability and ability to lend and leave the ecb aside for a moment Look now in the national context macro prudential supervision. Um, I'm talking about Germany. We have just activated It's going to be really put into force only next year But there is an countercyclical couple buffer and a sector specific measure for the real estate market 2% additional capital requirements for real estate lending now What world are we living at that at the moment? We see that because of inflation house prices stay where they are extremely high and we live in an in a world where interest rates rise and because of the Sector specific measure for real estate Residential lending in Germany their rise particularly The increase is particularly strong For residential real estate now what is happening in a world where buying real estate is Super expensive already and in the past years normal people had access to Purchasing real estate because financing was low now suddenly you have not only high prices, but you have prohibitive high financing cost And that excludes large parts of the population The middle stand From acquiring real estate now. I would call there is a conflict here. No, I mean Policy is about conflicts and trade-offs and compromises. We have to make make a different objective That's clear. I'm not saying that there is no trade-offs at all in policy action quite the context actually You know sort of day-to-day business actually for policy makers was referring something very concrete And I qualify my same same something like over the long over the medium term principal There should be no trade-off between financial stability And sort of adequate flow of credit to the real economy because an unstable financial system is enabled actually to support the real economy on a sustainable basis The example you were referring to is a different thing and they say they're interesting one right, which is You have a macro potential tool by the way This micro potential to some micro macro potential tool that certainly a fair effect that for the rate of housing for some segments of the population Are particularly effective actually in order to moderate So disorderly actually developments in In credit or in housing prices. We know that And it's like there's a good lesson again with your year mirror A good lesson actually from the from the crisis in my own country in other countries, right to have a huge credit boom Huge housing price boom that they know the disorderly sort of correction of that Just a trigger the disastrous actually financial instability episode So we have identified a number of macro potential tools That could be helpful in in part to prevent those episodes and therefore to preserve financial stability Does it mean that it's a completely freelance? Of course not Of course not at the end of the day because you introduce these type of measures Certainly, as you said that could could affect that for the bill of housing for some segments of the population What is the response to that? Well, you have two objectives Find a second instrument But let's not compromise actually the you know the application of helpful effective macro potential tools to preserve financial stability Who is a hugely important public good, I think May I just add the one I think I mean if I now take my academic heart for a moment I think I mean in order that there is that trade-off between financial stability and growth I mean in normal times we should see financial stability as almost an intermediate objective to foster growth So in a way, it's true. There shouldn't be any Any trade-off between financial stability and growth Having said that the reality is a bit different and depends also a little bit on what economic condition one has So macro potential Tools are normally introduced in times of booms of exuberance And therefore the support to the economy is different than situation Where we as we have now where inflation for example is supply driven is not demand driven So here we don't really have an exuberance in terms of economy So in this situation, I think the trade-off may be a little bit more subtle in a sense Here we're in a situation where on the one end we want to keep the financial system stable But on the other hand the economy is not in a boom moment or at least it was a little bit and now we are Starting again into less of a boom situation to be optimistic So that I think the trade-off is a bit different So here is a situation where regulation also should maybe sit back a little bit and think okay How am I still pursuing financial stability? But not in an excessive manner because indeed the support to the economy may be more relevant Than when we are introducing a macro proof where there is exuberance. So it's a bit different this situation I think we have to put it in context. Yeah, so that I like the way you put in actually the issue frankly and also it Allows us actually to discuss something but I think it's relevant We have actually faced the pandemic shock in particular Right. So the new regulatory framework put in place after get financial crisis has been tested Uh, this regulatory framework introduced important reforms on the micro potential domain is the Basel III so on Certainly the resolution domain is the sort of new resolution framework that has been put in place at the global level But also macro potential framework for the first time So sort of sensible reflection here is about whether that macro potential framework has worked as expected And we have some interest in lessons. We don't have time to cover them in full But some interest in lessons For instance in terms of those macro potential buffers you mentioned the counter strategy of capital buffer before Capital conservation buffer, etc. Have they worked as we expected them to work And the answer is probably not quite and something has to be done In order to actually sort of mitigate the type of conflicts that you are referring to So accumulate actual buffers and good times Then release them in in back times in order to maintain your normal flows of greater real economy And that's the way you should actually sort of approach the state of it really exists But you have actually the possibility to design tools in order to cope with with it and there is something to be reflected on that And the buffers of course to a certain extent are there already in the banking union Um, I'd like to bring in a related question from the audience. Maybe not completely on this this interesting tension field of tension, but it's a question to to question We must indeed invest but on so many fronts Does the banking sector have the capacity to cover it all? Do we need priorities? The banking sector has the ambition To be on the side of our clients and to fulfill all these funding needs and really there are substantial The commission thinks 400 billion per year for fighting climate change And I mentioned to you it's kind of the restructuring of global supply and trades from this Moving away from just in time to just in case. It's not sustainable. So there is a lot going on now. I could A very senior general banking supervisor This time not from bathroom, but the most senior bonus bank. He kind of talks to me Regularly and he says, oh, you know, I doubt the bank's ability to really Deliver on funding that and he says we need to more look more at the non banking sector, etc and I'm I'm very unhappy with Um, it brings me back to Fernando and and Elena. Your answer was perfect kind of looking at what is the link between Stability and goes etc Um, right now I feel left right and center this conflict also when a banking supervisor looks at me and says Oh, um, you banks. You cannot really properly adequately respond to all these needs there That's why we need to look at more the ability of the non banking sector Um, and I would I'm you can imagine how I feel about that because I'm kind of thinking um, well now the banking supervisor kind of This is shadow banks, right the the activity that should be regulated has moved to some other lenders And the supervisor kind of thinks about how can we better mobilize them? I would like the supervisor to think how he can better enable banks And if I may leave one thought with you Fernando the real estate sector in germany never experience any crisis So we are now killing and it's also a social question here We are restricting access of the vast majority of the population to buying real estate That is bringing a lot of other political risk also with it that we need to take into account In order to preserve something that I understand from supervisors perspective is good, which means Always more capital in a bank's balance sheet Would it help the european banking sector if the policy makers in brussels would step up Capital markets union because that's also designed to increase diversity in the funding landscape in europe Everybody here in the room would agree Capital markets union is an answer to a lot of the challenges we are facing but we also know that we talk about capital market union for Decades there has been very little progress and that is not because Policy makers don't get it that because that is because progress is difficult My advice would be and I'm not a policy maker and That that is sometimes easier than being one my advice would be let's focus on things where we really can make a big progress But that are also feasible harmonizing insolvency frameworks in europe that is quite a challenging task. It's going to take many years And Securization that is the one area where I would say let's make sure we get that Solved properly. We haven't done so in the past. I also understand that from a parliament's political Perspective just the term Securization on the back of the crisis is a difficult one And if I sit here now and explain the world that it's actually Synthetic, that is a real solution. Then I know that in the european parliament I'm not going to get a lot of applause for that, but Frankly, when we talk about capital markets union, let's be pragmatic. Let's focus on what's feasible What has a huge impact a lot what we discuss now has to do has to do with Capital so let's try to get assets off banks balance sheets Let's create investable assets for investors that live in an inflation world, right? And let's create a really Practical Competitive civilization framework in europe what we have right now is not up to this Eleanor, do you see a room for the EU to accelerate capital markets union? Well, if we have to judge as well, we are making progress in the banking union I wouldn't be in this new geopolitical context that we find ourselves Is that a new window of opportunity? Well, perhaps. I mean, we we also discussed yesterday, you know, europe advances when there are crises and I mean, for example during coveta. I think we have made a huge huge increases and improvement in terms of cooperation. So Possibly, yes I mean possibly europe will realize that now the needs are such that we need the further progress in capital market union Now we are we have about 10 minutes to go and I mentioned the poll several times throughout the discussion And it actually was the results of the ecb twitter poll But we've had our own poll running out in the in the last hour And I understand from the team. I have a message on the ipad here that that poll is ready Now, let's see what the the audience responds to that poll was In which area do you feel banks are least resistant? and that's The red one the economic context is a challenge and then climate change and sustainable finance And then we have a second question on which area do you feel the banks are most resistant? And again, but with fewer votes the economic context, you know, and Interesting to see here compliance and AMO Anti-money laundering and KYC as something that banks have invested in quite quite a bit Now indeed the economic context is is also flagged by the audience in the poll as something that is very important I'd like to do a final tour de table and and feel free to also Bring in any any elements that have not yet been discussed So far and I want to start with with you Fernando Well, we have called much ground probably too much. Yeah, so we couldn't get in really deep into specific issues. Let me just go back to Let me just go back to the very first issue we discussed which is about actually the banking union What the prospects actually has to to improve The the banking union to complete and improve the banking union I think I think was Elena saying and I pretty much empathize what you said when you said that both We have been actually in a number of years discussing this issue I sit here. I listen to the arguments. They are not very different to the ones actually I could hear So many many years ago and you're absolutely right in the area of improving the crisis management framework in europe It's very clear, right? I mean we started discussing these issues about You know, the mid-sized banks and about actually the lack of unedits and the need actually to to put in place actually mechanisms to deal with The crisis of different types of banks Already for many years and actually don't find new ideas But if I want to be positive and I want to be positive for once now We have achieved something which is there is now relatively relative consensus on the issues So we know what are the problems Not only that I see also that there are some sort of ideas of what should be actually sort of The main reference in order to solve some of the issues that we have identified on which we agree For instance, I think was elke mentioned in yesterday some point that Some years ago The people who who were actually involved in the analysis of this type of situation the Failure the flaws of the crisis management in europe Hesitated very much to use the term we have to go in the direction of European FDIC This is no longer the case. I mean now the term european FDIC is actually used by everyone Which is great because i'm european FDIC is basically sort of the list of ingredients that you are able to develop Could actually help sort of solving some of the issues that we are looking at in europe So the good positive side of all this is precisely that some agreement of diagnosis and some agreement of some Of the elements of a solution Which is something my main problem is that As we are making this Moderate progress I mean time is running out That we have this tension in public debt markets That the risk of more fragmentation the risk of an eventual deactivation Or the feedback loop between the sovereign and banks all those risks are now more significant than some years ago And the issue of course whether actually we have We have the luxury just to wait to get additional concrete progress in implementing the solutions and not only about Sort of agreeing analytically on what the problems we need to solve So clear awareness needed on the fact that time is limited For us Elena your final thoughts Well, I mean there are many aspects that we haven't touched one is clear But let me put it under one umbrella Which is I think it's important that both banks and the regulators have as much clarity as possible on whatever we are discussing We didn't touch much but one area is for example climate risk That's an area where banks are required to do a lot of things But there are again these differences between what's the role of banks and possibly there shouldn't be any but what's the role of bank in fostering investment And in particular energy transition and on the other hand what's the role of banks in risk managing I mean in managing the risk related to climate in the environment and there I think There has to be clarity as to what the regulation is coming up And there has to be also if you want flexibility from regulator and supervisor in terms of understanding the situation now May not be the same as it was three months ago. So what banks should be doing now and how we think about gas Or even coal Maybe different from how we were thinking about this a few months ago So the first point is clarity from the regulator and supervisory perspective as much as possible second, I think banks Want to be guided so when you said before to chris and do we have priorities in what banks should be doing I think banks need guide a little bit guidance as to what they should be doing And I think one aspect of the supervisor may be doing that would be very useful for banks is to share best practices as much as possible So to make clear the banks understand the expectation but really concretely not just in more general terms because Banks would I think then invest in the right direction I mean knowing already what is the best practice and it's not just a matter of Avoiding bad practices or worse practices is really trying to give incentives to the banks to become always better In whatever they do governments risk management business model Whatever they do and finally We heard before the ban to dividends. I mean we were in a situation in the pandemic where We had so much uncertainty that it was very different to differentiate across bank And this is why I mean this was one of the motivation why we had dividend bans Now we are still in a situation of high uncertainty possibly different possibly even worse but to some extent I think it would be important to distinguish across banks not not to make All banks look alike because ultimately we want the champions. We want the banking sector to remain strong and if we Maybe for you know for for excessive prudence or for Uncertainty reason we tend to penalize even the better ones Then we risk to homogenize the system to a stand which wouldn't be optimal in my view Christian would you take guidance from the ECB on where to invest? No, not on where to invest On best practices Take a lot of guidance from ECB very smart people and very Challenging but but but the diet as I said the dialogue is highly valued As an association, but mostly I get that from our banks um Very quickly The the poll there were a couple of things that we did not discuss one couple of things that surprised me What surprised me? I liked to see that People believe ML risk is something that banks control really nicely And I hope that the audience is right. I see banks making a lot of effort um Risks that banks do not control after the economic macro topics climate July 8 Elizabeth Andrea and the team they're going to present the climate stress test Of the ECB My expectation is a bottom line And what is it based on we have seen Bank of England presenting their results that material risks are not so high coming from climate stresses It's an important exercise that we do the ECB always says it's learning together. And yes, we are learning together um I would be very surprised if we see kind of in terms of Materiality something that would confirm this poll like saying Climate risk is an issue that could bring the banking sector to its knees. We have not seen that with Bank of England I don't see that with my banks. I would surprise if the ECB would see that And by the way the comments that we have heard I think it was two days ago from frank elderson on the climate stress test Would confirm that I think the headline was banks have made a lot of progress He probably wouldn't say that if the ECB would believe it is one of the major risks that might bring the banking sector to its knees um dividend ban We had long discussions with the ECB on this back then Also there the dialogue was very good the ECB came about with restrictions and the banking sector said it's the wrong tool I don't think that's a tool that is at all on the table in the current environment I would hope so my last point and that is not new that's going back to the beginning Europe Market integration Eleanor said before Europe is strong in times of crisis. That was my expectations four months ago Sean beringen coming back from the discussions of the first sanctioned package. He said christian great momentum europe on a very difficult topic is showing ability to act and High hopes that this ability to act we might transpose to other fields like banking union financial integration four months later In our field europe has proven no ability to act whatsoever Big disappointment. Fernando said before we like these cross border banks My answer to that is very simple. There is no rationale today For banks to be active in a cross border context. You can run separate institution With one supervisor, but the the Scale economies of scale are very limited It's not a new topic in terms of our debate today, but we need to make that our top priority I find Elizabeth final thoughts from you. I think there's plenty to connect to Yes, definitely. Thank you. Um, the first thing I'd like to say is um You know, and I'm summing up this this panel that we're in this is very broad ranging discussion. The first point is Banks are resilient There are a number of reasons why that's the case There was a tremendous coordination and cooperation across all of the different sectors of Of the overall government structure globally and the banks themselves and what they have done to strengthen their balance sheets Um, we're in a situation where the banks are resilient The second point is um, I have this Little bit of a sense of history Here as we think about what the constellation of risks looks like And it feels very uncertain Um, you know, there are a number of indicators there that are telling us that the risk situation in the overall global marketplace is at a heightened level So heightened that we probably haven't seen this this level of risk that is Developing out there in quite some time. So it means that we need to be very vigilant about risk management processes Financial stability and ensuring that the institutions remain resilient um, the third point I'd like to make is um, I'd like to strongly add my voice to everyone here In expressing extreme disappointment on the lack of progress on the banking union I had this sense when you know, four months ago when this war broke out that in watching um history taking place with a um, a unifying element occurring across europe in a way that No one could have predicted everyone would have thought it would take decades to bring about this level of unification I expected that that level of unification would translate into deepening the banking union And setting up the structures that we need to make sure that we have A safer and sounder european banking system to make sure that cross border can take place to make sure that we have A safety net of an edus in place and to make sure that we have a strengthened capital markets union um, so I I I guess I I um I urge all of those who have a voice to continue to work on that because as fernando said It's it's it's extremely important at this uncertain moment Which is characterized by so much risk um, the last point and it's a much smaller point and it's just about the securitization market um, I recently saw a statistic out there in 2008 I think and including the uk 75 percent The the european securitization market was 75 percent Of that of the u.s. In 2020 With the same statistic it is six percent um, securitization if appropriate significant risk transfer takes place can be a A way of mitigating risk on the balance sheets of the banks a very powerful way You can homogenize the risk and you can distribute it to an overall marketplace and Development in that area would also help us quite a lot in this moment of incredible Storm gathering clouds. Thank you. Thank you very much Elizabeth and thank you very much everybody else on the panels for a fascinating discussion I handed back to susan