 We're going to our last panel of the day, Modern Supervision What is Key, which follows obviously from the panel before. The moderator of this panel is Naomi Lloyd, a presenter, media trainer and journalist for Euronews. Naomi will introduce the panelists, so over to you, Naomi. Thank you, Connie. Well, we heard in our previous discussion the stock take, the progress that's been made over 10 years, and this panel we're looking to the future. At a time of unpredictability with one global crisis seeming to follow another, the demands on the banking supervisor have changed fundamentally, we agree. And at the same time, the banking business is being shaped by the digital transformation. So how to adapt, how to ensure that modern banking supervision stays modern, is modern in the face of the next crisis from wherever that comes. But with me to bring clarity and illumination to this topic are my distinguished panel of guests who need very little introduction, but they are Marlene Amstead on the left, who is chair of the Swiss Financial Markets Supervisory Authority. We have Jose Manuel Campa, chair of the EBA. Kirstin Afyoknik, member of the supervisory board here at the ECB. We have Davide Talienti, chair of Global Public Sector at Oliver Wyman, international management consultancy firm and Nicolas Terri, chair of Credit Mutual. So a warm welcome to all of you, a very distinguished panel. As I said before we dive in, a reminder that we do want to hear from you, we want to have audience questions and we will be allowing time for that at the end. Whether you're online, do send them in now, or here we'll have the roving microphone later, so hold on to those burning questions and we will do our best to come to them. So, let's get started. My first question then to our panel is, how would you define a modern supervisor in just two or three words? I'm going to ask all of you and start with Marlene and then work our way along. So Marlene, to you first. Well, if I have really only three words, I would say first traditional, which might come as a surprise, technology neutral and tech savvy. OK, thank you. Horsie, Manuel. To complement those, I would say forward-looking and intrusive. Thank you. I would say intrusive because we need to turn all the stones and challenge banks. I would say flexible and agile because we need to adjust to the risks and the outlook for the economy. And then I would also like to say fair because as a SM supervisor, we have some very large banks, but we have also smaller ones. So it's important that we are proportionate and that we also create a level playing field for all the banks. Thank you. Can't we just clone him? No, two for you. Organisational psychologist, curiously, and then a historian. You'll come back later. OK. For me, after 10 years, normally in the following five years, you have the first love story. So the love story between the supervisor and the banks should be on three proofs of love. First, focused, then open-minded and dynamic. Thank you. Like the mention of the love story. So that gives us a flavour of the discussion to come. My next question to you then, and I believe you've come prepared, is what key tool should every modern supervisor have at their disposal? And I do believe you've each, hopefully, bought an object that represents this. I do like a bit of show and tell. And we're going the opposite direction. Nicola, to you first. So the object is a four colours pen because you have to draw the mountains and valleys. This is the double picture. And then you have to move banks from black to green and with some red and some blue in encouraging or penalising. Very nice. Thank you. Mine, Naomi, is not really an object. It's a work of art. Oh, it is? It is a total work of art. Come back to my history point. So do you remember when the Roman generals paraded after winning their wars in Gaul or conquering the rest of Europe? I'm a Roman, by the way, so I'm very natural. The emperor always had somebody right behind him saying two words. What do they say? Memento mori. You're going to die as well. Now, how is this relevant? Well, it's relevant as follows. Any chief executive needs the people within his organisation or her organisation to say memento mori. You are a very dominant person at this point. You are a very dominant institution. And you need to be aware of your vulnerabilities. Carrying the scars of 12 years of having the pleasure of working with ECB on all the various banking crises, history repeats itself all the time. And it's very clear that the absence of a memento mori within a failing institution is what causes that. So this is the tool that any supervisor should hand over to the chief executive and say, just remember. Thank you. Kirsty. So for me, our staff are the most important in the staff. They are an asset. So I brought a photo of our staff. And, you know, we have 1100 people in here at ECB, but we are working together with all our member countries. So together we are more than thousands. And here, I think there is a running competition. So it's very good that they are also doing healthy things, not just working on banking supervision. Very important. Thank you. What's your name? For me, I brought the iPad technology. I think very much alive to what you said before. And I think as we go forward with technology, it's very important for any of us. Thank you. It's very similar. Interesting to the same object. It's not just the iPad. That's a lot of... I saw more of kind of... First I saw the more traditional version of the iPad. So I saw it actually of a magnifying glass because I very much believe that when it comes to modern supervision, I think we really need to focus much more on data. So banks more than ever are data banks. And there are huge piles of data. And so it gets more and more important that we do not only collect the right data and do not only connect then the right data, but that we have a magnifying glass where we can focus on... That should have been your object, a magnifying glass. Exactly. Focusing really in a risk-based way where the highest risks lay. Okay. Thank you. Thank you to all of you. So as we're saying, we heard in the last panel the stock take on 10 years of European banking supervision. Kerstin, from the ECB banking supervision perspective, briefly, where are we at right now? What challenges lie ahead and what's needed to adapt? I think I'm a part of the story here a little bit, but I think we have made remarkable progress over the last 10 years. I was chairing the Committee of European Banking Supervisors in 2008 and 2009, when we were in the middle of the financial crisis, and it was a very difficult time for supervisors. There were no trust in supervisors. There were no cooperation among the supervisors. There were different practices, as was mentioned here earlier. So we have really made remarkable results. The banking union step is, of course, very important for us. There is more to do, as was also said here earlier. I mean, we would like to see the full banking union up and running with the deposit insurance scheme and the full crisis management framework so that we can use also more tools in the crisis situation. Okay. Thank you. The same question to you, Nicola, from the banking perspective, the challenge is what do you see, what's needed to adapt? Well, first of all, I want to contribute to Andrea and Ria because before adapting, you have to recognise the assets. And there is, for me, and that's the reason of my presence today, real assets coming from the supervision mechanism, notably the focus on business models and the forward-looking and the future of capital and liquidity. And I would add a very psychological element, which is the confidence, the trust of dialogue and the clarity of the main priorities. And please do not adapt on that. It's important for the industry to have this kind of pervisibility and clarity. Then we have common challenges, and the main one for me is, of course, the risk profiles, and notably on climate, but also to avoid, because banking is still a national industry. We have some national traditions, you know, in France we have regulations on savings, we have fixed interest rates, we have a sort of social role of the banking industry, and on the risk profile, I understand the need for unity, but there is no unity with our recognition of diversity. And so that's where I think there is some room of manoeuvre for adaptation. Then the second thing is the pervisibility of the supervisor. And I would say that sometimes having a common working table, common working program, leaving room for agencies, of course, but would help to build this confidence and to create an ability for each bank, each and every bank, to have a proper risk management dynamic. And that's where I think it's maybe very practical, very bureaucratic, but that's important on both sides. OK, thank you. So we've touched on the demands of the banking supervisor have changed. So let's start with digitalisation. It's rapidly changing the banking landscape. So let's have a talk about what are the implications of that for banking supervision. Marlene, can I come to you first? What do you see? Well, digitalisation of banks definitely is a long and winding journey and with imposing many, many challenges, but also opportunities. We see that globally. We've seen recently with the introduction of decentralized finance and permissionless business models. We've seen that also in Switzerland a couple of years ago when Diem and Libra applied for payment license in Switzerland. And so from all of these experience, I would say I see three core principles that really matter from a supervisory perspective when it comes to digitalisation of banking. I think the first one is transparency. I think it's really of utmost importance that we have transparency in those business models and that's much easier said than actually achieved. And the second core principle I see in digitalisation is the international cooperation because with these digital models, we see they do not really end at the jurisdictional borders. And so more than ever, it is of utmost importance that we as supervisors have the same common standards or common language, similar taxonomies. And so international cooperation, I think in the digitalisation of banking is really of great importance. And then the last aspect is again, I would say technology neutrality seems to me an important core principle just in order not to for us supervisors to pick the technology. But instead we set the guidelines, we set the rules, we set the expectations, but in terms of which technology is the most innovative one, that is then left to the industry. So technology neutrality as a way to achieve on the one hand innovative, but on the other hand also safe financial markets. Thank you, and we're going to talk about transparency more as a key one. Davide, you have also a global perspective. What are you seeing related to that and your thoughts? For those of you that have studied China and for good and for bad, by the way, in terms of the financial system, it's a uniquely interesting market. I'm going to exaggerate really brutally for effect, but if you look at the Chinese market at the moment, you have the big techs, their equivalent of the big techs that occupy the client interface role and they run away with all the economic value. You then have a very disorganized non-bank financial institution segment with all the bonds that we've all heard that is a mess and is probably going to be clean. It'll take about 20 years to clean up. And then of course you've got the banks, the traditional banks, right? These I'm exaggerating for effect, but the market has coalesced into these three broad segments with almost all the value accruing into the big techs. What is extraordinary about it is not just how much the value has migrated away from the traditional banking sector, but it's the pace at which it happened. So six years ago, the big techs were basically nothing in financial services in China six or seven years ago and now they are an utter dominant force, even after the crackdown that happened quite recently that we've all seen. Now, why am I raising this? Because in Europe it doesn't feel like we're in a stable end game. Most banks are trading at half book value. Any sector, in any other sector, this would have been consolidated out, right? There would have been forces of consolidation that would have squeezed out the weaker players and we'd have much stronger and better valued banks. It doesn't feel stable. Something is stopping that development and I fear that we're probably on the cusp here. Fear, I hope, I don't know. It'll be for Claudia to see with her colleagues as she looks at the next five years, that the AI disruption, which really is the manifestation of digital, may well accelerate some of the competitive differentiators in the market. If you look at the potential in productivity that AI brings within a financial institution, if it's just applied internally before we even look outside in the market, it's phenomenal. So the banks that adopt this at pace are going to have material cost advantage to most of their peers and therefore will have the power to consolidate, maybe. That's even before the big techs decide to play in the game, which at the moment, they've said pretty clearly, we don't really want to play in European financial services. Too much regulation for us, right? They're the tech bros, they don't want to be regulated. I mean, God, why would you want to be regulated? When that changes, that could really start an interesting consolidation dynamic. Now, for supervisors, this is nothing short of a nightmare because you'll probably be looking at M&A situations that involve banks and non-banks, never seen before. Second thing you're looking at is risk of disruption within the business models of the established players. Let's try and back test on generative AI, by definition that's impossible, right? And then the third is that you have a real human capital challenge, which is the institutions, the banks and the insurance companies aren't really the most advantage knowers of this technology. So there's going to be some slippage for sure. And as a supervisor, through my shred processes, through my other things, I need to get a gauge of where is it that something could go wrong in this institution above and beyond all the traditional prudential levers, which is why Naomi, I said, an organisational psychologist, because I think there's a difference between a shrep and a shrep. And a tick box shrep is a disaster. A forward-looking business model challenging shrep that I think Nicolae was alluding to makes all the difference. And to have supervisors that can do that, that's tricky. Thank you. Well, nothing short of a nightmare stood out to me. Kirstyn, maybe to you as well. How prepared are you for this? I mean, on the digital agenda, I would say that we are doing quite a lot and we have my colleague Elizabeth is chairing our steering committee for the digital agenda. And so, but, and on banks, I mean, we are, this is one of our priorities in our discussions with banks to make sure that they are making use of the digital solutions in their also change of the business models because we want, I mean, there are a number of banks which who don't have really a sustainable business model. And here we think that digital solutions can help them in the future development. Having said that, we made a questionnaire to a number of banks in the beginning of the year to ask a little bit, where are you? And most banks have a digital agenda. Most banks are of course developing solutions for their customers, did better solutions. But very few banks had a transformation budget. I mean, they also, it's an investment to make sure that you can make use of the digital solutions. So that is something that we will continue to discuss because we think that is important to invest for the future. So Nicola, let me throw that to you. Are you investing? Do you have the dedicated transformation budget? Sorry to put you on the spot. No, but I will be very brutal, sorry. But the banking industry is just about IT, human resources and customers. We have no intellectual property protection. So on digitalisation, I have two single words, full control, full control of your IT system, no externalisation, no public cloud. You have to control your system, your architecture and at the core of your architecture, you need to have customers. And then you can protect your system, you can be resilient, no externalisation, no public cloud, to be honest. And when I'm looking at different organisations and when I see them going to the public cloud, for me that's a clear and present danger signal. So on this basis, 8% of the workforce of Credit Mutual is on IT. We are spending one million days each year on IT developments. We put AI on our system on mainframes exclusively in France because also for an environmental point of view, if you want to avoid to enlight things in Alaska, Greenland, South of America, you have to be very focused on your data centres and AI for the moment after eight years in Credit Mutual is involved in 20% of our settings and the return on investment is above 30%. And now we are moving for quantum and on the very cooperation with IBM with a data centre in Frankfurt because we asked IBM to put the centre in Europe to ensure full protection. And if I may, digitalisation, this is the window dressing for customers. The real problem for a company is full control on the architecture, investment and strategy on IT. And of course, having that, you can be perfectly digitalised, you can be very efficient for your customer. Sorry for this very traditional way, but for example next year we will have three tier four data centres in France. And from my point of view, this is a key and basic condition of each and every bank in the market because you cannot be resilient, you cannot be solid, you cannot ensure your capital ratio without a full control on your IT system. OK. Thank you. Yeah, Hosey. I just wanted to come back on that because I hear you, but my sense is that that's a strategy that is not the common rule right now in the industry. The trends that we see are really going in the other direction, we see large amounts of externalisations making a value out of chase, particularly in the IT front. In the IT front, we put forward a regulation in Europe that you may be familiar with, which is called DORA, Digital Operations Resilience, precisely because there's concerns that some of the banks, some of the financial institutions, not just banks, have more and more difficulty having control over the value out of the chain of the production process and also the supervisors have also sort of not confirmed that that whole value out of the chain is sufficiently robust to potential risk, particularly resilient risk. So this is actually a major area in which we're working now. If I may vary, that's an additional complexity, which is not only breaks out the value out of the chain within banks, but also connects the value out of the chain across financial institutions, not actually across other sectors in the economy. So the intersectoral relationships and intersectoral connections becomes more and more. And I think as we go forward, that's probably one of the key areas of vulnerability that we see right now for the coming years and making sure that we assess that properly. Any other implications that you're seeing or how about AI, I mean, it's early days, but how is that going to affect banking supervision? Yeah, well, if I may, before I go into it, yeah, another thing that I think is very important for us as supervisory authorities overall is to build human capital. You know, it's an area where we think about how we do service, where we think there's like a tighter market and now that we are, as the EVA and the other supervisory authorities, building up our capabilities and our strength to do the digital operational resilience that I mentioned before, the ability to have the right capital. Human capital is very important. And one of the initiatives that we have here in Europe is we build this with the support of the commission, the digital academy for supervisors, the digital supervisory academy, which we're providing training to try to build that up. I think that's very important. Now, what do you think about AI? I think more than AI. Did you want to respond to that? I saw you nodding. Did you have something to say? No, no, no, please carry on. No, okay, sorry. Now I was just coming back now to your question on artificial intelligence. I mean, so this is something that we monitor and that we started to monitor, like I think everybody else. And I think we have to monitor from two perspectives, which is always good to say. One, what are supervised entities doing with it and what are the implications of those changes that they incorporate to their systems. And at the same time, we have to look inside ourselves and what can we do ourselves in a different way? And in a better way, I think both of those levers need to be pursued. At this stage, I would say, it's probably too early to draw any conclusions. A new technology, when I mentioned technological neutrality, I think it's important to see what the use cases come out of there. And not necessarily be open or closed, just be honest and fair to that technology that we can offer. But I think, at least from my perspective, what we can do with it ourselves is almost just as important on what the industry can do itself with that technology. Kerstin, do you want to add to that? Yeah, maybe because I'm rather proud that we have in our SSM activities developed, I think, rather cut-in-edge tools. And one is something we call Heimdall. And it is reviewing the application for... We are fit and proper testing all board members, for example, in a bank. And we are getting thousands of those fit and proper applications a year. So here we have an automatic, you can say, review of those applications to translate them, to make sure that all the information we need are in the applications. And then there are, of course, also a human hand looking at them. But I think this first way of reviewing them is really helpful. So this is something that we are already using on a daily basis. We have also developed a sort of database with the main analytics for our supervisors. And I think that is also something very useful. And we have our intranet. So I mean, they have access to this information directly. And then the vision, maybe this sounds a little bit bad for the banks, but I think the vision is, of course, that we can also have some real time information from banks because rather often we hear that if we want to check liquidity, for example, we need it now, I mean, to get a report three months after is not really interesting. So here again, I mean, this is something that we would like to see, not of course that we, not that we will have direct access to the banks books, but some key indicators would be important also for us to see on a real time basis. That's really interesting. Rhyla. Oh, yes, sorry. Just to add a specific here in terms of dealing with the unknown. My bank offers me voice recognition. Maybe a lot of people in the room voice recognition. Now that is utterly vulnerable these days the courtesy of Jane Eyre. And yet my bank is still offering me voice recognition. And I've said, guys, this is just not good enough. Oh, it'll take them six months to recognize that problem. That's the nature of the risks that are so present and imminent in the market. I'm not just on AI. My feeling is that the real debate is about the use you are making with AI. And we adopted AI eight years ago and we refused the sort of big replacement theory. AI robots replacing advisors with the customers. And in reality, AI is very good in our businesses on opportunities, frauds, identification of potentialities just like Cranton calculation. And when you put this kind of advice, opportunities, frauds to the advisors, they are very efficient. Their efficiency is increasing and what we try to do is to enhance the relationship between the advisors and the customers. And when we look at it eight years later, it's really good and efficient. So when you are inventing a technology, the real problem is how you will use it. You can use your computer just to bit someone or you can use it to help you. And that's the real choice on AI. It's fascinating. I think it's going to be interesting to see at the next forum how the conversation has moved on. It's changing so rapidly. Marlene, can I get your take? Is it AI blessing or a curse then for the banking supervision? Well, let me first just add before I answer this question that I very much agree with Jose that it has definitely these two sides. So one side is the industry. So we just conducted extensive survey in the Swiss financial markets, not just with banks, but also with insurance companies. And what we found is that basically all of the large institutions and most of the midsize and small institutions already use one way or the other artificial intelligence. Most of the apps are at the front of this or in the process optimization, though this is too sort of the applications. And what is also very interesting I found is that most of the banks, they do not only outsource the development of artificial intelligence, but they also start their own artificial intelligence programming. So there is this mixture. So here and now, I think we already see that financial markets already are very much reacting to artificial intelligence and using artificial intelligence. And then there is this other side. This will be the sub-tech side. So when we supervisor actually make use of the latest technology, I think there it's really very important that at the very end we'll always have a human being who takes the final decision. I think it's of great use and importance if artificial intelligence is used to guide where human beings look further. But I think at the end, the final decision should always be with humans. But when you ask me about whether it's a blessing or a curse, to me it seems the factor that kind of ticks to one or the other side is really accountability. If the system is set up in a way that it's always clear to where is this door to knock on when things go wrong and that there is still some sort of a door to knock on when things go wrong, I think then we can really benefit from the great potential of artificial intelligence. But when it's unclear who is at the end held accountable, I think then we're definitely headed for very challenging times as supervisors. And so I think there is this saying about banking is necessary, but banks are not. And I would tend to kind of alter it a little bit by saying banking is necessary. Banks might not be, but what's definitely necessary is a bank licence. So you always need to be absolutely clear about who is held accountable for handling customers and handling investors. Thank you. I'm sure there's lots more to come back on that, but I'm going to move it on to transparency. I promise we would talk more about that. External institutional stakeholders and financial market players have repeatedly called on ECB banking supervision to increase transparency. I'd like to bring in our audience. You didn't think you were just going to sit there and do nothing. And with a little show of hands, I'm going to ask you a question. Our supervisors, what do you think? Are supervisors around the globe doing enough to be transparent? Hands up for yes, they're doing enough? Okay. Oh, yep, one over there. Good, thanks Connie. And yep, good. And hands up for no, they're not doing enough to be transparent. And I, yeah, okay, and some neutral, but certainly more for not enough. I think that was quite definitive. So, yeah, and I think one of the big questions is around how you balance transparency and confidentiality. So Nicola, let me come to you first. Do you want to see more transparency from supervisors? With me, yes. With the others, I don't know. No, I think there is a need for what I call pervisibility, but common agenda. Basically, we should, both the banks and the supervisors, be absolutely transparent in terms of common agenda. And if I may, between the different supervisors, it would help to have this kind of common agenda and with an absolute need of transparency. And the second criteria for me is alignment. You should never say a customer or a market or an investor something different from what you say to your supervisor. And the reverse is also true. And I think this kind of principles, transparency and alignment are the good ones to progress and to create confidence. And to be honest, I think we did make a lot of progress from this point of view, including supervisors, the frank dialogue, and the kind of selectivity between what you say on an all basis to the banks, what you say on a written basis, and what you say to the market. And these three levels of transparency are needed. We need a very good informal dialogue. We need a clarity on the written dialogue. And we need, of course, to observe, to obey, or to follow the instructions, the public instructions coming from the authorities. Kerstin, a lot of progress has been made hearing that there, but what steps need to be taken are being taken to increase transparency? I think we have done a lot, not least because Andrea has been, I think someone said you have been a champion in transparency, but we have tried to improve our transparency during the last five years. And one thing is that we are now publishing the result from the supervisory review and evaluation process, the aggregate results. We are also publishing the stress test result for individual banks. We are publishing the methodology for the threat process because banks have asked, I mean, how come that we are scored two or three or three plus? I mean, we need to understand better what is the thoughts behind. So we are doing more work in this area, and we will probably publish also more on the methodological side. Our banking supervision market contact group was mentioned here earlier, but that has been also the idea behind this, to increase the dialogue with the market for us to explain why we are doing things in one way or another, but also for the market to be able to raise questions with us. And over the last years, we have also been a little bit more careful with how we are communicating, I mean communicating with our banks is one thing, and there we can be open and hopefully also explain very well why we are assessing banks in one way or another, but then we are an independent authority, so and we are accountable to the European citizens, to the parliament, to the commission. I mean, there are a number of stakeholders here, so we need to choose how we communicate with the different stakeholders. We have our website, of course, but we are also now communicating in social media in different ways in order to reach out. And Andrea, of course, has been in the parliament regularly to report to the politicians, because that's important that they also understand how we are working, why we are taking certain decisions, and also that we are able to explain, I mean, our view on the banking sector. OK, Davidee, what are the challenges then between transparency and confidentiality? I remember when Andrea began the whole stress testing when he was at the EBA, in fact, we've been on a colossal journey with respect to communicating to the markets on a consistent basis across all the banks. So where we were 10 years ago and where we are now frankly is night and day. And this is an area where very controversially, I think, enough is being done. Why? Because careful what you wish for. If you start putting out there things that then the market overinterprets or underinterprets, whatever it may be, then you're causing a problem. And it feels to me like we've really got the market in a place where they understand all the disclosures that are done by the SSM, they've internalized them, they know where to probe them, and the discussion moves on. So controversially, I wouldn't really do much more. The one bit of transparency that nobody's really talked about, which is I think Merlin, you and I had a little disagreement here. I worry enormously when I hear banks say, well, we could just give supervisors perfect access to our loan tapes, say our credit books. And so they know everything that we're doing and what could possibly go wrong with that. Now, you create the most monstrous moral hazards. You can imagine if the bank says, well, the supervisor knows everything I'm doing, if they're not telling me I've got a problem, then there is no problem. And that's how you get into trouble, right? So I worry enormously about that part of transparency, which is how and how frequently the banks transmit the information to the SSM and in what basis. Because if we get too frequent and too transparent, I worry about big moral hazards coming into play. Nicolai, quickly, as our banking representative, is that a fair comment? That's a fair comment. Provided that you are absolutely transparent on your global risks. Of course, you don't have to give to the supervisor each and every loan, but notably on the risk, on the interest rate risks. Of course, on your strategy, you have to be very clear. And if I may add that, this is a danger of the ratios. Maybe it's a side comment, but knowing the price of everything is knowing the value of nothing. And at a certain stage, I'm a bit careful with the figures, with the ratios, because you have to put the global picture beyond each and every loan and to see if the management, the governance and the line that is okay as a function of reaction. And I think that's where the transparency needs to be absolute. This is my function of reaction in case of I would do that or I would do that. And that's more important than ratios and figures, because at the end of the day, figures is just about where you're showing the system, but not giving the real value of what you're doing. Very quickly. Maybe one quick remark. I think in short transparency does not mean necessarily more data or more access to more information, but access to the right information. So I think just if we are flodded with information from banks and if there is a pipeline directly from the extreme from financial institutions to the supervisory authority, that's not necessarily transparency. Transparency is not about more data, but about the specific, the right data. And I think that should be the focus. Thank you. If I may, I think we're mixing two levels of transparency in this conversation. One is transparency between a private relationship between a supervisor and a supervised entity, which is has to do with more predictability, I will say. Another one is transparency to the outside world of how that relationship is going. And what's the status of the banking sector in particular, the banking particular. I think on the second aspect on the right transparency of how that relationship is going, I think that you have to be prudent on the third aspect on giving information about the situation of the banks. I think the experience has shown as we go forward that has always been confident enhancing in general. I think that particularly when there is a focus of concern in a particular area and not being transparent, not being clear on where the information is and so being just ground for speculation rather than having an intelligent conversation. I think that communication to third parties, of course at the EBA since Andreas started, we've always been very keen on providing information to markets to a point that we have something that we call the transparency exercise of the banking sector that we do twice a year. But I think that that aspect is important. Thank you for that clarification. I'm going to move us on. There's lots I want us to cover in this session and it's going so quickly. Let's talk about lessons learned as we look to the future with the recent banking failures, what lessons have been learned or not. I'm going to come to you first, Marlene, with the Swiss perspective or general perspective. Well, obviously, I mean, there have been two very different cases, the US banks and the Swiss banks and I'm only going to comment on the latter, obviously. I mean, there are many lessons to be drawn from this. Many people hope that there will be just one main lesson or one aspect, one magic one tool that we can kind of install and then incidents as we've seen will never happen, but I think that's clearly an illusion. So we have a variety of different lessons to be learned and in the context of modern supervision, in the other context, in the broader context, we could go on for a forum on its own. But in the context of modern supervision, I think I want to mention two lessons. The first one is corporate governance is of utmost importance. That's really also what Andreas is also so much emphasizing. So whether it's a traditional business model or a very modern one, if the corporate governance is not sound, then we're headed for challenges or troubles as we've seen. And the challenge with corporate governance is that there likely will never be one metric that will basically represent and signal what is the stance of corporate governance. I mean, there is a feeling. We can look into the market. We can use market figures to get a judgment on what the market thinks about the corporate governance in a particular institution. But still, there will be no quantifiable measure as we have with liquidity or with capital. And from that, I think that the lesson learned is that we as supervisors, we really need the power and the legal clarity to be able to intervene very early on. And so in our case, in the Swiss case, we now aim for a senior manager regime, among other aspects, just to make clear that we have kind of better cards for handling, to handle these type of corporate governance challenges. And the second lesson, I think, which is important in the context of modern banking, is of course liquidity. I think we've seen this massive bank run. Some call it a digital bank run. And yes, we've come a very long way from Basel 2 to Basel 3 on liquidity measures. So back in 2008, we did not have really a common ground. We did not have the LCR, NFCR, to really measure liquidity. So we've come a very long way. But having said this, it's also obvious that there is still room to further increase kind of what we can learn from these type of measures. So different type of depositors and different regions. And I think that's definitely an important lesson that we need to draw and look closer into these liquidity measures. This is even more the case when we have not a traditional business model as was with Credit Suisse, but when we have these more advanced or these more technology-driven business models. Thank you. Jose Manuel, do you agree your thoughts? I agree with everything that has been said to me. I mean, if I might say just two problems. First, you have to be humble because you never know what can happen to you. I think that's important. And then the second aspect is that we need to, and Andrea pointed to some of these earlier in his comments with the conversation with Laros here, but you need to be able to, how to incorporate into the supervisory agenda and your assessment of the banks and the situation. So like market, but I don't mean by market, just financial market information, but just market information almost very bad. Social media, perceptions, market prices, that may be impressive. I don't think we need to go 100% to market prices, but how to incorporate all that so like high frequency information that's going around, that's moving faster and faster and faster and then materialising to a weakness that you haven't seen. I think that's probably, and that's hard to do. I mean, the liquidity part is very clear that we need to work on that, but also how to integrate social media information, how to integrate information coming from equity markets or the 81 markets to interact with each other. I think that's something that we need to work through. Kerstin, did you want to add to that? Yeah, I mean, we are of course also studying the reports that have been provided by Federal Reserve and the lessons learned and also by the Basel Committee and my take from those two reports is that very much of the, I mean, false or problems were linked to governance and risk management, both in the banks and in the supervisory authorities. So, and if you have an extreme business model and you don't have good risk management and good governance, then it's not, it cannot be compensated with a lot of capital or liquidity. If there is not trust in a bank, then there is a problem and I think that was what we saw very simplified in the US banks. But I think for us, the lesson learned is also as a supervisor, you need to act. It was, if you see something that doesn't work, you need to act and that was mentioned in the first panel. Of course, there shall always be a discussion with the bank and the bank is, they need to have time to take rectifying, I mean, measures, but if they don't, you need as a supervisor to be there and use your tools in order to press on the banks to make the right things. And I think here, I mean, we can have the, we can take as an example the climate risk here in the SSM, we issued our supervisory expectations on what banks needs to do when it comes to climate exposures and the risk management around the climate exposures. And here we have had a number of intermediate stops where we need to see deliveries from the banks and we haven't seen that from all the banks. So now we are escalating in what we call, I mean, that's a chargong among the supervisors, but we escalate then and continue the discussion with the banks. But at the end, I mean, we can use our tools like capital add-ons or we have also a money, we can use other fees that we can apply on the banks. Nicolae, you had that about the escalating. Was that your takeaway too, that supervisors need to act more quickly? They need to act adequately. If I may on the lessons learned, one short word, the business model is everything. When you have a balanced business model, when you have a universal bank, when from outside you had insurance business, mobile phones, housing protection, you keep the client, the customer inside your perimeter. At the end of the day, when you have the threat of a bank run, I believe it's better to have a very global relationship with the customer because at the end of the day, to earn money in our industry, you need to keep customers more than five years and to give them one more than two or three products. You can have very clever people about segmentation, equipment and so on, but at the end of the day, retail banking is about more than five years and more than two or three products. And that's where even against crisis like we had, I think it's a good protection business model. David, did you want to... I'm going to reinforce everything you said. I'm going to brandish my laurel wreath again. Because if you look at the individuals involved in this banking crisis, you had Exhibit A for the dominant chief executive, very little check and balance within the firm and then absent supervision. I mean, SVB was screamingly obvious that it was weak. It was a business model that couldn't possibly stand up to any kind of market stress. Nothing happened. And so importance of supervision, the governance. S... Marlena. Having a... No, no, the accountability framework. Super important, but also the supervisor that has to have the whole knowledge of the business model to be able to have a reasonable conversation about vulnerabilities is beyond the ratios that Nicolae was talking about and the capital requirements. So my laurel wreath again. Glad to see it again. Can't come too many times. So we're talking about the need to adapt as we move forward. Let's move on to that. Discussions about adaptation are going on globally, like the Basel core principles we've talked about, or they've been mentioned. Kostin, can you tell us a bit more about them and the conversations that you're involved in that are going on? Yeah, I'm not myself involved, but the Basel core principles for banking supervision, they are under review. And the core principles, they were... First time they were issued, I think it was 1997, and then they were reviewed in 2012. And now there has been another review after the crisis we have been through. And the whole thing with those Basel core principles is to make sure that it's principled to make sure that supervisors around the globe have a high standard that we are working more or less in the same fashion. What I can see from the revised core principles is that there will be new focuses on sustainable business models that has not been in there before, but with what has happened, I mean it's not rather clear that we need to make sure that banks have sustainable business models. Climate risk has not been covered in those core principles, so that will be another area. Operational resilience is also important. I think it has been there, but now it's more evident. And with operational resilience, it's about of course cyber risk and other... I mean risk in that area. And it is growing importance that banks are also focusing, investing, and making sure that they have experts and risk management procedures in place. And there was also a fourth area, and that is the exposures to the non-financial sectors that was also mentioned here in the first panel. But this is a little bit of a growing area and where we can see that we need to have an increased focus, not necessarily banking supervisors, but there may be exposures from banks to this sector that is growing, and then we need to maybe have a better grip, and maybe we also need to understand better if there is a need for more regulation or supervision in that area. Nicolae, thoughts on that. What more adaption regulation is needed? Of course no, but if I may, I think on climate we need more regulation and more clarity, because we need more clearer deadlines, and I agree basically what was said, that on climate we need a common rule for banks, but also for all other actors and industries, because at the end of the day, if industries are not forced to decolonise, it's not up to the funding machine to find a solution against the technicians. So that's where I would say we need a global regulation on climate, much more ambitious, and we've no delays and no too much transitions. Too many transitions. Jose, in my mind, do you agree with what you're hearing, what's your take over that? I would say that we need more regulation. I think what we need to do is we need to assess where the potential areas of new risks that we need to watch for, and its technology and sustainability, clearly the two, brother. I mean we have the classical ones that will continue on the interest rates of these areas, but the new risk potential may come. And also many opportunities. So this is not to underscore those opportunities, but since we're talking about supervisors, we're focusing on risks. So it's mainly technology and sustainability. We talked of a format about technology, but I think sustainability is very important. I think that I would like to get more regulation, but before we get to more regulation, we need to understand very well what we're regulating. So what we need to do is to work more, I'm going to call it on experimentation, maybe that's the wrong word. But if we all try to figure out how to address this challenge, we really put the foot into there, then we'll figure out the real good key levers that will put us into what we should be doing or what we should not be doing, and then have the regulation. In the meantime, I think we all need to, on the aspect of sustainability, I think we all need to be aware that we need to be doing more. And that's to be the key message for the banks that need to be doing more for the underlying companies that need to be doing more and enhancing their data and their measurement. From our perspective, we need to be doing more and trying to get better at understanding how we can start putting limits on what's going well and what's not going so well. Yes, please. I put a different angle on this, Naomi. In sustainability, I just think we need much better regulation because we have ended up with the regulated sector being cut out of any of the toxic, the really difficult abatement questions. And we've got the unregulated sector that can go all nailed in there. And private equity firms are making a lot of money out of financing coal projects, for example. So we've created this dichotomy between the regulated sector and the unregulated sector by this taxonomy concept. And I think we're getting really perverse incentives here. And people like them are being judged on totally different basis to the private market operators. And so we're only creating opportunity for the unregulated sector to compete against them in a very, very unfair way. And that, to me, just feels like a very dangerous place to be. We've created an arbitrage, basically. I would challenge that a little bit if I may. Do challenge your way. I'm not sure we're going by regulated or not regulated. What's regulated mean in the context of sustainability in the banking sector? The taxonomy is widely applied. It applies for asset managers. It applies for investor base. It applies for a large amount of financing into the overall economy. I would not say that there is a lot of banking-specific taxonomy regulation that's really putting, at least in the potential for right now, what we have is really some active action and indications on pillar two from the point of view of supervisors at this stage. But there's not really any pillar one really significant regulation on sustainability aspects. I think it's the overall financial sector. That's my point, Suzy Van Welle. Private equity sector right now can do as much as they want but the private equity needs to get the money from some investors which need to comply with some taxonomy on that part of the investor base. Thank you. I like a little bit. That's good. Very quickly. Then I want to open up to audience questions. I just wanted to ask you, Jose Manuel, the EBA framework. Is that still working well? The EBA framework is working process. Of course, if it's the EBA framework, it's working well by definition. But now more seriously, as I said before, it's working progress. We have a road map in the same system which we're working to try to put forward some of the regulations. We are putting forward some pillar three disclosures. That's I think it's working well originally. We're working on a stress test. It was called the Fit for 55 to test the Fit for 55 strategy of the European Commission and the European Union. That's jointly with the other supervisory authorities to try to build that going forward. We're contributing to the regulatory agenda that is trying to identify what's financial greenwashing. We provide some advice of the commission on that. So it's an agenda that I think is working. But as I said before, my sense is we are doing a lot, but I wonder if it's still enough. I think that's what everybody should be in the mindset from my perspective. Okay, thank you. Well, open up to audience questions. I've got a couple coming through here online. So we've got a hand there already. Let's take that. If you wanted to say who you are, which organisation, and if you have someone that you want me to put it to, otherwise I'll open it up. Yeah, thank you. It's honest to Ryan Bank of America. So in the spirit of modern, hang on, I'll stand up then. It's been of modern sleep provision. So it's an options pricing question. So you've got a lot of options. You've accrued a loss of options. The right to add capital requirements, macro-predential rules, climate change, stress, supervisory add-ons for government, early interventions, and as the Swiss experience, the right to bail in AT1 or the threat of bailing in TLAC bonds, which obviously was a large part of the collapse of Credit Suisse. So the market collectively tells you that we've written you those options and they've been very expensive for us. So as Anna bought in reference before, her bank's facing an 18% cost of equity, which is a really difficult number for Europe because the European banking system can't make 18%. So how does a modern supervisor think about the cost of the options, it's accrued to itself in the light of the evidence that the market's finding those expensive? Thank you. And who would you like that question to? Oh, everybody. Okay, who wants to take it? Who wants to take it first? Okay, Kerstin, then I'll throw that to you. Okay. I mean, this is of course an important question. And we have also opened up with our market contact group to discuss with the market and I think we understand very well their view. But as a supervisor, we need to make sure that we have a sound and prudent banking sector that they are resilient and that they can continue and support the European economy. And I think that is the goal. And of course, we as supervisors, we have a responsibility not to overdo supervision, but the banks have also a huge responsibility here to make sure that they have sustainable business models and that they can support the economy in a very good way. Thank you. I'll take one of the online ones and I'll come back to you. The question is, what's the biggest change to European banking supervision? You want to see 10 more years down the road. Nicolaire, do you want to take that first? Honestly, I do not see. I told about the main challenges but I think it's a bit difficult to go in 10 years' time. Sorry for that. That's fine, absolutely. Davide, did you want to give your thoughts? I think I've got one because Dominique is here. I feel the going concern, gone concern supervision question is a big one for us to institutionally tackle. And the reason why I raise this is, A, in a crisis, you need these two to be joined up very quickly and have a common view. And it's not clear whether our structure at the moment makes that easy. The second thing is back to Alistair's point, the carrot and the stick. You can make yourself a lot more resolvable as a financial institution if you make some choices about your operating model that have nothing to do with the capital and liquidity requirements. They have a little bit to do but it's about the operating model. And I firmly believe that a bank that is very resolvable ought to get some credit from the supervisors for having gone through that transition and made themselves resolvable now. In fact, that happened in Switzerland, not obviously with Credit Suisse but with others, where there was a bit of a carrot and stick with respect to the options. There was a negative option as well that if you made that choice, you got a benefit or a capital deduction, whatever that may be. And I think that would be a really powerful way of making our banks focus on the right things that really made a difference with respect to the option pricing that Alistair was alluding to. That's a hard one. Nemi, I'm not saying it's an easy thing to do, huh? Yeah, please. No, just very quickly. To me, it's obvious that some of the, so like things that were left to be down from the previous session, I hope to get down over the next 10 years. So like making sure that we have resilience, cross-border banking in the union, some of the issues about deepening the banking union. It has nothing to do with supervision mainly but I hope the supervisor at least helps in that direction to help that grow and that would become less of a conversation to just for now. Nicola. If I may want to compliment, I think the main challenge for me would be the balance between the regulated entities and the non-regulated entities. Because we have a problem of supervision of the non-regulated entities. And at the end of the day, if we want to fund the economy and to fund the transition in the right way, I very much prefer to go through the regulated entities and the banks, rather than having the kind of discrepancies that we have today. So at a certain stage, we should think about real businesses and not institutions only. Okay, thank you. Yeah, hand over there. Lady in the black jumper. Good evening and thank you for taking my question. Francesca Tama, Bank of BPM in Italy. I've got a question about the climate risk topic, which is indeed very important. And as an European citizen, I really appreciate what everything you're doing both as the EPA and the ECB for this topic. But I've got a big doubt which is. We've got to say in Italy which is which can be loosely translated as talking to the daughter-in-law in order to make the mother-in-law understand. And this is the question. Are we really sure that we are addressing the right addressee with all this supervisor pressure? There's anything we can do in order to address better governments which should be the intended recipient of these sort of challenges. Who wants to take that? Jose Manuel, Kirsten? Well, I'll be very brief. I think I don't know exactly what your analogy is pointing to. But if you're suggesting that we should do climate policy through banking supervision, I'm always reluctant to that. No, I think that banking supervision and banking should do well with that, which is that there's an underlying risk that we think is there, that is present, that is likely to materialize, that we need to make sure that the financial sector is properly addressing those risks and is well prepared to finance the economy to wherever it's going. So what you meant is that we're trying to do climate policy through banking supervision. I hope we're not because that would be the wrong task. Kirsten? Yeah, climate and environmental risk is of course very important. And that's why we have been working on this for at least three years now. But our aim is to make sure that bank can risk manage climate and environmental risk in the same way as they are doing with all other risks they have in their balance sheet. So we can just work within our mandate. And this is, I mean, we think it is, of course, very important, but governments need to also work on their side, of course. Thank you. Yeah, a question over that. Sorry, Tom McLeese. Is that working? Yeah, Tom McLeese from A&M again. Going concern to gone concern seems to be getting a lot quicker what we've seen from SVB and Credit Suisse and the speed that deposits ran out of those banks. What are the regulators thinking about that? Because we've never seen uninsured moving out of SVB very quickly the same in Credit Suisse. And then the digital money moving so quickly as well. That's a big concern because you're looking at a bank like Credit Suisse, for instance. Profitable bank had decent capital, decent liquidity. Big issue was business model, as you say, right? They came out, they had three good businesses. Swiss bank, asset management bank and wealth management bank. They won very bad bank, the investment bank. The company came out with a revised strategy at the end of August and said we're keeping the investment bank we're reducing it by 40% disaster but we're still limping along and then the deposits just started to move. That's scary because you've got a bank that's actually limping along in a going concern situation and then can fall off the track very quickly. So what's your question? What's your view of this deposit moving? Okay, Marlene. Marlene, do you want to take that? As I mentioned, so I think the focus on liquidity is really instrumental. I mean, we've seen in Credit Suisse in one quarter outflows of 160 billion. So this is really massive and we also saw that Credit Suisse was among the G-SIPs. The most liquid G-SIP just before this happened. So I think this tells us already a lot about the speed of the outflows. And I think the speed is something we really need to look into. One way to... The obvious way to counterbalance that is a pillar two. In the case of Credit Suisse, we installed the pillar two two years in advance. So we installed it. We lifted it already in the summer of 2020. So that was one of the reasons why the liquidity ratio was so high right before these October events. But after that, I think pillar two can only take you so far. So after that, there is clearly also a role for the lender of last resource. So then we need to look into the collateral that is related to the facilities there. So I think that's definitely something we need to look into and there is no kind of clear and obvious answer here and now. Other than we need to develop the first of those monitoring systems that we have currently in place and also need to make sure that we have side from pillar two also other measures to address these particular issues. Nicolae, did you want to add to that? Yeah, on liquidity I'm both modest and obsessed. It can happen and you should be absolutely obsessed into your balance of liquidity. If I may, at the very early stage, your problem is transforming your customers into partners and not players against the bank. And that's where transparency, the intensity of relationship, the different fields of businesses, asset management, traditional bank, insurance and so on it's key because at the end of the day if you have a question of confidence on the trust your customers are putting into the bank, it's lost, it's already lost. So the obsession of service and that's where digitalisation could be a danger because if you bet too much on digitalisation without advice, the duty of advice without somebody enhancing the relationship, you create the situation where your customers become commodities. And in this case that's real and present danger and you're beyond figures from my point of view on that because this is the early stage and that's really where you can act as responsible of a bank. Okay, Naomi, can I just add? Yes, you can. The trust is also between the tripartites, the supervisor, the gone concern and the ministries of finance and their ability to move in sync and quickly and have a very clear communication of the market. Super, super important, right? So trust works both ways, both with clients as well as with the relevant authorities. Okay, I'm seeing nodding in response. We are nearly at time. I want to ask you very quickly all of you just before we finish. My question to each of you in turn is how positive are you about the future of European banking supervision? And if you could make one wish for its evolution, what would it be? We start with you, Nicola, and we'll go around that. One more. I am optimistic about the European banking industry and supervision because for me it's really linked. And I would hope for some simplification on details and let's focus on the essentials. Thank you. Also optimistic, Naomi, one point I've already raised which is the join up of gone concern and gone concern. And then the second is the shred process which I think can be a really, really powerful tool. And the supervisors will continue to invest in that to make it very different from a compliance driven thing. So forward looking business model centric shred process. So I would like to broaden your question. I mean, I hope that the banking union will come into force so that we have all three pillars there. I think Europe really needs a strong banking union and banking supervision is of course part of that. But there will be a number of challenges here in the coming years. So we need banks and we need good financial markets in order to finance all the investments that we will see. Thank you. Very similar to Kristen. I think that the experience of the last thing just was short that this is going in the right direction. Let's make sure it's filling up. Let's make sure that we can get the glass to be completely full. And for me as a Swiss, I don't have a wish but I have a big thank you for the cooperation. With all the European institutions and particularly also to Andrea and particularly also during this year. So this is much appreciated and rest assured that we do everything to also further foster and increase these cooperation among the European institutions. Well, nice to end on a note of optimism, shared optimism. So would you join me in thanking our wonderful panellists for such an enlightening and wonderful conversation. Thank you.