 Crane and it will be my pleasure to accompany us moderator this panel and also the last panel of the day So we don't really have to focus too hard I think to realize that 2018 was a very bad year for European banks in fact, it was the worst year lowest point of the financial crisis and just a few of the Characteristics of this bad year as you know investors fled en masse from the sector bank stocks fell on average by 25% and None of the 16 largest European banks are now trading above book value a 12-year-old Dutch Payments startup has a higher market capitalization Significantly higher market capitalization than either Comat's bunk or the Deutsche Bank To banks, which I of course did not choose randomly All that despite the fact that banks actually are safer in fact They have doubled their capital buffers since the crisis as you know, they have offloaded Most if not all of their toxic assets and they have returned to core activities Meanwhile as Ignacio reminded us earlier Enhanced supervision that helped make the banks safer is also at a crossroads Will we see stronger convergence in supervisory culture or will we see renewed? fragmentation The trends that were discussed to some degree in the last panel from rising nationalism including Brexit to economic headwinds cyclical issues and emerging technologies all have crucial implications for the sector as a whole and Also for supervision so in this panel We want to focus not only on where we've come from Since the financial crisis but also on where we're going and whether we're well equipped to master new Obstacles and risks we have three guiding questions that are Proposed in the program. How can we make today's national banking champions truly European? How can financial integration best serve European citizens and what future? is Has the banking Union and its relations with? UK banks and of course on any one of those questions we could spend our entire panel time But we're not going to do that what we're going to do is hear a relatively brief input And then we're going to have an interactive discussion first amongst us here on the panel and then also with you ladies and gentlemen so I will introduce all of our speakers and then we will get underway and I'd like to begin here with our lead speaker He is the chair of the European public affairs of European public affairs at the Brunswick group in a 20-year Career at the European Commission. He became its most senior British official Serving most recently as director general of financial stability financial services and capital markets Union and as director general of the task force for Strategic issues related to the UK referendum He was knighted in 2017 for his services to UK relations with the European Union Sir Jonathan Fowell great pleasure to have you with us and I'm very pleased to introduce on my other side John Barragan He is deputy director general in the European Commission's directorate for financial stability financial services and capital markets Union and Represents the Commission on the financial services committee and the single resolution Board and he has been with the Commission since the mid 1980s great that you can be with us today And then I will go over here to Introduce the man who was the first chairperson of the European Banking Authority Andrea Andrea He turned the stress tests into a valuable tool for gauging balance sheet risk He previously headed the financial Supervisory divisions at the Bank of Italy and also at the European Central Bank And as you know he is now back at the ECB as chair of the supervisory board Wonderful that you could participate in our panel and finally it's always a pleasure to see Philip Hildebrandt He's vice chairman of BlackRock a member of the firm's global executive committee and chairman of multi-asset Strategies he previously served as chairman of the governing board of the Swiss National Bank great to see you again Philip So I will ask Sir Jonathan Fowle to get us started with his input Either either place wherever you don't mind. I'll stay here then please do and well During yats, you ladies and gentlemen It's first of all as others have said a pleasure and a great honor to be here on this auspicious occasion I looked back a little bit over Some of the things that in Yatsio had been writing and saying and doing over the years And I came across in more innocent times 2005 a paper. He co-authored Entitled what does the European Union do? You may remember it and in a very admirably Balanced paragraph the authors discussed banking of financial markets and said I quote In the areas of banking and financial markets including the related supervisory activities The arguments for or against Centralization are somewhat mixed on the one hand the drive towards integration and financial markets is a clear and powerful stimulus to Supernational ruling the economies of scale inherent in gathering supervisory information and the international transmission of financial fragility Also speak in favor of centralization at least up to the geographical level at which financial markets are integrated and Significant spillovers exist on the other hand, however Considering that fiscal and tax policies are Decentralized as they are at present in the EU and at the costs of bank rescues and the lending of last resort are ultimately fiscal allocation of banking and supervisory Policies at a lower geographical level can also be justified that was in 2005 a few years later The question what does the EU do became a burning question. What should it do? What can it do the financial crisis? Revealed the design faults of economic and monetary union and the weaknesses of the EU's regulation and supervision of financial institutions urgent action was called for and we all not only the lawyers we all Reached for our treaties and we found a paragraph which people hadn't read for a while paragraph 6 of article 127 Of the treaty on the functioning of the European Union which miraculously Contained a legal basis Somehow related to supervision and I'll read it again because people may have forgotten about it in the in the intervening years the council Acting by means of regulations in accordance with a special legislative procedure May unanimously and after consulting the European Parliament and the European Central Bank Confirmed specific tasks upon the European Central Bank concerning policies relating to the prudential supervision of credit Institutions and other financial institutions with the exception of insurance undertakings in the answer was one of the few people who had been thinking long and hard about those issues and Unsurprisingly became a key protagonist in the creation of the single supervisory mechanism the first pillar of The banking union lawyers looked carefully at those words. I just read out There were great debates about what does the expression specific tasks mean What what does it not mean and what are policies relating to prudential supervision? it became clear that the creation of a single supervisory mechanism was possible and So to cut a not very long story short. It was legally possible. It was politically necessary And it was done for the sake of brevity. I will pass over the hours. We spent together with many others in this room arguing about Moroni anybody remember Moroni Moroni for the non-lawyers here is a court judgment nearly as old as in yes, you and me 1958 under the Coal and Steel Treaty some of you may remember that as well and of course we argued long and hard in fact my Memories that we argued more about what to do with the non-euro countries Which may one day want to join the banking union than about some aspects of the banking union itself So the docking mechanisms for non-euro countries wishing one day to join the banking union Was very much a key feature of our discussions by 2018 In yats, you was able to write and I quote again for all these reasons the Objectives of the banking union are deeply consistent with the promotion of the broadest collective interest Which the new forces in the European political landscape purport to uphold the super national Nature of the banking union is also helpful pursuing collective interest Requires weighing up various types of special interests which in banking are often vocal and well connected a multinational Supervisor is better placed than a national one in this regard Because decisions are made by a super national body mandated mandated to enforce a level playing field via peer review and peer Pressure and in your remarks this morning. I think you echoed that very clearly. So the balance between European Union and national levels has been readjusted to meet the needs of the times So let's look forward not back as in yet She'll clearly prefers and I will now turn to the the three questions that you raised in Your opening remarks, how can we make today's national banking champions truly European? I leave aside competition policy considerations I reinterpret the questions as the question is asking how banking policy the banking policy environment can become more Conducive to the emergence of European banking champions, and I also assume this is something that is desired or desirable Personally I would start quite humbly by asking the candidates for this championship some of whom are in the room What they think there are large cross-border banking groups in Europe Do they want the title of champion? How uneven is the playing field on which they operate at the moment in the euro area and the wider European Union? How single do they find the EU's market? I would ask similar questions by the way to supervisors and We would need an answer to the question does the newly balanced system in the euro area between the SSM the national supervisors work in practice Heeding the experience of the SSM itself. How many rule books does it really have to apply? Is there a single rule book or other? 20 My personal experience shared within yatsu and others in the room of rapid legislation Making radical changes in an emergency is not one That anybody should wish to repeat We have to learn how to make progress in quieter times as well The banking union today is Co-terminus with the euro area, but other members may join and the mechanisms as I have said enabling them to do so are contained In the regulation so truly European banking champions may well straddle the eurozone and other currency areas and keeping the docking mechanisms well oiled and ready for action Will continue to be necessary nor do I neglect my own poor country Still European whatever its political Relationship with the European Union may be after Brexit true European bank champions are very likely to have activities in the United Kingdom as well And therefore friendly co-cooperative coordination Mechanisms between the banking union and the British authorities will be important too And I will say a few words at the end about that The second question is how can financial regulation best serve European citizens? Well, quite simply by providing state-of-the-art protection to investors and account holders by preventing crises Giving those who never this nevertheless have to face crises a better toolbox than the one we had In 2008 by enabling the financial sector to provide high-quality service to public authorities to companies to individuals boosting economic growth and welfare and by giving The sector the economies of scale and scope to compete with its counterparts all over the world and finally by making finance in Europe sustainable and worthy of public respect To quote another influential Italian the president of this august institution EU countries Acting together in their union have a unique capacity to ensure the globalization is not a race to the bottom on standards Rather the EU is able to pull global standards up to its own Finally the third question what future is there for the banking union and its relations with the United Kingdom? I will try to be positive in answering both questions banking union has to be completed in at least two ways enhancing the current pillars And adding deposit insurance I will quote yet another influential Italian sitting not very far away from me And by the way that enables me to say something I often think and why not say it here the contribution of Italy and I see Several eminent Italians does looking out of this room and I can think of others back in Brussels and elsewhere the contribution of Italy to This part of the European Union's work has been quite extraordinary and continues to be so so another influential Italian Andrea Wrote recently there are still Obstacles to the integrated management of bank capital and liquidity within cross-border groups operating in the banking union This is also hindering the prospects for cross-border mergers, which are necessary to reduce the excess capacity We still have in the system the smooth operation of the SSM Requires a high degree of harmonization as the application of different rules and processes in each member state unduly complicates the conduct of supervisory tasks and Jeopardizes the level playing field finally on the United Kingdom a bridge to the UK has to be Designed built and maintained the traffic across it will be heavy. It will be important. So it must be robust and Durable, I suggest that it should be based on equivalence of rules and enforcement practice with outcomes tested regularly Underpinning reciprocal market access and the coordinated approach in international Forer it will be based on existing notions But it will also be new and unique given historical relations and common experiences between the two sides and The importance of the city of London for the rest of Europe and yes So thank you for all you have done for Europe and for Europeans may you continue to make your priceless Contribution for many years to come. Thank you Thank you very much Sir Jonathan also for that very elegant tribute to Iñatio And I think a lot of us were hoping that you would take guiding question number three is the opportunity to tell us What will happen in House of Commons, but perhaps we can tease that out of you later on in the discussion Let me start out with that first guiding question on European champions and Sir Jonathan suggested that we start out by asking the champions but since we don't have a Champion on the panel. However, what we do have is Is one of the largest shareholders in many big European banks? So I will go straight away to Philip Hildebrand who recently said that the European banking industry I quote is in the midst of a painful painful Transition and quote and it might take several years before it can re-emerge as an attractive place to invest Would you say European champions are Essential to make that happen to restore that attractiveness and if so, what are the steps that need to be taken to Create a fertile ground for them to develop Thank you. Well, and thank you That's it for having me here. It's wonderful to be back. It seems so small now as somebody else said Remember in the beginning this league seemed like a big place That's an easy question for me. I can only get myself in trouble no matter what I say. So let me Be careful and yet say something real so I spend probably too much of my early life in sports and and When you talk about champions typically in sports It means peak performance right Now as an investor you look at data If I look at these two institutions today in Terms of the data you have a situation where Over a five-year total return performance Including dividends and whatever else you produce You're looking at one of them minus 70% I didn't actually mention the names Komatspank and I guess that's where you're going The other one minus forty five percent They're trading today at price to book one of them roughly point two the other one roughly point three so When you talk about performance or at least if you define and this is how I would define champions You know, it is not size per se as these numbers indicate by the way It's about performance Size may be a way to performance The JPMorgan today if you look at the same Numbers, you know JPMorgan is total return over those same five years in excess of a hundred percent and trading price to book at 1.4. Let's say 1.5 But Size per se is not the definition of a champion. There are many great champions who are not very big in fact in sports Typically being too big doesn't help So I think the question really is completely Misguided if it's looked only through size, but you have to think about what are you trying to solve for? When you talk about creating an even bigger institution and that's true for these two But it's also true for any other discussion of mergers So what problem are we trying to solve here? I think that's the part at least from my perspective and you know as an investor That part is yet missing in this discussion. I Can imagine and I won't be long, but I can imagine Certain arguments where you're trying to solve for something that makes sense I can also imagine a lot of stuff that doesn't make any sense and won't work The top of my list and maybe that's more of a personal statement Is the one thing that I'm convinced will not work is if you try to solve Or if your objective in this operation is to try yet again to create a sort of Large US inspired investment bank operation through stealth I Won't go through all the various other things that you might be able to solve for and some of them might make sense But the bottom line here and this is what I referred to in the quote you used the other day We have a significant severe business model problem and you cannot solve this simply by way of size so that the question has to be or the We have to see as investors a specification of what problem Are they trying to solve for? And if it's just size, that's not a sufficient answer Andrea Andrea our question asks Sorry, is my mic. Yes, our question asks how we can make national banking champions truly European But I take a step back and say do we need to do so do you see that as a legitimate goal? Also for the way that we structure and conduct supervision I say this publicly already. I mean I don't like the reference to champions I don't like the reference to national champions. I don't like the reference to European champions I think that again from supervisory perspective in particular you should look at the I mean as Philip was saying I mean to the solidity of the business project and what let's say And what in general is being is being obtained in the markets What I'm concerned about is to see a as you said in your introductory remarks Is to see a banking sector in Europe? Which is increasingly perceived by investors as Not a Attractive investment proposition and that for me as supervisor is a serious Concern you want banks that thrive that are able to attract capital investments and not only from their own country from globally so From the from the supervisory perspective, I think that what I'm concerned about is mainly to understand what is dragging down the profitability of the of the European banking sector and here the point of Integration which was a little bit also the second question. So if you allow me I will I mean the there are different issues which are at the moment in my view creating problems in terms of Developing a fully function well function European banking market and European banking sector. The first one is the fact that We didn't have enough Elimination of the excess capacity created in the run up to the crisis And so we are still clogged with the excess capacity in the system Which of course means that there are banks which are active in the market And They don't have viable business model probably they try to stay alive by being very aggressive in terms of Pricing and the road in margins also of let's say more solid Franchises You have of course a low interest rate environment, which is likely to remain for a for a while You have something which is in these in an area in which we as supervisors are putting pressure on banks Leavers that the banks can activate in terms of cost reduction in terms of investing new technologies and maybe thinking better about where they want to be a few years from now and And finally but most importantly my point of view from the policy point of view you need to make the euro area at least as a genuine Domestic jurisdiction for European banks, and that's where we get also to cross-border mergers I mean again, I find also the questions sometimes I receive whether I prefer domestic mergers or cross-border mergers misleading no, I I understand that there could be business cases in some sometimes to have a domestic merger because you have More room for efficiency gains if you have overlapping distribution networks and the like But the point is if I have impediments as we do now in the in the in the euro area to have cross-border Banking to move capital and liquidity freely within our own domestic market Well, then you have a big impediment to cross-border mergers and you crystallize the success capacity that you have in the in the market And I think that's that's very detrimental Sean Bergen sometimes it seems like we're in a strange kind of limbo for example with European Banking Union that we can't quite go forward. We don't seem to be able to get the job done We also can't go back many people of course say that the absence of Edis and the lack of progress on Capital market unions are two of the big structural factors that keep us from being like a domestic market and essentially inhibit cross-border mergers What would what are feasible steps that could expedite progress on either of those? Okay, well first. Let me just take the opportunity to say thanks to Ignacio for inviting me to speak today Our paths have crossed a long time in different roles It's always been a pleasure to work with a big brain His brain not mine Look, I can give you the sort of standard answer I will give you as a Commission official that we need to complete Banking Union because that's the only way we're going to create Integrated banking in Europe by the way like Andrea. I Distinctly dislike the reference to champions. This comes with a lot of baggage It comes from a period before the crisis where champions receives preferential prudential treatment It's one of the reasons we created the SSM was to get away from that And I think we shouldn't drift back into references to champions This is about scale and what is the minimum efficient scale of a bank within it's in Europe and it's Not my job to tell a bank how big to be it's my job to facilitate a bank growing as big as the market things It should and allows it now Of course, we have a banking union which is half complete and I make it maybe one speech a week Telling people that when you're halfway across the river That's a very dangerous place to be you need to swim to the other side because swimming back. It is probably not an option And I think we do need to have a European deposit insurance scheme And we probably do need to have a backstop for the single resolution fund and to complete the banking union But I think it would be naive for me to stop there and say that if you deliver that then that's that's going to solve the problem Because there's something else The bank what we're talking here is the framework. This is the kind of architecture But the reason we're not even able to complete the architecture is that the summit of public a more fundamental problem in the system Which is one of trust and this problem of trust is of course probably the one Least spoken about legacy of the crisis. I mean we talk about capital hits We talk about liquidity problems, but probably the most fundamental Issue in the crisis was a trust across the system collapsed trust between banks began the problem But then because of the way we managed it trust I think between politicians and financial practitioners like me Collapsed I remember before the crisis politicians couldn't wait to give Technical issues to Jonathan and people like me to get it off their table now They keep it very much on their table because they don't quite trust the framework like they used to I think trusts between Home state authorities has deteriorated One of the reasons we won't get edis is because member states don't fully trust each other in how they're going to manage crisis based on what we had before so And I think which also bothers me slightly is that we have in order to overcome this trust problem We have created central bodies So in order to overcome this concern that national authorities may treat banks differently We created central authorities to deliver uniform high-quality supervision uniform high-quality Resolution and yet the trust in these central bodies is not yet fully established Interestingly as I think Ignacio said this morning are I was actually Daniel Gross the market trusts the central authorities They even prefer the central authorities to the national ones, but I'm not sure the home authorities Fully trust the center and that means that we're caught in this what we call in the in the business the home host problem Because if you want to allow scale to be achieved you have to allow Banks first of all you have to allow capacity to find its level So banks have to be able to enter but also exit the market We still haven't got to a world where Europe can easily allow banks to exit the market even though we have the framework You have to allow capital and liquidity and emerald to be efficiently managed across borders We haven't got there. That's because host countries Think about how the map how the crisis was managed before and wonder whether or not it'll be managed better Even with these central authorities even though we argue it will be managed better by these central authorities and so I think until we We build this trust again, and this may take a bit longer. I think it's improving Just completing the banking union will not be enough And I think it's incumbent on those of us who see the the objective of banking union as an integrated banking sector With cross-border banks and with scaled banks. It's on us to somehow Convince those who are still in essentially feel threatened by cross-border banking that in fact, this is the way we need to go So yes, I think I would like Anita's if people have good ideas how to get it I'm all or ears, but it won't be enough. I think thank you very much Let me move us on to the second of these guiding questions, which is how financial integration can best serve European citizens and an asking what best serves European citizens I thought we could come back to something that Ignacio said he referred to the ultimate purpose that banks are supposed to serve as Transforming liquid savings into sound credit to the economy, which sounds self-evident But I think it helps to crystallize that that purpose issue. So Let me start out by asking you Philip about something that of course is causing a lot of Concern and not a little mistrust at the moment and that is the persistence of the doom loop and banks that load up on shaky government debt Are they serving that ultimate purpose? Well, I think it's It's one of the great challenges of integration, you know proper integration will create more diversification Which will reduce risk? The problem is how we get there You were talking about Edis you have to have sympathy With the position of certain countries who say how can we go into a common deposit guarantee scheme or insurance scheme? If we still know that we have you know Particularly if you adjust it for the cycle or the place we're in the cycle You still have high levels of non-performing loans. So I think this is a this is a long-time journey The question is can we get there without another crisis if you look at the history and Guido you indirectly refer to this that We kind of make these leave changes. I guess you also showed in the case of the US Beatrice That's been very much the history of Europe the big chump came in 2012 really and I suspect or I fear that to get to the next place We probably have to traverse yet Another another crisis moment or at least a stress moment. It's very hard to move these things forward in a normal time particularly When you have to cycle working against you, so I think All of this is related more scalability more integration Removing the obstacles whether it's regulatory Or political will actually increase diversification and will reduce risk, but we have these hurdles Sovereign risk is one of them non-performing loans is another one That make it very hard to move the political debate forward around the remaining steps That are left. I think the other thing we should not forget And it's related to a Nazi's definition of good banking you know Europe of Course we can aim towards capital markets union and that's certainly an important long-term goal But for the time being the European economy is largely funded by banks This is something many of my American friends just refuse to understand And so the whole debate in Europe has to be a different one when we talk about scalability in the foreseeable future we have to think about Essentially a traditional banking model With a long-term ambition we can certainly have that for capital markets But we have to be clear as to how Europe functions today If you look at where the employment is generated in Europe, it's largely SMEs SMEs are funded by banks. I don't care what anybody says SMEs do not issue bonds And so this is why this this whole discussion about business models is so critical We have to build these business models around what we need for Europe to serve the European economy And that has to be strong balance sheets traditionally oriented banking models that basically fund European corporates which are largely if you look at employment or at least to a very significant extent are actually not the big global companies But I see me so the whole discussion gets mixed up because we keep using a Sort of US lens of all of this and I think it's wrong I think we need to what Europe needs to do is think about what kind of banking system Do we need at scale if possible just the way you laid it out that can serve The European economy for the foreseeable future that economy is going to be funded through banks and not through capital markets So that's why we need to That's why I said it's going to take years I think this is a fundamental reform move away from the US inspired investment banking mess that we've gotten ourselves into since the early mid 90s and really reorient the entire debate towards a Scalable if possible step-by-step Fairly traditional based banking model that can fund the European economy Because Much tribute has been paid to Italians all quote another Italian And We a senior deputy governor of the Bank of Italy said last summer quote European banks have become European only in one sense They are supervised and resolved at the European level the vicious link between sovereigns and banks has not been severed But a straight jacket has been imposed on banks to ensure that should a sovereign experience of flight from its bonds The country's banks cannot be bailed out by tax payers Assuming you agree, maybe you don't But would that straight jacket suffice to prevent contagion? well The idea I mean, I think there is one point in this in this description which we should reflect about I think it is true that the the banking union has not yet managed to cut this link Because the system remains to a large extent segmented along national lines and what scares me the most is the fact that If you if we were to be confronted with it with a national shock again in the near future the banking sector Will probably continue to play the role of a shock amplifier rather than a shock absorber as it should be in a bank so that's my main concern and I think the point of I Mean the exposure to national sovereigns could be an issue, but I don't think it's really the Crucial one I think that the the key point is How do you manage and this is a point on which I think we should look at the US the point is how do you? Manage a banking crisis in a way, which is not just you know Living the hot potato in the hands of the national authorities because that would create this dissonance that That statement was referring to and if you look at the US I think that Daniel Gross has documented this very well in his in his research if you have a shock for instance in Puerto Rico, which is like in Greece here a shock hitting a State which goes into default you add the FDIC entering the state go into the banks Which have been of course affected by the by the local shock Do purchase and assumptions so take control of the assets and liabilities of these banks Beat them to the best bidder, which usually are banks from other states and Through this channel you have no impact on the local depositors and borrowers And you have the banking sector working as a shock absorber we don't have these now I mean we have had In in the past years we have we have had deployment of the European financial stability fund So of European taxpayers money Which has then led to a restructuring of the banking sector in different countries Which has been led mainly at the national level which has meant that consolidation has been only national So that's in my view that the key point if you want if you want to Overcome these these interlocking we need to find ways that if there is a crisis and these crisis It's a particular member states goes to the banking sector you need to have mechanisms to make sure that you are able to solve this at the European level and let's see the single the establishment of the single resolution board of course is a great improvements, but sometimes you go to size that go below the level of Director responsibility of the single resolution board that you need to be able to provide answers there as well Thank you very much Let me pick up on a few of Iñato's remarks regarding the barriers to supervisory independence and Effectiveness including as a means of financial integration that best serves Europe's citizens. So he mentioned the ECB European Parliament dispute over NPL provisioning and Referred to legal and analytical hurdles Including the fuzziness of the current process for deciding on desirable levels of Aggricate risk and he called for a change in the law to Assigned supervisors of limited quote limited, but meaningful degree of regulatory power. Would you agree with that Sean? now So I start as a commission official and probably would say I would have to think very carefully about this As a commission official, I would be worried about confusion of roles Okay, because our role is primarily in at level one regulatory to Introduce regulatory powers in another field could introduce a complication in the structure could introduce conflicts in in this structure So as a commission official, I think I'd like to consult my legal service and come back to you on that Maybe maybe Jonathan will have a yes We could come to a former commission official now free to speak to this point another big brain on the law side now Let me just come out of this commission official and say that there is a problem here we When we at least in the commission considered Creating a single supervisor. It wasn't an effect to get around some of these problems I remember, you know one of Ignacio's first calls to me at least if I remember rightly when you moved to supervision was to talk about national discresions and options and You asked was it possible for the commission to legislate all of these national discresions out of the system? And I think my answer to you then was why did I create you I? Want you to within I want to leave a degree of discretion within the law, but I want the single institution to Make those discresions consistent for the banking Union And we had a very interesting discussion I think where you know inform me about how difficult it is for supervisors to do these things But in fact you went away and did it for a hundred and twenty leaving about eight if I remember member state ones left Which I think last night at dinner So being loud and slugger asked me also to remove Now I would be Happy to remove those national discresions if the member states when we just hop when we talk to the member states about this About legislating away national discresions. They tell us You know my discretion is fine, but the other ones are all So the usual story So I think I don't know whether you need regulatory powers And whether or not the issue here is whether or not the institutions feel confident enough To use the powers that we give you within the discretion to eliminate those discussions among the participants among your constituents So this is a question for your board essentially You don't have to be told by law that you will That you cannot have discresions if you're part of a single institution I would think it should be almost natural That you would say okay within the discretion given by the law because remember within the law There are some who are not in the banking Union, and they may wish to keep their discresions on the law So I think it's a it's a complicated discussion And I said my commission official review would be probably not because we were one of the people with whom Matthew had problems with the pillar one versus pillar two and we took the pillar one side of the argument That this was in fact an invasion of pillar one responsibilities, but I also think just generally I think the single institutions need to Feel more confident about using the discresions They haven't the law but you using them in a consistent way And I can see all the supervisors nodding and shaking their heads at me But that is how I think when we devise the single institution we taught the single institutions should work Sir Jonathan and then Andrea Frank now By the way, you said I did 20th. I did 40 years in the European Commission So some of this will them will sound wooden and bureaucratic because just the way I talk these days, so the Any regulatory system is a balance between rules discretion and accountability the European system is that to the power of ten because It's not a country And it has its own institutions you all talk as if I did this Sean did that the European Commission You did somebody describes lawmaker. We're not a lawmaker. I was not a lawmaker You've seemed to have written out of existence the European Parliament of the Council of Ministers the member states are still in charge and if there are Discretions and if if all the financial regulation the Sean and I used to work on Starts with the wonderful principle followed by 27 or 28 National exceptions discrepancy. That's because that's what the political market bears And that is the struggle we all have to face So it's not enough for Commission officials and supervisors to bemoan The unlevel playing field we have to and and the bankers and and and the private sector We all have to go to governments and say we are harming ourselves by Not having a more level playing field and explaining how and here the academics and the Journalists can help as well if we write and say again and again We make progress in Crisis the European Union across the whole range of its activities Bears that truth out the history of financial regulation the United States bears that out See the history of the creation of the Federal Reserve We have to learn it's extremely difficult to make progress in peacetime when we have a little more time to think and act and Prepare for what I hope is our great great great grandchildren's Toolbox when they have to face the next crisis, but there will be another crisis It'll be different and we won't have foreseen all of it but our job all of us in the different capacities represented in this room is to think about how this Financial system of ours works and try to help Deal with the problems that arise so it is a balance between Regulation discretion and accountability Accountability is even more complicated in the European Union that is an individual country because you have the European Parliament as well as national parliaments and governments And that balance moves over time too slowly It's always catching up it accelerates in a crisis and then the political will evaporates and We have lots of conferences where we in the inner circles talk about what is necessary And we can't quite figure out how to do it, but I think we have to take the debate back to governments to the European institutions which are going to be fundamentally Recomposed this year and of course the Union itself the Brexit is going to be fundamentally recomposed And and make the case again and again for the changes that we think are necessary Thank you very much. Let me come to Andrea and ask you to address two different aspects of what we've just been talking about starting with this one that in Yasuo raised about The possible need for a delegation if I understood him correctly He was basically saying that without an explicit delegation of power Supervisors could find themselves without the room that they need to independently Exercise their pillar two powers now you have been speaking quite a bit lately about pillar two So perhaps you could reflect on whether you think that kind of precise delegation is Necessary or whether the tools you've been talking about namely transparency and so on are enough to get us where we need Or essentially enough to give supervisors the leeway they need and also be effective. I Think the point boils down to some extent to the the issue of trust that the shown was mentioning before no when you start from from a place where you have 1928 whatever the dimension you choose a very different Approaches and traditions across the union the way which we try to bring these under a common umbrella is to sit around the table Start negotiating and writing papers in which we try to bring these, you know under a common a common a common set of principles now this becomes very much rule-based by construction it means that You have probably too much detail in level one legislation a lot of the formulas that you have in the CRDC in the capital requirements directing and regulation in Europe you find in In the in the Fed the rule books which probably don't are not even approved by the by the Federal Reserve Board But delegated to lower levels in other jurisdictions This goes down the ladder all the way I mean if you go to the reporting framework that they are defined I mean we are I think the only jurisdiction which has the reporting data in the official journals So basically to change a line in the reporting that the banks do you need to go to legislation And then goes even maybe down to our own world here in the in the in the ECB So we do supervision we do manuals we do them in the same way we have groups of national People sitting around the table and you come out with something that codifies very much No the way which you you should behave in a In a in any situation which means that you leave very little marges actually to the people at the end of the chain Not way to exercise judgment and do the right thing So I think that we need to find ways and I think this is also what in answer to some extent hinted to I mean instead of having a system that constraints too much you need to find ways to Gradually trust more down the ladder. No all the all the institutions all the agencies and then maybe have much tougher exposed checks Exposed accountability mechanism Consistency checks that allow to make sure that you you you don't use abuse of this discretion Which is which is granted to you, but again if you the more we remain locked into the system Which is very much based on lack of trust So let's write everything in the marble of the rules and then let's constrain each and everybody of us to a Precise ex-sante behavior the more we will be able to deliver the the goods the public goods that The the citizens should expect of us Thank you very much Probably in that you might want to comment But I'm going to just get two more quick questions and then hopefully take a few audience questions at which time We'll also come to you for your thoughts Andrea sir Jonathan in his remarks posed the question how many rule books does the SSM apply one or 20? taking us of course to the topic of supervisory Convergence and I was again looking at some remarks by Sabina Lautenschläger recently where she listed all the different things that the ECB is doing to promote Convergence in the culture of supervision, but she also said we can't do this alone What can you do to work with national authorities in order to promote that kind of Convergence that hopefully can be a foundation for trust Well first of all let me say that we cannot always look only to the part of the glass Which is off empty. I mean the progress we made in terms of building a single rule book at the European level is massive I mean we have moved that we didn't have any regulation in the in the banking area that I remember of but before 2010 11 I can't remember when this So I mean we have had now we have a lot of rules which are directly applicable to all the banks throughout the union And and that has been a massive improvement and We have a single supervisor that actually Defines how these rules are applied are applied in practice. You're right that different cultures Remain and the the effort to bring them closer is is is is a massive one. I was meeting a few weeks ago I Was talking to Jean-Claude Richet because I remember when I was here the ECB at the start With the Inazio in the in the early 2000s I mean I remember that also the start of the of the monetary policy side of the ECB was not let's say as I mean there were indeed different Notwithstanding a long preparation much longer than the one that we had in supervisory areas There were different cultures and there was a period that was needed before this was brought No to a to a calm I remember that the first times that governor started speaking publicly Promoting and defending decisions taken at the ECB. I mean took quite a while before they got there and still now We don't see yet. We're not yet there on the supervisory side but The fact that we in the supervisory board work together meet every three weeks and spend one two days together Discussing issues. I see more and more, you know Members of the supervisory board taking an interest reading papers Making questions investigating banks on which they have no direct interest in their jurisdiction So interpreting more their role as member of a European board. This is not yet There are still a lot of national cultures, but let's say it's a it's a cold fusion that we need to you know bring together Slowly but steadily I must say I wondered hearing professor Tabirlini's presentation whether you found that discouraging or Well, no, I find it. Let's say again. I find it Encouraging from the number of point of views but also indicating the right the right directions that we need to take. I mean Education is an important element also in the supervisory area. I mean the the stuff we are doing on training for instance is Is very important? I mean if you if you create a very important training hub for supervisors that when they become examiners the first time that the first thing they learn they learn then Under the ECB umbrella together with supervisors from other from other countries. I mean these changes culture Thank you very much. So very quickly to our third guiding question UK banking and Relations to UK banking after what might or might not be Brexit So let me first Come back to what Sir Jonathan Foul suggested he said we could use the analogy of a bridge based on equivalence of rules and enforcement practice with outcomes Tested regularly Reciprocal market access and a coordinated approach in international fora. So with that in mind yesterday, I read the following remark by Esma or let's say the pronouncement By Esma that if there is a hard Brexit EU investors must trade 6200 named stocks including 14 UK shares within the EU and not in London where Paulin the head of the UK financial conduct authority answered the UK is the most equivalent country in the world suggesting that it might not be quite as easy as It might have sounded What do you make of all of that, Sean? Are these just shots across the bow at the moment or Something to be in fact quite concerned about No, I mean, I think you have to this day You have to understand the context of the of the conversation yesterday. So we are contingency planning at the moment So we are preparing for a no-deal Brexit and these comments were made in the context of statements that have been made around the no-deal Brexit It's a matter of law. There are trading obligations Which lead Esma to make the statements they have done in fact Esma are being rather flexible in their statements if they were to apply the law in the the rather literal way The list probably would have been an awful lot longer and there would have been an awful lot more Aggression in what we would have to say So I think what they're saying is because we have a no-deal Brexit because we've not been able to Talk about this bridge that Jonathan has talked about. I mean, this is the future relationship We have not started talking about the future relationship We've not been able to because we've had to wait Because of the political context until the withdrawal agreement is done That has taken an awful lot longer than people expected even if it's going to be done So in a contingency, this is the conversation we have okay now in the context of the future relationship, I Think we have made it clear there wasn't a short conversation about mutual recognition which didn't last very long It didn't last very long because in the end neither side really wanted it because the interesting thing about equivalence based regulatory cooperation is that both sides retain autonomy To move in and out. This does not mean of course They're going to move in at these arrangements kind of willy-nilly every day, but it does allow you a certain degree of autonomy And so I think there's no disagreement between either the UK or the EU About Jonathan's bridge now where we will end up on that bridge What point on the bridge you will end up is a matter for Negotiation, but I think what is important for us to understand is that there's a kind of few Unchangeable things firstly Brexit is by definition fragmenting The United Kingdom on the 30th of March becomes a third country To the extent that we have financial risk today in the UK within the European framework of law cooperation supervision etc. It goes outside on the 30th of March and And you know we have to decide and the UK have to decide how they want to distribute that risk So the conversation tends to be a lot about value added, you know I mean can we steal the business from London and it should be seen in terms of risk How comfortable are we as the European Union 27? With how much how comfortable with the amount of risk we have today and what will make us comfortable? And that's a question first of efficiency So what is the effective way to manage your risk, but also accountability because if anything goes wrong You know I SSM will not be accountable to the UK Parliament will be accountable to the European and national parliaments here in Europe So you have to organize your risk both effectively but also in terms of accountability and that I think is the discussion about the bridge and It's not just for the European Union because you know the UK has a financial sector 10 times its GDP It also has to think about how much of our risk it wants to manage animal terms Because if something goes wrong There are implications for them too, but this is the sort of future relationship discussion that we haven't even Started having yet and the discussion you mentioned there is a sort of stressed Conversation taking place in the context of emergency planning a lot of those going on right now. I think Unfortunately, yes Philip can I ask you to just perhaps step back and Give us your perspective on the bridge both as someone working for a very large u.s. Company and as a Swiss Observer of all of this. What do you think the bridge needs to look like and what? What concerns you most watching all of this transpire? Well, I would say as a Swiss I've been very sad all along To observe that as a country the UK does not seem to have studied the Swiss case Which is a real pity because you actually had a You know a very long history a 10-year negotiation that led to the bilateral accord so there was a lot of information that one could have gleaned by just studying it and The to kind of reduce it to the simple lesson It's very straightforward. You can't have the cake and eat it too. I mean it just doesn't work For many of the reasons that were indirectly mentioned here about this being a legal construct a very complicated one Rules laws are very important when you're trying to integrate and and and have a construct with so many sovereign countries, you know a part of it and So I think it's very sad to see that that lesson clearly somehow got lost In this perhaps understandable Some people say it goes back to the corn loss, you know sort of excitement emotional excitement about Independence and so forth So I think now. What do we take from that in going forward? I would say number one. We don't know the good news about yesterday's council It seems to me although I only had time briefly this morning to look at it but it it seems to me the good news is that It is now effectively entirely in the hands of London to decide whether or not we're gonna have a hard Brexit That seems to me a good outcome from yesterday So responsibilities will be clearly allocated as well in the event of different outcomes Secondly as a financial market participant the one thing I would say is markets are more adaptable than people think And they adapt more quickly. So there's no You know God-given right That just because London is so dominant and so big today that way it will remain that way Markets adapt more than one might think over time The only additional thing I would say here because let's be honest we nobody knows how this is going to play out in there Certainly not in the worst case scenario The one thing I'm pretty convinced about and I see this from within as he said an American organization By the way Guido Having now been since I left central banking in a very American organization I could corroborate everything. You're very sophisticated wonderful paper showed today the differences between any European Amongst themselves in BlackRock is far less significant than the difference between all of us and the Americans So I think your paper I can only confirm that But the the only other point I would want to make more than this that We should not underestimate in a worst case scenario the tendency of US corporations US financial markets US activities to retrench back to the US so You know if there is a sort of sense that perhaps a sense of hidden Excitement in Europe that somehow a worst-case scenario could lead to this great immediate resurgence of The great historic financial centers of Europe. I would be a little cautious Certainly the the sort of US dominated part of the financial center in London Some of it of course will have to move to Europe and as I said, I think Adaptation will be greater than than we think but the instincts of the industry and the central tendency Will be in a sense to repatriate as much as you possibly can and Serve the global clientele and the global world to the extent that you can from New York, so I think You know, this is something I've been saying to many of my European friends for a long time don't don't assume That this kind of automatically in the worst-case scenario leads To a great shift To Europe the instinct will be To simply go back to the way in a sense if you look at the history how how Wall Street began to service The world or Europe in particular It was very much in that model kind of you keep as much as you possibly can in New York And you serve from there and and technology has made that easier arguably than it used to be Now there are some counter-trends clients demand local service local presence So that's something, you know, you have to respond to your clients needs But I think ironically technology makes it easier to to retrench and serve the global clientele from New York So I think Europe needs to be Thoughtful about both the adaptation of this and the speed of the adaptation but also that a lot of this will actually pull back to to New York Thank you. I'd like to take a couple of audience questions now if we have one in the back of the room Okay, let's take those three and then possibly come to Ignacio as well. Yeah, thanks a lot for an inspiring discussion when you look at the economics of banking in Europe today with a book Price to book Significant below one with returns on equity which are fairly low in many countries as an economist you would think that there could be two possible explanations one is over capacity and the other one is that Book value is overvalued possibly because loans particularly non-performing loans are overvalued So if you take that economist perspective and look at sort of what we've done economic policy-wise It could look a little bit that we've taken a page out of the Japanese playbook Which we ridiculed 20 years ago and we've applied massive forbearance And which is supported by the fact that when you look at some of the non-performing loans and back in Europe today There's no way these banks are gonna be solvent if you mark them to market and Second that we haven't had the instrument which the Americans have had in terms of taking capacity out in short BID hasn't worked and we've been careful to Recognize the state of the Europe's banking industry's balance sheet because we can't apply BID How do we get out of that situation particularly in a situation? Where a likely economic downturn? Over the next couple of years are going to change the otherwise beneficial path of NPLs NPLs will not decline, but they will increase so the question how do we avoid being Japan too? Thank you. Can you pass it over to the other gentleman in that back row? I think you also had your hand up Did you have your hand up? Yeah, please. Okay. Sorry. We're going to bundle the questions and then we'll come for answers Good question for Mr. Ildebrand. So I guess having this European champion in fact means having one or two banks break into the club of very few Global banks that enjoy extra profits the question will be From your perspective, do you think there is room for one two more banks in that club or given the market structure? There's really it's very unlikely and if it's possible Given the current situation, would you think that these one or two banks that might join this club are more likely to come from Europe or from somewhere else? Thank you. Then I had one here as well Steani as bits a single resolution board. I'd like to ask distinguished panelists one one to comment on one fact that despite the 20 years since inception of Euro five years since inception of the single supervisor mechanism three years since inception of a single resolution board We still deal with the fact that only six to eight percent of the total balance sheets of the European banks consists of cross-border credits that we see even lower Percentage in terms of the cross-border deposits. Is this the reason why we don't see more significant steps toward More banking union or is this the consequence of not having? Thank you chicken egg Okay, then let's do those and then in yasio or do you want to do you want to speak now and then? Okay, can we bring the microphone, please to in yasio here? It's on sway on the question of Supervision and how it applies pillar to that was one of the points made by myself and by Andrea that the point I try to make is that in my view the supervisor should be able to Set its pillar to requirements in a transparent Predictable to some extent to a large extent consistent and systematic way without being afraid of that becoming a quasi law Because that is going to be then blocked from you know some some quarters And so that one way is the one that Andrea suggested to to have a little bit of a retreat of the pillar one component I Have to remind him and I realized that I'm getting into your previous house that there is only issue also of boundary between the EBA the secondary regulator and the direct supervisors because many things that are Left open by the level one Legislative then are passed on to the EBA and that is a question of finding the right burden sharing or task sharing between the EBA and and the director supervisors Thank you So let me ask perhaps Philip you could get a started comment on the Japanese playbook and how we get out of this sort of Frozen situation and if you like also room for more champions and where to where could they come from and If you wish to speak to either of the other two or cross-border lending as well Yeah, very good and frankly tough questions Tim Geithner who had lived in Japan of course and knows Japan very well Knew exactly what he was doing in in March 2009 when he boldly and this was very aggressive Basically said, okay, you recapitalize or we recapitalize you By the way, I'm not sure Tim is not here so I'm gonna be careful But I I'm not sure he actually had the money of that backstop in his pocket Which made me admire him even more in a sense how bold this was right? Now it worked For the most part Even though everybody and I remember being in these meetings all these bankers saying there's no way we can raise capital at these prices It's impossible and guess what happened. They just had to dilute even more And for the most part they did it in a couple cases the government had to come in Europe did not do that. So that to me to this day was in a sense the original sin and And you know just to give credence to the importance of the banking part of the broader ECB mandate, I still think to this day that Not having been forceful on Recapitalization is probably that the more important explanatory factor in the lack of everything that we've seen in terms of the European recovery then the delay in Qe That is not typically what traditional central bankers or a lot of academics seem to have a different view on this But to me it's pretty clear that that was the original sin That's the main reason why we struggled so long and the problem of course was You know, maybe we were lacking somebody as courageous as Tim was more complicated because he had many countries and for the most part the sovereign Wasn't prepared to sort of say You either do it in the marketplace or we're gonna do it for you And I think a lot of it follows from that and and I know Having spent a lot of time in Japan in those days as well Tim knew exactly what he was doing because he had that experience in mind and in a sense We're still working through that right. We're still working through that. We still have balance sheet issues As you mentioned, we still have NPL. So now how do we go from here because there's no point in replaying history I think it's just gonna take time Which is why we have to kind of take the long road Now the good news is and Andrea said this if you actually look at Despite all this what has happened is still quite remarkable in 2012 I remember being at a group of 30 meeting in London at the Bank of England When Mario basically said we need to do Banking Union and you know the progress since then is is quite remarkable So yes, we're still lacking many things But I think this will move forward and it will just take time to grind down these NPLs It will take time to gradually gradually use some of the revenue if it starts to come in to kind of build it down and this is where the the the supervision At the level of the ECB at the central level will be so critical because at the national level the Temptation to kind of be captured again politically As we're seeing in a number of countries will be very very great. And so that you know, you just have to You have a very important job to do frankly and it's gonna take time We should also not forget that some of these things are not related To lack of progress or not right in terms of Banking Union, you know the yield curve the low interest rates That's a reality that takes a big chunk of earnings out of most banks. These are big numbers If you just had a hundred if we just had the yield curve of the US We could work down these NPLs a lot quicker than we can currently The fact that we have a hard time in many countries Laying off people because of labor market rigidities and therefore some of the traditional things Textbook that you would do is gain synergies merge banks and basically reduce headcount That's pretty hard to do in a lot of countries. So that's something again That has nothing to do with supervision, but is an impediment to further consolidation. So I think all this leads me to think we shouldn't get We shouldn't be depressed, but it will take time. There's no silver bullet. This is grinding away To clean up these balance genes and in a sense you can think of it in the most simple way is we catch up over time What Tim and his colleagues did in one sweep bold Move in March 2009 Thank you, let me go straight down the panel and ask anybody who wishes to comment on any of the other points that remained Okay, maybe just to just to say I I have no idea either what a Tim guy had the money or not But I can tell you certain member states in Europe did not have the money So this is part of the reason why they didn't inject huge amounts of cash That being said I agree with you that the characteristics of the two crisis response In the United States and Europe is that one was pretty sharp and decisive and the other one was done over a very long period of time The ultima ratio sort of logic was there We only intervened when we had to intervene at the last minute and then to the least amount possible So this I think how it costs a lot of money, right? Is it one thing that's always lost in Germany the most cost so far of the crisis has not been on the sovereign side With Greece and so forth to the German taxpayer, but has been on the banking side So so the net cost of it was was actually high as ever when you don't respond to crisis Aggressively you tend to pay more in the longer just to come back on the B or D and whether it's working or not I think we have to go back to a conversation. We had in 2000 and whatever 12 11 when all this was in our head We had in the B or D a steady-state framework When you have no NPLs and you have lots of bail-in-able material, this is going to work Pretty well, I think But we don't have a steady-state we have lots of NPLs and we don't have All that much bail in Material and what's more we don't have the bail-in-able material lined up in the banks that have the NPLs Because the paradox is when you have lots of NPLs you don't get to issue emerald At least not at prices that you can afford so this is an issue We have with the framework and we're going to have to work our way through it We've put in place the steady-state. We were in in this case. We were in a hurry To put in place that framework. We might have thought about going a bit slower But we're all wiser after the event and because of that we're going to have to manage that legal framework Beyond that we will have a cultural issue because bail-in is in the law We have to see whether bail-in is now in is in the culture We don't have a strong culture in Europe of liquidating banks I think even in the crisis you can name on probably one hand Maybe you have to use a second hand to calculate the number of banks that we actually let out of the market And the reality is that bail-out has proven to be extremely unpopular particularly in the crisis because it was so big But bail-in is not fundamentally easier and those of us who had to do a little bit of it have discovered that That bail-in has a politics all of its own So bail-out has one political dynamic bail-in has a somewhat different political dynamic, but they have political dynamics They are hard processes to manage So we will have to develop a culture and we will have to develop it because I think you're right It's not just the NPLs. It's about excess capacity. We have to let some of these banks out of the market But that's just me thinking without my commission had on because if I put my commission had on I'm going to tell you The B or D is wonderful and is working really really well I Think a banking union banking integration. It's kind of I Think you do need banking union to get to this point But you know we had a very diversified banking system before the crisis It just was an integrated banking system on the wrong assumption The assumption was that you would have a if you had a euro crisis You'd have a euro response and that euro response would have lots of taxpayers money When that particular Misapprehension was revealed Everybody went home because that's where they thought their best chance of being saved was Now we have to rebuild the cross-border banking model Based on a different set of assumptions that we have central bodies. We have you and the single resolution board We have the single supervisor and instead of the taxpayer bailout, you're going to have the creditor bailing We've got the structure We've not yet I think got the culture and because we don't have the culture or the trust We're not going to get these sorts of diversifications. And by the way on on the doom loop I wanted to say I still haven't made my mind up yet whether This isn't chicken and egg as well. There was no doom loop before the crisis in Ireland no banks held any amount of Irish bonds after the crisis Stacked up like everybody else So do you need to get rid of the doom loop to have an integrated banking sector? Or do you need to think about how you might integrate your banking sector to actually solve the doom loop? And this is very important because some people are pushing or TSE the regular treatment of sovereign sorry Changes in the right as being necessary To create an integrated banking system Maybe we will we'll have to see On pillar two and pillar one when I meant complications. I meant vis-a-vis the EBA Not us. I agree with Andrea that the level of detail in pillar one is ridiculous I mean, I have never seen formulas in primary law before before I started working on the legal side I mean you have square roots I don't know how many of your national legislatures would feel comfortable making a speech about a square root I know where I come from it wouldn't but there are square roots in this one. There are integrals on some parts of the other ones So, you know, we do need to get that balance better But we would see it as going to the EBA, but of course that's another discussion that we could have But I certainly agree that we have become too Too much deep, but I have to be honest with you the direction of travel is in the other way Thank you very much very brief question a comment from our last two panelists and then we will take our lunch break Which we're a little bit okay very quickly The glass half full half empty It's not empty anyway, and a great deal has been achieved and we're here to celebrate achievement But we know that there is still a long way to go Trust is absolutely right. We don't have enough of it despite the graphs about how similar we all are When you sit in a room with ministers from different countries national interests and online It's tough what was the US bluffing will never know it worked I think the key takeaway from that is it wouldn't work in Europe. You can't nobody would think about bluffing like that because It would be exposed And whoever was trying to do it would be fired Finally on the algebra. I remember when my staff brought to me early drafts of CRD and CRR with pages of Algebra now I'm a dumb lawyer and I finished mathematics at school about the age of 14 So I had no idea what this meant, but I did have the instinct I remember to say why are we doing this in legislation? The ministers won't understand it with great respect even the honorable members of parliament won't understand it Why is that not left to somebody else lower down the chain and they said because Already then they said because the people at the top of the chain will not trust the people Lower down the chain to make the discretionary judgements So they will want the algebra even if they only dimly understand it in the official journal And by the way, it's easy to translate from one language to another because it's all out But So that's why you get the algebra and Sean Sean I mean it's this deeply dismaying I'm sure you're right that the the direction of travel is to continue to do that even more rather than to do to Offer discretion further down the line. It won't work. I mean the system will be too brittle And we just have to hope that the next crisis doesn't expose that And if it does it happens in a very long time, but it's not the right way to do this job Thank you very much I think we may find the trust in the face of heterogeneity will be a common thread in all of our panels throughout the day Andrea Well, I need to say two words on the on the issue of NPLs I mean I agree with what was said I remember there was a very nice chart actually by a black rock analyst showing the comparison between US Japan and the EU know Taking the first day of the crisis and see how long it takes to reach the peak and then go down to pre-crisis level And it is clear that the the the the US were very fast in recognizing the problem very fast in running it down Japan was very long in recognizing the problem So nine years to get to the peak and then when they got there eventually they they managed to Ground it down We were relatively good in terms of recognizing the problem But slow in dealing with it because we didn't have as everybody has said that the capability Let me say that I mean here I need To pay tribute the people who have been here before me including the Niazio Let's say the SSM DCB has given a tremendous push to the reduction of MPs I mean what has happened in the last two years is amazing in terms of reduction and Also putting in place mechanism not to have big build ups going forward I think this is a big big Institutional improvement with respect to the path to the past on the point of cross-border integration Let's say it is first of all it is true if you look at the BIS international banking clear that the Big globalization is actually a disintegration in European markets It has been only Europe basically another jurisdiction you have had the declining cross-border banking Then it came back to the pre crisis level. We remain flat well below the pre crisis level But in my view there is a more fundamental issue. I remember I started working in supervision in 1988 when the second banking coordination directive was issued at the time There was the idea that with a single passport you would have had a lot of branching across Member states and a lot of remote provisional services so without even the establishment and this didn't materialize for very Let's say economic reasons I mean you need to have the local brand there and people don't trust these provision of services Remotely in some cases didn't work think of the Icelandic banks and the like So this is a big legacy in my hometown in Italy a small hometown You had the career call who bought the local savings bank In 2006 8 I think and it took more than 10 years before the credit Agricultural brand appeared in front of the branches. No, so you But now it's changing and that's my final point. I think the new technology can change this quite a lot I mean my daughter never goes to the branch doesn't care where the branch is They they they work on completely different tools and these could help maybe boosting up or so retail integration In services much more than than is the case right now and on pillar 2 I completely agree with with Inazio I will not elaborate on the point on the EBA But the point is clear that you need to go down in terms of leaving more Responsibility to the supervisors, but the point he mentioned is the most important one You need to have them become predictable and more transparent I mean if you have eventually in private investors that take losses if things go wrong They need to know in advance where you put the bar and how you do your job Thank you very very much to all of you. Let's give them a warm And we take a break now we take a break now for lunch, which you will find outside We're starting significantly late But if you can nonetheless be back more or less on time that would be wonderful so that we can move on with our next panel Thank you