 Good afternoon and welcome all on-site and online to this panel discussion on banking supervision and the role of banks in the future banking system, opportunities and challenges ahead. I'm a moderator and I'm a journalist of the Italian newspaper Sole 24 ore. And in the next hour, this exceptional panel will bring together forward-looking insights from supervision, central banking, regulation, academia and markets. Then we will have the last 30 minutes that will give you a chance to ask questions. So I know you know them, but allow me to introduce the panelists. Tornsson Beck is Director of the Florence School of Banking and Finance, Professor of Financial Stability at the European University Institute. And he's a consultant for among others, the ECB, the Bank of England, the VIS, the IMF, the Inter-American Development Bank, Asian Development Bank and European Commission. Then we have Stein, Classes, Head of Financial Stability Policy and Deputy Head of the Monetary and Economic Department at the FBIS. He represents the FBIS externally, the Financial Stability Board, Basel Committee G20. And he held positions in the World Bank, IMF, and he was Senior Advisor at the Federal Reserve Board. Michela Marcoussen is Societation Rally Group Chief Economist and leads a team of about 30 economists and sector engineers in a role as Head of Economic and Sector Research in the Risk Division. She has over 30 years of experience in the financial industry and believe me, I heard it already when you asked questions. And we have online, hello, Elisabeth Macau, that you know a member of the Supervisory Board of the ECB and she focuses on prudential implications of financial stability, climate change, fintech, and anti-money laundering. So as a journalist, I'm based in Frankfurt and I write about ECB, monetary policy, and financial banking supervision. And I must say as a journalist, I can confirm that we are living in exceptional times. And this, I see it by my articles, also my recent articles, where this word unprecedented always comes up. So for example, yesterday, and I wrote the article on Andrea and Ria's conversation, he said that there was an unprecedented speed of outflows of deposits. So never before this speed for this size. And tomorrow, you're going to see what step the ECB makes in its fastest and steepest interest rate increase in the history of the euro. And there again, I wrote this, my articles, unprecedented. And when I spoke with an ECB economist about inflation, he told me, this is unprecedented. I haven't seen inflation going so fast in so short time. Then recently, I wrote an article about a discussion paper by the ECB in Europa on climate insurance protection gap. And there again, I saw that we are unprecedented times for natural catastrophes losses. And there were numbers that were really striking. We are well above the last 10 years average. And this is going to triple in the century. So there again, of course, the unprecedented war in Ukraine. And I read the report that maybe banks should look at unprecedented geopolitical risk and start to move on China. So there is a lot. And all these brought me also to my last, one of my last articles that I want to tell you about. It was about the results of Deutsche Bank, the first quarter results. And I followed the press conference from the CEO, Christian Saving, and also the call with the analyst. And then at the end of two hours, more or less, called with the analyst. There was a JP Morgan analyst who asked, but to the CEO, I see there is this disconnect. Also the word disconnect was previously there is this connect between your share price and your results. And what can you do about it? And Saving, who is very straightforward, said, you know what? I asked myself this and now I ask you, analysts of all the banks that are looking at us. What can we do about it? So today, let's hear what we can do, banks, regulators, supervisors. And my first question will go to Thorsten. Banks are solid, more profitable, but as we have heard, are under pressure by markets and supervisors, regulators on business models, risk management, governance, cybersecurity, money laundering, between digital and green transition geopolitical risks. Then we had COVID, financial turmoil, 81, fintech, crypto assets. So a simple question, how do you see the future of banks and the bank of the future? Well, thank you very much. That's a big question. And I guess the one thing I, one word I shouldn't use during the next few minutes is the word unprecedented, I guess. Well, I'm not sure what to say about the current banking situation because I think we've heard a lot already yesterday about this. I mean, the one thing that seems to come through is that as a system, European banks are in a somewhat stronger position than the US banks, which again, can have many different reasons. The fact that it's here in Europe, almost all banks are subject to Basel III, unlike in the US where some of them actually were taken out in five years ago, which of course also points to the much more high-frequency regulatory cycle that we see in the US, where only 10 years after the global financial crisis, they started easing regulation, which is not the case here in Europe, at least not currently. And of course with the caveat that actually Andrea mentioned yesterday with respect to the last Basel III package. And one, maybe one can argue that, I mean, I'm not saying this because I'm sitting in this building or because they pay my travel cost, but I think the SSM has been doing a quite good job in terms of all this supervision, because it's not just about regulation, it is about supervision. And I think one, and we've had the experience of course here in Europe, in this country, with banks that don't have a proper viable business model, which we're the Landesbanken, and I guess we see something similar now in the US with some of these regional banks. Now, does that mean we're out of the woods and everything is going fine? Well, maybe not. I mean, the euro area has seen much less of an increase in interest rates than the US, for example. So maybe there's still something to be ahead. But I think more generally, I mean, we're living in times of very high volatility. One of the buzzwords now is a poly crisis. So multiple shocks coming from different sides. I mean, we had the pandemic, but then we had, of course, the energy price hike, even starting before the invasion, the Russian invasion of Ukraine. We have the more general geopolitical tensions. And all of this, of course, makes for a lot of different shocks, which still might affect banks, banking system as such, or different banks to a different extent. So I would be very cautious about that. I think also these repeated kind of shocks that we've seen kind of shifts also the balance, and that's more general comment in terms of economic policy, but also specifically in the financial sector between the role of purely markets based allocation processes and the government, the role of the government. I mean, the bankers were very happy in spring 2020 because for change they were not the culprits for the crisis. And actually have been helpful as a transmission channel of government support in guarantees, lending programs and so on. But of course, as necessary as this was, and I'm not doubting this for one moment, with repeated continuous role of governments in supporting the economy, stepping in as a insurer of last resort, of course, reduces to a certain extent the allocation function of the financial system. So I think that's something to also discuss going forward, both in terms of the role of the financial system, but also in terms of stability risk. Now, more broadly, you mentioned the double transition, digital and green. I mean, I have the impression that digital actually Stein also knows probably much more about this because he has the data. From digitalization, I think Europe is a bit behind. I mean, I think we've seen a much bigger role of FinTech and big tech in the U.S. And I think there is actually still more to come, unless the regulator cut it off. And we've seen it. And of course, it also means a little bit like also what Andrea mentioned yesterday. I mean, Europe still seems overbanked and there might be some of the banks might have to to exit something I'm going to come back in a moment. Then on the green transition, I mean, we've heard just before lunch from Mary soon that banks might be a bit reluctant to actually really help with the green transition if I understood the paper correctly. There's also other work, for example, my former colleague Hans de Reise, which basically shows that banks don't really have the incentive to let go of their brown borrowers. Yes, they might support them in a green transition, but they also kind of might be reluctant to kind of support startups, kind of new contestants, challenges in the respective sectors that kind of introduce new technological green innovation or technologies because of the legacy assets to kind of protect these positions. So there is, that's one. And the other one, the other point is there, and I think there has been also paper by Luglavner, I think it's by Lex Popov, I'm not going to show, but there's of course also risk shifting. You squeeze the banks on one side by telling them you can't do more, you have to become greener in your home country and then they shift the bad stuff abroad, preferably to emerging countries. So that's another issue that has to be kind of also taken into account. So yes, I think there is a lot of pressure still to come from digitalization green transition, which I think again, and I brought this up actually in a question yesterday Andrea, that we really need a robust bank resolution framework in Europe, which I think there has been lots of progress made and I don't deny it at all. But I think, and there's more proposals on the table, but they're kind of very little steps, kind of baby steps, and I think we need much more on that. Ideally, we would actually also get to the point, and here for those who know me, sounding like a broken record, we need more cross border mergers between big banks in Europe. So we have to go away from this idea of Deutsche Bank being German, so Citationale being French, only kind of being Italian, but having really European banks. So maybe very last point, the European Bank of the Future, the Bank of the Future, I don't think there's one type. I have this feeling that there will be more like large banks, and I was a hope for that large cross border banks in Europe, and then more the local banks, but I see that in the middle being squeezed more by the competitive pressure. But then again, I might be wrong on that, but that's kind of one way I see the structure developing going forward. Thanks. Thank you, Thorsten. Yes, you do mention the various types of banks that we have in Europe. You mentioned also the regional, and this is also one of the strengths of the European system with our SMEs that have to be reached also by smaller banks. So this comes into the equation. And so my question to Stein, banks are facing multiple crises as we hear, but I think also regulators are facing this crisis. And at the end of the day, we have to deliver on basics that banks have to finance the economy, households and corporates, and they have to be solid and profitable. So what can you tell us about the regulatory framework in these challenging times? Thanks, Isabelle, and thanks for inviting me to this event. So I think you're going to be a little bit covering the same issues that Thorsten did in terms of setting the stage. First of all, I think we should think of the system as being relatively robust in the presence of these large shocks. And you mentioned them already. We've had much higher interest rates after the COVID shock and the war shock. And banks have done well. So yes, we see some weaknesses here and there. And they're not completely idiosyncratic, but there's a big idiosyncratic element to it in those U.S. cases, but also in the European cases. But on the whole, losses are not large yet, MPLs are not large. And banks have these stock positions in terms of both capital and liquidity. So I think we should be proud in some sense of what we achieved in the reform since the GFC. That took quite an effort, but not all the way there yet. So we should keep the pressure up to finish Basel III and other reforms. But the starting point is nevertheless a good one. Having said that, there's always the half-full half-empty class. You're right. There are regulatory issues that we have not necessarily ignored. I mean, there were in the table in the Basel Committee in earlier days, but unfortunately sometimes it's getting consensus around the table on some of those issues. I'll mention some of them, but I think they're very obvious that we're studying at the moment and that we will come out in the future as to what it is that we may want to do. We should keep in mind that Basel III is meant to be a hard stop. So we're not going to open up the whole thing very quickly and very soon. But there are issues about the treatment of unrealized losses. We're going to obviously be talking about interest rate risk. We're going to talk about liquidity coverage ratios and the design of the particular parameters there, the net state funding. 81 is an issue not just on the micro-potential, but also the market for the 81s is clearly there. And more generally, proportionality and how you balance that. Contrary to different views on that, Europe is one, but that's not necessarily the model around the world where you have one regulation implying to all the sets of banks. I think we're going to be talking about it, but again, don't hold your breath for it. It will take some time to get the new rules thought through properly. But I sometimes also want to say don't hold your breath for it because I don't think it's necessarily going to be the solution. Because these micro-potential rules, as we have designed them in Basel III, did achieve quite a bit, particularly on the capital side I would say. But there's also things that don't necessarily add up to the system-wide level, right? Particularly when you talk about liquidity. That's something that you can achieve at the individual bank level at a certain way in liquidity coverage ratio. But it doesn't mean that the system as a whole is more safe. We need to think both micro-potential and we need to also think micro-potential and how we achieve that. And there I completely agree with Thorsten. The role of supervisors is key. So the supervisors have to be micro-potential oriented, of course, but they also have to have a systemic overlay. And there the tools in principle are there, but we don't necessarily always use them. It doesn't always have to be pillar one. It can be pillar two that you can bring to bear on this. So that's in terms of big picture kind of setting the stage of where we are. To address some of your specific issues as regards the European banking system, you mentioned issues about fragmentation and Thorsten also alluded about it. Well, first of all, regulation in principle is meant to reduce fragmentation, right? To the extent we have a level playing field both within the European countries but even more important globally and that comes along with consistent implementation, we would have less fragmentation in principle. Now we haven't seen it in practice and this is where the banking union, of course, is a key component for the European sense besides the SSM. We need to complete all the pillars of that in order to allow for that. Is that enough? I don't think so because again Thorsten alluded to it. We haven't seen the cross-border banking, the M&As working to a significant degree. We have crisis in countries but the solution is always a national one. So we really have to move towards more of a cross-border practice and then really get the system also more competitive. Now when I think of the bank specific issues, I think that's always down to the business model and I think there are unfortunately besides maybe those savings alone, there are other banks that have questions about the business model and it shows up in the price-to-book ratio. And here it's not so easy to give the solution so I'm not the JP Morgan analyst that can on the basis but I think the digitalization is a key component where the European banks are quite far behind. So getting the greater benefit of that and then being able to stand up to the competition. It's FinTechs. Big Techs have so far been outside, luckily in some sense, of financial service provision but we at the BAS have been writing about this for a number of years and in some sense we were expecting it but it didn't happen when we had things like Libra and DM come along that were stopped in the end. But if there were to go down that route, it's not obvious to me that most of the banks can compete in the payment space and maybe even in the credit space with those big techs. So there's a big issue here but also some basic issues of cost-to-income ratios that digitalization would really help. I mean there are many European banks that even at some point went above 100% on the cost-to-income ratio and that's not a good model of course to work with. So making banks more profitable goes back to this level playing field to some extent but is also forcing a little bit more from the supervisory side. I can talk about green but maybe let me save that for the next round and then we can discuss that in more detail. Thank you, Stein. Of what you said it's that the banks are doing well and robust. I must say that with this liquidity issue and what happened not only in the US but with Credit Suisse I must say that banks are under so much pressure because of the risk of contagion on deposits and when analysts ask banks about the deposits well banks can really say a lot about the liquidity and liquidity buffers and this buffer above the threshold of the liquidity requirement has been so helpful in this crisis not to get contagion. All banks could say or many banks could say we have this on the top of what was required we have so much liquidity and this really in a contagion situation where contagion is again another fast mover I think this helped a lot so liquidity was yes when you said we can be proud of what we did. I agree. So my question to Michaela because banks have been asked to do so much and to deal with not only crisis but challenges and a lot of investments also. The European Union has been working on for years now I've been reporting for ages about the capital markets and capital markets union but if we think about the instruments the tools that bank should have maybe you can also tell us about this. Thank you. So thank you very much and thank you for inviting me here today. I think also I agree with I would say 95% of what's been said so far on the bank but I just wanted to step back and really think a little bit about how things have changed over the past decade or so. So of course we've had since the great financial crisis tremendous change in regulation and supervision. In Europe we have made improvements on our architecture but I think we can all agree that there are still some pretty big pieces missing in this architecture. We've also had this period a very low for long and we've had tremendous expansion of the central bank balance sheets. So I think this is something really important because what does it mean? It means that operationally the interbank market has basically disappeared and we've moved from a corridor system to a floor system. Now of course one of the big topics this year it's not our topic today but I think it's very important is the discussion in the ECB on how this new operational framework is going to be in the future and it's important for the banks but I would also say it's going to be super important for the governments. So it's not our topic but I think it's very important. You mentioned unprecedented and we always hear a second word along with the unprecedented which is unprecedented uncertainty and I just wanted to say a word about this because there's a very nice chart from globalpolicyuncertainty.com you can look at the global policy uncertainty and we see something quite interesting you have the whole decade sort of it starts around the mid 1990s late 1990s and then up to the great financial crisis we had some really nasty things happening Asia crisis, Russia crisis, many crisis but every time after a crisis we came back to a very low base of uncertainty then we had the great financial crisis then we had the euro crisis we started going up and there was a short period where we thought hey maybe we're going to go back to the low base again but no Brexit, debt ceilings, war, COVID, many things happening and so what we've seen is that we've really had this structural ongoing structural increasing trend of uncertainty and I think you know this raises some very big questions and what we've seen is that the fragmentation that we often talk about in Europe is also very present at the global level we see this, we see that the question of extraterritoriality is one that enters in greatly as well and we see now that people have become much more focused as well on what does it mean if I'm operating in a country with potential geopolitical tensions looming ahead so this also changes the way that both non-financial companies and banks and financial companies are looking to do business I would also add that we also see a societal fragmentation and I think this is something that we cannot overlook and then of course we have these accelerated transitions so we mentioned digital and green but we also see it in terms of how companies think about their supply chains previously everything was just in time now everything is becoming just in case just in case what well we can discuss about this and then I would say that to this unprecedented uncertainty I'm going to add unusual because when I look at the economy today so my role is to be an economist it's really hard to forecast because I'm dealing with all these unusual buffers these huge volumes of excess savings that built up during the pandemic how quickly how are they unwinding how are they distributed big question unusual corporate profits unusually low corporate defaults bankruptcies and unusually low unemployment I mean if you look at the chart on the bankruptcy rate and then you look at the chart on the unemployment rate you get a little bit of a hint as to why we've had such an exceptionally low unemployment rate but it's not the only reason so with all of these factors in mind of course business models even before the pandemic and the war for banks had to adapt and this adaptation basically entails several shifts it entails a shift from interest rates generating business to fee generating business it changes shifts in funding structures and then it also changes shift in risks and this shift in risks we've also seen it between the banks and the non-banks with a lot of the risks that we are carrying leverage and illiquidity shifting outside the banking system and I think this is very important to keep in mind so question is how will these models adapt and I think the bigger question is what are they supposed to adapt to so some things we can know quite well we need to do something about financing the accelerated transitions but exactly how are we supposed to adapt to all of this new uncertainty it's very hard to know and the only way to do this really is to adapt this just in case approach and you both mentioned that we heard it earlier today the role of governments in how much of the just in case risk should the government takes on and then I think the really interesting one is the higher interest rate risk so the big debate now many of you will have seen it is where is our star and where is our star going to are we going to go back lower are we going to go higher it's a very big debate there was a nice debate with Blanchard and Summers and even on inflation is inflation going to go higher we hear a lot about greenflation fossil flation, climate flation but digitalization is probably deflationary so we're not really quite sure what environment we are in so there is one thing however that we're quite sure of it seems and that is that and it's a bit sad really but I'm going to say it anyway I meet very few people who disagree and if there's anyone in the room if you don't want to tell us in public come and see me and break I would really like to talk to you who disagree that we need the banking union and capital markets union unfortunately I meet even fewer people who think it's going to happen anytime soon and that means that we really have to raise some big questions about how we can move forward in financing in Europe and I think for that we can take some reflection on the risk sharing so of course the first channel of risk sharing that we often think about is public risk sharing and this is also probably the biggest impediment to us in Europe today is our difficulty to accept public risk sharing across borders then we have the capital markets channel which is about holding diversified portfolios across jurisdictions and then we have the credit channel which is about lending across jurisdictions before we get too excited I just want to remind us all that what happened with the European debt crisis was basically that the credit channel pulled back very quickly and there's some very nice papers on this which look at how these credit channels and capital markets channels work in terms of risk sharing and what we observe from the US and I think this is a very important lesson to us is that these two so-called private channels of risk sharing in the US capital and credit actually come with tremendous public support we see this public support through the mortgages with the government sponsored enterprises we see it, Isabella you mentioned the SMEs in the US, the Small Business Administration plays a huge role and acts as a fiscal tool as well in the time of the crisis and of course we also see that there has been again tremendous support from various temporary measures which we've seen in Europe as well but I think these more permanent features of public risk sharing are hugely important and I would say that if we are looking at the capital markets union as a kind of the lowest political hurdle thing we can advance on now and we believe that we can do everything through private risk sharing we may very soon find ourselves in a kind of Euro crisis too because this is exactly the belief that we had when we created the Euro in the first place that we could have the private risk sharing across the borders and then this would give us the optimal monetary union so I think we have to be extremely careful in thinking about this risk sharing and then the final point I have two final points I wanted to make a first point which I think is very important for Europe to think about is our sovereignty and it's been a discussion we had the discussion on the internationalization in the Euro but I think sovereignty is becoming even more important and I think the financial system is a big part of sovereignty and then we talk very often about the idea of a level playing field and I think it is hugely important and unfortunately I think we've seen with the latest developments in the US that the playing field is not quite as level as we wanted it to be because it's not just about having a level playing field in regulation it's also about a level playing field in supervision and I would go so far as to say that that was not the case and that I think is very important when we start to think about climate change and we can pick up it in the next round but I would just make one point we all agree that we need a carbon border adjustment mechanism so that Chinese companies cannot produce goods in China which have high emissions and sell them into Europe or in the US or anywhere else it doesn't have to be from China in fact in some ways maybe China is not doing that badly on thinking about going green but that's another discussion but my question is do we have to think about something similar in finance do we need a carbon border adjustment mechanism for finance as well and so I think these are some of the things that we need to think about as we move ahead and my final point is that cost efficiency is hugely important because we do need to have profitable banks for banks to be profitable they need to be cost efficient as well and here I think there is a lot that can be done in terms of just taking a step back and not necessarily lightening not taking away regulation not taking away supervision but thinking about is there something we can do to make it more efficient to make it more optimal and I would make a suggestion if we could have a central climate data platform that would be top we would save a lot of money and we would keep money inside of Europe as well sorry thank you Mikaela for your thoughts and also the propositions and the ideas that you have to look forward I must say that in all of your interventions there is this quest for more Europe we are doing a lot but my feeling is that we should do more if it is banking union or capital market union or the state so it's we will have the chance on the second round but now Elisabeth yes we can see you and you can see us so my question to you what are the lessons learned from the recent multiple as we heard crisis cases from a supervisory perspective also which are now your priorities so much is going on at the same time so looking ahead what is the priorities from a supervisory point of view thank you it's a pleasure to be with all of you today I wish I were there in person I very much agree with my fellow panelists on a wide variety of the subjects that have been addressed and let me highlight one in particular and that is I think all of you have very much to be a lot to be proud of in making more Europe over the last decade because it's really been something that has helped us tremendously in these unusual unprecedented poly crisis times that we find ourselves in it's quite important that there was such a focus on strengthening the soundness of the financial institutions that operate across Europe and that has really helped us through the pandemic through the supply chain shocks through the war through the inflationary period that we're living through now and through this banking crisis that we see happening internationally and I'd like to just spend a moment moments on that May all of you know that our chair of the SSM Andrea Ria asked almost a year ago for a report and really it's a brave thing to do to have outside experts come in and have a look at how we do our supervision how are we effective are we efficient what do we need to do to continue to improve ourselves and we asked a group of former supervisors, persons with international experience and each a person with a great deal of gravitas and expertise in the area and we gave an open book to them over the last eight months for them to review our processes review the effectiveness of our supervision and we released a report just a couple of weeks ago that had been better to be looking at the effectiveness of supervision the eyes of the world have turned to the effectiveness of supervision in the wake of the issues in the US with SVB signature now First Republic Silver Lake and then also of course with respect to credit sui and the questions that are being asked are about what needs to be strengthened the regulatory framework what is supervision effective so I'm really very proud of the fact that we're not asking those questions for the first time now we are coming to this conversation with a tremendous amount of work done albeit the questions weren't being asked in the context of the banking crisis that we see in these days but interestingly and you also know that the US supervisors the FDIC and the Federal Reserve released a report also last week they promised to do that review in the wake of the signature bank and SVB bank issues in particular and they released their own report about you know what happened in the context of the effectiveness of supervision and very interestingly there's some similarities in the recommendations that were made both in the US and by the wise persons that looked at the ECB's processes in the SSM and so the similarities are these first supervisors need to be developing a more robust understanding of the risks that banks face and how those are evolving with economic, financial and the technological environment 42 billion going out the door in five hours on the strength of social media tweets is really something unprecedented to use that word so we need to really be upping our game across both sides of the Atlantic with respect to our understanding of the changing environment second is to really focus in on the culture of supervision and shift it toward a greater focus on the inherent risk in the banking system and to encourage more conviction more willingness to form judgments that challenge bankers with a precautionary perspective and then third to strengthen the escalation process inside the supervisory system so that there's a systematic elevated focus on long dated material issues that remain remediated to move those toward a much more rapid remediation process but having focused on some of the similarities in the conclusions and recommendations in the two reports I think it's important to also highlight there's very significant differences there is not a read a direct read across of the U.S. events to the Euro area for the significant banks and there's some reasons why that's the case first the banks that we supervise in Europe don't have these outlier features that you see in these regional banks that were that failed in the United States we don't have the same extreme interest rate risk and we don't have the business model where there's a major reliance on concentrated uninsured deposit base and the correlation between you know a very particular type of business model and lending lending base correlated to the deposit base second unlike in the U.S. and maybe this goes to Michaela's level playing field point all of the banks are subject to liquidity standards that are established by the Basel committee in Europe and that includes the LCR and the NSFR and more than half of the existing buffers of highly liquid assets are made up of cash and central bank reserves which mitigates the risk of mark to market losses when liquidity needs arise and we are not exempting banks from deducting unrealized losses on available for sale securities from their capital so you know there's I think also Stein alluded to this we need to be asking questions about LCR available for sale held to maturity portfolios capital calculations and make sure in light of the current market environment that we're in that we have got it right from a regulatory point of view but I think you know we have good reasons to be encouraged by the strength of the banking sector in Europe we also and I would be very much failing if I didn't say this we're also very much adopting this stance of looking to be agile and looking to have courage of our convictions in this very very uncertain and unusual period of time the markets are quite unpredictable and it's we need to be at the top of our game and I think agility is is a key part of that I'll turn to the second part of your question now about the priorities and in a poly crisis environment you know there's so many priorities that you need to have I was turning to the second part of your question Isabella which is about our priorities and I'll just touch on on a few that I think are very important and my colleagues on the panel have also focused in on on some of these priorities with very good reason the first one is interest rate risk and liquidity and you know the rise in interest rates is certainly one of the key drivers of the market stress that we've observed in recent months but we've also seen that the rising interest rates have supported an overall basis in supporting the Euro area banks lending margins and on balance at the moment it's a positive for the banks we're seeing profitability and we're not seeing that the rising interest rates are are negative so deposit rates have increased so far more slowly than the asset yields and that's boosted aggregate net interest income in the Euro area by about 15% during 2022 we're looking very carefully at whether the interest rate hikes can create an issue we're going to continue doing that we started that last year we'll continue doing that in 2023 we have already performed targeted offsite review and on-site inspections on exposure to interest rate and credit spread risks and we are continuing to perform those similar activities and we're paying very close attention to sectors that are exposed to interest rates such as the commercial real estate sectors and we're following up with banks on the results of this targeted review looking for potential deficiencies that have been identified and also looking carefully at developments are the institutions strengthening their interest rate risk measurement and their management because I think we and the banks need to be agile in this area we've also conducted work and it is ongoing to address vulnerabilities related to a lack of diversification and funding sources and any deficiencies that we identify in funding plans and that includes an analysis of the exit strategies for the TLTRO so we're focused in on that second priority for us is this area of cyber IT risk and digitization and so here with cyber risk I'm very proud of the fact that I think we may be the first user that are launching a cyber risk stress test we're going to be asking institutions to react to scenarios so we're not talking about conducting hacking exercises or something like that we want to make sure that the institutions have operational resiliency in the event that there is a cyber attack that affects operations in some way and so this has been a priority for us we've been closely monitoring we didn't see as much cyber activity as we thought we might in the context of the Russian war in the Ukraine but we continue to very much have the concern that the current geopolitical situation can give rise to continued stress in this area digitization I'll just spend a moment on this we're living in unique times I'll add a word to our discussion today and it's really a technological renaissance there is tremendous opportunity in front of us we saw what happened with chat GPT onboarding 100 million users in January in only two months of having that product launched how will that the use of AI have an impact on the operations of the institutions how can digitalization transformation result in more cost effectiveness for institutions so having a digital strategy is certainly an imperative for the institutions that we supervise it also comes with risks how do we understand what black box analytics may be producing in the AI areas their discrimination is their bias there are a lot of black outcomes that are being generated I think this puts a focus also one of our priorities on governance we need to have at the top levels of the institutions enough understanding of the technological change that's taking place so very much focused on these priorities and like my colleagues I'll just mention climate risk very briefly that is certainly a priority proud to be associated with the ECB because of the focus on climate risk we started over three years ago with asking institutions to conduct self assessments we have done thematic reviews we have done a climate stress test these are learning exercises or we as supervisors also for the institutions points up you know tremendous need for focus on transition and deep understanding of what will happen as a result of government policies for us this is bread and butter climate risk it's about credit risk and physical operational risk so it's it's a normal part of our activities to be concerned about these risks I'm proud of the fact that the focus we put on this has moved the dialogue and the institutions from you know social government policy government relations area of the bank to the CFO office the risk office and the board and I think that was really an essential change that needed to take place so I will just stop there and apologies that it it linked out for a moment there you know it worked very well so we could see you and hear you well all throughout only short break but thank you for your your thoughts and I must say that it is true that we live in unprecedented uncertainty but we all look at the supervisor to see that you have a certainties in the way that you move and the way that you set your priorities and my impression is that in all the uncertainties you are focusing on the risks also that are coming and to prepare banks also for the unexpected now we have a second round before we start the open the floor for questions and so I will not ask you a specific question each because so much has been said to comment on but only one thing from my side I would like also if you may have comment on the fact that we need more M&A in the banking system in Europe after all this to face also the challenges on a global in a global way with US and China and India why aren't we doing more there is a lot of ring fencing I think maybe too much so for instance you start off well thank you very much I have actually five points and one of them first to what you just said first comment you made earlier on liquidity I think liquidity buffers are important but there is a limit to it I mean if you underline business model doesn't work and if you have hidden losses then as much liquidity as you can have it doesn't happen I think to me that seems to case in the end for SVB I mean I don't think this was a irrational bank run it was a very irrational bank run people put their money out because they kind of could see I think there is I guess in this case I would say and I think the report by the Federal Reserve pointed it out I mean there was number one a failure of risk management within the bank but in second there was a supervisory mismanagement and only third is then the ultimately that it wasn't subject to Basel III so I think that has to be kind of kept in mind very quick question and I don't have an answer this maybe it's a bit provocative that unprecedented uncertain unusual I wonder so unusual low unemployment unusually low bankruptcy is that maybe also artificial a little bit is that where the whole government support so has like an after effect because I mean I remember the discussion we've had in 2020 about the expected wave of corporate insolvency of non-performing assets and they haven't shown up which we're all very happy about okay I'm not I'm always like to be proved wrong but so I'm just wondering that that's of a question or an open question I find actually also your point on the carbon adjustment mechanism for cross-border banks a very interesting point and I think it refers to something I mentioned earlier on this kind of like risk well I guess it's not risk shifting that's dirt shifting basically right so you can't do a brown lending at home then you do brown lending somewhere else or you sell it off to somebody and I think that's going to be a challenge it's somewhat similar to this debate on the regulatory perimeter and on cross-border supervisory cooperation on also what and I wanted to mention this earlier and I forgot what Elizabeth mentioned on these and cyber risk for example cyber stress risk so I think that's that also shows that going forward for risk management we're working on two fronts and one is to have sufficient buffers I mean you mentioned capital buffer liquidity buffer capital buffer and so on but I think for certain catastrophic risk I mean there's not enough capital to be held so it is really about crisis management plans for example in the case of cyber risk or even worse geopolitical risks and then finally on what you mentioned the cross-border so and also coming back to what Mikala mentioned on sovereignty financial system so I think the issue that's right I mean and I think that's also why we still have national banking in Europe because it is seen as part of sovereignty and I think again in this the country where we're sitting right now well we might be exterritorial I'm not sure but in Germany this the politically kind of induced merger talks between Deutsch and Kermals show that there is too much nationalism in banking and I think that's that the only way to move away from that is to move to a European financial system and define sovereignty at the European level not on the national level now that sounds I don't know political scientist talk sounds very ambitious and I know it's very ambitious and I think there is also a long way to get there because it's not just so the banking union itself would be really only in necessary but not as efficient as conditioned to really get to these cross-border merchants to get to a truly European banking systems I think more has to happen and I think that's something actually to be discussed much further but I think yes ultimately that's going to be the challenge to really move thoughts not giving up on the local banks by the way not at all I mean I think the diversity is something to be celebrated but to get to really a European financial system and that there's much more to do thanks thank you we must be ambitious I think looking forward so Stain please thanks let me also use five points so starting with the M&A I mean I agree largely with what Thorsen says I would add a little bit there to the extent the banks are not profitable in general it's very hard to see M&A's right because then why would you do it in the first place so we need to make banking a more profitable business which is cost efficient digitalization but we also need to rationalize the banking system as well in terms of number of banks and we're not going to do that there are these banks they're not necessarily the kind of default but they're of a zombie and of nature that they overall banking system by keeping maybe margins lows deposit rates etc in that sense we need to think of moralistic that's partly SSM versus the national supervisors possibly where the SSM has the pan-European view but not necessarily the national one so back to the sovereignty question but in a little bit of a twisted a different way second point non banks Thorsen mentioned it we can talk the whole afternoon about non banks but to the extent it's a competitive force for the banks but we don't think that they are regulated properly and exposed they get support form of bailout then we're distorting of course the banks implicitly as well so there's a feedback effect that we should keep in mind we've done a lot on the non banks but we haven't gone there all the way we've definitely done that and that's on the non banks that we've done on the banks from a system perspective we still have this micro investor protection, consumer protection perspective but not what does the system as a whole deliver us in terms of overall financial stability and then the non banks have been time after time an issue that comes up in very discreet ways and then suddenly it's a big number but we have to worry about it every day not only when these things arise third point and this is Michaela mentioned risk sharing here we wake up to risk sharing exposed but not ex-ante so we have this mechanism that we get in there and then we support those that have failed and this is always of course a problem with crisis you end up supporting the failing guy you really should be supporting the good guy you should do that as much as possible before and so we need to move away from it now what Michaela says there's a role for the state there yes I agree it but let's be careful let's not overdo it but we should support this risk sharing in many many different ways but let's not get to the banking union completion only when we get a major liquidity one in Europe I mean please let's be a little bit better than we have maybe done in the past point four crypto we didn't talk about something where Europe maybe has a little bit of a lag up in terms of at least putting down a framework is it a perfect one now but at the same time on the regulatory side on the crypto I don't think we should over go on the regulatory side I always think of the world you can you can ban crypto you can try to contain it you can try to regulate it or you can actually put something forward that's even better than what the people think they're getting out of crypto I don't think they're getting out much out of crypto in the first place but to the extent they think they're getting something out of it let's offer them something better and let's be careful on the regulatory side because you can easily give the signal that it's a good thing and we don't necessarily think socially it is a good thing so that's my point on crypto finally on green with us I I'm a little bit more in the camp let's not put the horse before the car so I wait behind the car in the sense of that we need to think of green a little bit more holistically this is going to have to be driven by the state setting the right prices on the real side to regulation, carbon taxes whatever border adjustment mechanisms finance will follow that and it will be so much easier for finance to follow when the real side is giving the right signals right now if you keep pushing on finance to take the lead we're going to end up with these things that we heard from Maria Sunte that we overdoing it and we're not over promising and that we're delivering we're going to have green bubbles we're going to still have possibly at some point the sector waking up having a brown run in the sense that those things that we really still need which is energy in part is not going to be finance anymore so unless we have that holistic picture finance could have a more difficult time and actually even make things worse in my point of view so be careful where we want to go with green if you don't have that piece of puzzle in place thank you thank you Sten of your remarks when you said on non-banks issues I mentioned in the introduction this discussion paper by a Yopan and an ECB on insurance and natural catastrophes and by reading it I thought it was very interesting how the two points of views of two authorities were put together to reach a common name coming from different perspectives so maybe that can also be done more in the future please Michela of course so thank you I'll try and pick up on a few of these topics I think when we think about the question of consolidation and I can only agree we do need to see consolidation in the European banking industry perhaps both at the national level and at the cross-border level one thing that I think is really important to try and think about is what are the wins from having a cross-border European bank today and when you think about the differences between banking markets in individual European countries you know it's if you go from one European country to the next the supermarkets are remarkably similar right you find most of the same products there is the odd little twist but it's 90% the same if you go and you look at the type of services the type of products that the banks offer they're actually hugely different the way mortgages are done the way savings products are done the way pricing is done do you charge interest on do you give interest on deposits or not do you get fees, do you get checks are they free and part of that has to do with the tradition of the country but part of it also has to do with the rules that have been negotiated and agreed with governments you know and I think if we want to build a case for the mergers especially in retail banking it's not that easy to do today so I think this is very important and then I think there is indeed the clear question of ring fencing and then I think there is a question of the single jurisdiction but also the sovereignty because if a big European bank today or a small European bank today comes into difficulties they know which sovereign to turn to a big US bank knows which sovereign to turn to which sovereign does a big European bank turn to and does it then become a question of several sovereigns having to agree which we know is quite difficult so I think it really is it really raises some very big questions on the sovereign side on the transition but you know it's something that strikes me very often in policy setting is there is a question of where is the lowest political hurdle in putting in measures right so question is the lowest political hurdle on measures to accelerate the climate transition is that measures put on to the financial system if the answer to that question is yes we all agree that that's probably not the best place and we saw some very nice papers this morning to put the policy then I think there is something that has to be said very loudly to the governments in terms of the transition policy and I think we had very nice research illustrating this point this morning now on the non banks I think the point made I think it's hugely important if we're supposed to bail out non banks then yes they have to be regulated if we're not supposed to bail them out then fine but then they have to take the losses and I think we're very unclear on this type of arrangement and then I think there's another dimension that we have to think about which is also consumer protection on the non banks you know I am very scared when I see people with no coins do they realize that they're buying into unsecured bank deposits do they really understand this I'm not sure you know but we saw this in the US right this is the case now luckily they were protected but I think there's some really big questions when it comes to new technology it's not something because something gets a new fancy technological wrapper that it's good I wonder if I stood on the street corner and I was like I'm probably money how you know that would go down I'd probably get locked up for being crazy and on the final point I just wanted to because we haven't talked so much about it but I think it's very important so I mentioned already about the future organization of the central banks balance sheet and the way the short-term money market operations work and I think there really is a big debate on how much excess reserves are truly excess you mentioned Isabella that many of the excess reserves today are held in the HQLA portfolios and this is clearly desirable so I think we have to really ask questions are those excess reserves in the traditional sense and I love it whenever the ECB puts out the new chart with the HQLA breakdown I wish we had it as a regular report but that's another story you know maybe it's a request I can make in this building and then finally on the central bank digital currency I think this is something we have to think very hard about there was a very nice report from Angeloni which came out last week on this question but there is a very interesting question as well when it comes to sovereignty on central bank digital currencies and the question is especially important for a number of emerging countries whether their monetary regimes could be threatened by large countries offering these type of services so I think it opens a lot of questions probably more than we have time to discuss here today but I think it's hugely important to think very carefully about what this new technology could mean. Thank you Michela when you said about the different products and banking products all that retail level I've been following not with so much detail but about the efforts to create a green mortgage contract and there is a drive maybe there is an occasion with climate change and all the new regulation is going to come on that to create some European products with green standards but I see how long it's taking for this green mortgage yes maybe just to respond to that I think we've had several times we've had hopes of creating European products we had a hope in a pension area as well we've had several hopes along these lines but just on the green mortgages keep in mind that the most important thing is to again help people finance the transition of their existing high emitting homes to make them low emitting so it's really about the transition unless we're tearing down the historical centres of our towns which I think would be a shame I think we have a huge transition challenge so again if we're creating a green mortgage great but if the green mortgage is not allowing people to do the transition it scares me because then it becomes something for the wealthy people and it's going to create fragmentation because low income households will never be able to then access such a product and that's a concern to me Elizabeth the floor is yours for the second round comments thank you Isabella I want to add my voice to those of my fellow panellists pleading for more Europe and there are a number of reasons to do that I think we've benefited enormously from great thinkers that policy makers that have developed the Europe that we now enjoy that is operating in a safe and sound manner in the financial area but there is so much more that needs to be done and I also Steinman you said let's not have a liquidity crisis be the reason why we finally agree to complete the banking union I could not support your comments more we need to have a capital markets union that allows for risk transfer to take place in a more appropriate way we have very heavy balance sheets in the European institutions compared to the US balance sheets for example and if we had an operating securitization market we would have a stronger risk transmission mechanism that would put our institutions on even sounder footing we need a deposit insurance scheme the ring fencing that we see is a result of a lack of trust across borders because of the potential for a taxpayer bailout and that is a direct implication from not having a completed deposit insurance scheme for all Europeans and that is hindering cross border consolidation we I agree with McKellan she says everyone thinks we need these things and everyone also thinks we're not going to get them we should really bear down on both of these concepts and try to see what could be done the work that's taking place in Brussels now on the trilogues on the CRR3 and the CRD6 package I think we've benefited tremendously from being very faithful to the Basel standards and we see what happens when in the current environment it's a reminder that loosening Basel standards weakens the resilience of the banking sector so I very much encourage that we continue to approach those components with faithfulness and timeliness to the Basel standards I'd like to also mention the CDS market we haven't really talked about that in the recent days we've also seen in the last month how relatively small trades can lead to very sizable moves in single name CDS spreads and there's low liquidity in that market there's very high opacity there's a lot of media coverage and we've now learned quite a bit what that media coverage and social media can do it can be highly destabilizing to the wider securities markets in general so anything we can be doing from a policy standpoint to enhance the transparency in that market and its participants on a global level I think will be very important for continuing to have resiliency in our banking system and then crypto I think it's important just to quickly mention crypto I've been studying this area a little bit recently and become quite concerned about what I see as an overall gap that's there and how we can achieve consolidated oversight of the firms we're talking about wanting to have more cross-border consolidation in the European market well in the crypto area there's no such thing as borders we're looking at companies that essentially can escape supervision because they don't have a primary supervisor the concept in banking regulation about home host supervision where there is a reliance on the home country supervisor how can that be applied when you have these crypto companies operating that have no headquarters in a jurisdiction or say that that's the case and in the securities world where you rely on equivalency regimes you have the same problem so we have legislation in Europe again a first in the world with NECA coming forward but I think that for supervisability of these crypto institutions we really need to be looking more globally for a consolidated approach to oversight I think there's a pretty big gap there and I'll close there Thank you Elizabeth Elizabeth reminded us all the needs still to be done for more Europe and in our panel up to now we haven't mentioned I think yet safe assets but I think it will be a good way to start and to kick off getting more union in Europe so now I open the floor to questions from the audience please identify yourselves and I only ask you to refrain from asking about first quarter results on Societe Generale because you're not going to have an answer I say this to journalists who are here with us also online and but you will tell me if there are questions online so I will start here yes on the first row and then Victor Yes, thank you Clausterman from the ECB I was wondering when we are thinking about Merge as a way to change the banking system we really get the full scope and I wonder more what your thoughts are on the change in the business models of the banks going forward Michaela mentioned a couple of examples very much related to technology but even if I abstract from methodology you could think about something like someone who really focusing on one business line contrary to the more universal banks that we have at the moment and then reap benefits from their scale up maybe a bank that focusing only on auto-loans with ABS doing a new way to get the funding very much monolithic could be also other ways how to complete new business models could shape up and really change the banking sector so what are your thoughts about this or is this less something that you foresee possible in the future, thank you Who would like to answer you can have all the go I think everyone's looking at me on the table here so I think it's always very hard to sit down and project this is what the banking system looks like in 20 years time because I think it depends so much on so many things of what's happening around us but I think banks play a unique role in society and on a regular basis we have these debates about banks but every time we have a serious conversation around it we come back to the fact that we need the banks to provide certain services to our societies both in terms of offering a safe place for people to put their money and also in terms of offering financing to the economy we've talked about the SMEs SMEs we've talked about capital markets we can talk about crypto platforms I think they're always going to be financed by something that looks like a bank because it's the type of proximity relationship and I think there are some unique things about banking which means that I think banking is going to be here then we can discuss about how big should the banks be should they be universal should they be mono product we can have discussions around this I think that there's a lot to be said for diversity I'm always a little bit worried about mono lenders because it brings back some bad memories so that one sort of makes you go when you mentioned it I thought that was not nice but I think there's something to be said as well in diversity of banks own business models but I do think that we are seeing tremendous changes but this has been the case always you go back in time everything has been changing when I was young it was unimaginable that Sunday night I could go and transfer money between my own accounts now you can do that so I think the technology changes a lot but this is where I really put caution on not confusing the technology and the service because sometimes there's a new technology and then under the guise we just allow the wild west to emerge and I think that's quite dangerous and I think the reason I mentioned this is because what I do think is true is we're seeing these accelerated technologies so I think there's a lot to be asked about in that respect and that is putting pressure on the banks but it's also giving the banks a lot of opportunity and maybe just to give you a thought if you look at the banking systems in Europe today country by country you can see that those countries that initially were highly digitalized for example the Nordics their banks were very quick to close down retail networks because they could because their clients allowed them to do so those countries that had lower digitalization well it's the opposite story it's something really important because at the end of the day the banks are always adapting to their clients needs and if the clients are ready to digitalize and do all these things if they're ready to do the climate transition the banks will do it so I think this I think is something we should always have in mind anyone else wants to answer so we have a second question yes thank you a few questions to Michala I was surprised when you referred that for reasons of European sovereignty we would need for finance more or less the same approach as the carbon border tax I don't know exactly what you meant but if I would be in a bank or thinking about the future of banking I would be perhaps more concerned with the growth and competition of the non-bank financial system which as Stein said has been much less regulated and insufficiently regulated in my view and you have no say concern you didn't express any concern with that especially regarding some elements of regulation that keep to favor the non-bank financial intermediaries I give one or two examples for instance PSD2 which imposes on banks to open what is a crucial element of their franchise which is the information about their clients so the banks have that every regulation and all of that but now in the name of technological progress or whatever they should open mandatory that information if the clients agree of course and then those nimble fintechs in any apartment floor can offer advisory management of the money of the clients of the banks and as it didn't add a big result now the commission just announced PSD3 in order to make it more efficient that you know opening of the bank franchise that's an example another example in Mika doesn't define correctly stable coins which as you said are deposits and that's why the US regulators all of them recommended that the issuers of stable coins should be regulated as banks well in Europe that is totally out of the radar of the legislature of Mika regarding also say investment funds to give an impressive number total assets of investment funds and mutual funds in 2007 were 17% of total bank assets were 46% of bank assets it's an explosion is this supposed to continue and do you think as I do by the way that the regulation on asset managers and investment funds should be more stricter particularly I think in terms of mandatory liquidity thresholds there are a lot of recommendations of the FSB about that or that they should have also leverage ratios including on synthetic leverage why not why do banks have leverage ratio as I agree very much and not investment funds is this then two questions around this to finalize do you think is it possible to envisage that the financial our financial systems in the very long term will go fully in the direction of depending on capital markets alone where banks would not be necessary or perhaps only for SMEs or something like that or if the banks by digitalizing much more by using AI and then reducing stuff by the thousands that they can survive doing what they do more or less at the same level and would stop the continuous shrinking of their role in our economies who would like to answer let me pick up on a few of them I'll pick up quickly on them and then maybe others will want to add something on it so just a few things so just on the green finance my point is only there's no point in making the European banks green if you allow brown financing to come in from the rest of the world and finance so this was my parallel with the carbon border adjustment mechanism so this was the point there so on the non-bank system I have in my notes my point is to say if we're going to provide some kind of protection you know some kind of bailout to the non-banks then they have to be regulated if people just get to lose all their money when things go wrong then fine as well but what we cannot have is a situation where we have so let's just say not all the non-banks are completely unregulated there is regulation we can discuss the extent of it but if you need to have some kind of bailout you need to have the regulation or some kind of protection because it doesn't have to be bailout but some kind of protection you need the regulation and then if it's something that's not regulated you have to be super careful about how it links into the parts that are regulated and I think the problem is today the interlinkages between the banks and the non-banks are significant and the reality is that we would in a crisis undoubtedly bail out big chunks of the system and for that reason I think there's a very strong motivation to make sure we have a level playing field again it's like with the technologies if you are providing a service that needs to be protected it needs to be regulated be it from a bank or from a non-bank or from a technology platform whatever level playing field I think this is very important and then I think your point on I don't think it's fair to ask any company to provide free services so if you're forcing companies to provide free services then it's no longer a private company then it becomes something different so I think this idea of providing free services is a big question it's a question that's raised on data question that's raised if we do a central bank digital currency how does it get distributed how does it get compensated for is it enough so I think there's a lot of questions here and again is it a level playing field does everyone have to share the data that they collect on their clients maybe that's the way we're supposed to do it but if it's just the banks then you have to ask why so I think that there are some big questions on this and I think just on a general note I think very often we see and I'll share a personal experience with you with the MIFID regulation on research I remember having a discussion with someone I was working in investment banking at the time and someone said to me if your research was any good people would pay for it you get a little bit upset when you hear something like this because you always think people want to pay for your research until you realize it doesn't work that way so how does it work let me ask you this if you have kids and you buy them a Netflix subscription and they come to you and they tell you there's a fantastic movie on iTunes do you say to your children to pay for the movie on iTunes or do you say I got your Netflix watch it and that's how it worked after MIFID so what was the result you killed off many of the small research houses and worse still you killed off a lot of the research on small companies now the banks actually warned about this they said this is what would happen but there was a no offense to Austin academic thinking about how things work in the optimal world but the real world doesn't work this way and I think this is why I think it's super important that we have dialogue amongst ourselves and I am happy to say that there are some efforts to improve MIFID now so that's good but I think it's really important that we have this dialogue so that we understand how things work the academics have a fantastic contribution to make and I'm a big believer in this but I think we really need to always have the policy maker, the practitioner and the academics together to think about these types of solutions maybe it wasn't fair to ask Michaela on how to regulate non-banks being in the bank of course but I agree very much with what she said but I do want to have this caveat when people say level playing field sometimes people say that means we are going to regulate the non-banks the same as the banks that's not the answer because we need non-banks to be different for a lot of reasons and in some sense we need more non-banks in Europe in the sense of equity financing that will give us the growth so we don't try to be with the bad water so to speak when we do this level playing field across the board because then we may kill the sector just two quick remarks number one I wouldn't like to live in a world which is ruled by academics number one number two I think when you said well if it's regulated it has to be kind of protected I got a bit nervous but then you actually kind of also explained a little bit more because unfortunately in the real world we have the sequencing we first build them out and then we start regulating them and I think that's exactly their point and that's kind of this cat-mouse game between regulator and well in this case unregulated activities or risk activities that kind of you start regulating a certain part of the financial system and then the risk is being shifted somewhere else and again if it's isolated that's one thing but if it's connected then it's the problem and I think that's for example in the with respect to crypto I mean that's a big fear that many of us had I guess over the last couple of months there would be a strong linkage and it turns out there wasn't actually a strong linkage at least for the moment we don't know I mean future looks different but so I think that's something to be watched carefully I could add just briefly on the growth in the non-bank sector and just to bring a supervisory view to that it's been exponential I'm impressed by the statistics on the investment fund growth that you cited 17% 46% of bank assets that's an impressive statistic but we know that there's also a tremendous growth in the lending activity and here you know just to express a concern my concern is about a lack of line of sight that we have to the provision of credit that's taking place outside of the banking system which is not regulated and what effect that can have on overall financial stability so I'm an advocate for gaining far more visibility into the lending activities and interconnectedness financial interconnectedness of the non-bank sector from an overall systemic point of view do we have questions from the online yes yes we have for the moment one question to Elizabeth from Ulf Leverich you mentioned that supervisors need a more robust understanding of the risks and that the culture of supervision may need to adjust could you please elaborate on this point would this imply moving away at least to some extent from common regulatory metrics and putting more emphasis on pillar 2 requirements that are tailored to the risk profile of the bank and if so would this also imply that we need more disclosure on these requirements to help enforce market discipline thank you both the report that we receive from the expert group that looked at the supervision in the SSM and the report that was filed by the Federal Reserve in its review of the supervisory failures focused in to some degree on supervisory culture in the context of the U.S. system where there was quite a bit of emphasis in that report the concerns that were expressed were about the impact on inspection teams on examiners of lowering the bar on a certain segment of the regulatory bar on a certain segment of the portfolio that they supervised that this itself had a dampening effect on the supervisory activities of rank and file supervisors and then there was also a focus in on process in the U.S. report related to you know making supervisors go through a rather lengthy process in order to escalate issues in the expert report for the ECB it was a slightly different focus on the culture but some similarities certainly on the escalation point and enabling and powering supervisors to act with more agility in the context of deficiencies that supervised institutions have this cultural shift is what the report was quite focused on and supporting agility rather than very long drawn out processes that were built the ECB were only 10 years old in SSM supervision coming up on our 10th birthday amazing things have been accomplished in the SSM in that very short period of time bringing us into the pandemic and into this more global banking crisis with a lot of strength so so much to be proud of how that got built with so many different national philosophies about supervision and processes for supervision was to make a very process oriented supervisory mechanism and the advice in the report was to free up to some degree from some of that process in order to be able to detect risk and to escalate the mediation efforts the question that you have about putting more emphasis on pillar two requirements in fact in the expert report the focus was on actually spending more time on the non-capital of supervision which can be just as important for example in the governance area and in the business model area and to recognize that those don't so easily deficiencies don't so easily translate into a pillar two requirement in those areas and to make the first board a call with respect to governance and business model as examples to impose requirements on banks for correcting deficiencies and for putting remediation plans in place and to hold them accountable for achieving that remediation and that that will strengthen the bank far more effectively than by putting a capital add-on in place in the first instance the report went on to say that a capital add-on in pillar two requirements for those areas may indeed be perfectly appropriate if the remediation efforts are not being effective so it was a nuanced point on this culture but you know the bottom line is it's about empowering the supervisors to make sure effective remediation takes place and effective identification of risk takes place Thank you, thank you Elisabeth if we don't have more questions I think also our time is over and I would like to close with a point of view from a journalist and the banks and the bank reputation of just a small anecdote I was reporting on interest rises and there was also a very strong position I wouldn't say from what banks against interest rate rises and I had the occasion to speak with them and said but why are you complaining about the interest rate rises you make more money yes they told me but you know we have a situation with our clients if they think that we're so happy to make money when they are having problems with mortgages with loans and I am Italian as I told you so in Italy I was told that people go to bank, local banker like to go to see the priest and church for confession so there is a special relationship and this is I mean with all the changes we've been talking about banks are really very, very special very special players in our society so all this is happening and banks will become more modern, more digital but I think this relationship I hope will not be lost because it's also important I mean it's not a Catholic church but so join me please with a round of applause to our panelists because this has been a very interesting discussion thank you so much, thank you Elizabeth also for being with us from one of the epicenters I think of of crisis and thank you, thank you for being and so enjoy your coffee time