 All good? Yeah. Okay. Now, we were joking with Andrea and Ria last night when I said that this is possibly the quietest birthday in terms of crisis management, which the SSM is enjoying in a way, to which he quickly turned and said, let me touch wood, which I saw as a sign that the SSM is always prepared for any crisis, current or future in every possible manner, but leaving jokes aside, I think there is plenty to reflect about the way past crisis have been managed and the way future crisis might be managed. So I think it's going to be a very interesting and fascinating panel. We're going to talk for another an hour, for around an hour, and then we'll leave around 15 minutes for questions from the floor, and the panelists need very little introduction. Andrea and Ria chairman here at the SSM, and you've heard from him this morning, so we'll probably start from his remarks. Elke Koenig, who chairs another institution which was created with the Banking Union, the Single Resolution Mechanism and this chair of the Single Resolution Board. And Elena Carletti, who is a professor of finance at Boconi University and a board member at Unicredit. So in a way, two hats for her, the academic hat, and also... I followed the academic one today. You followed the academic hat today, but you have a certain understanding of how things work in a bank, for sure. So I will start with Andrea and Ria, and I completely shared many of your kind of positive remarks this morning when you said, you know, all the things which have been achieved by the SSM in just five years. And I think, you know, many in this room do, but obviously, you know, I just want to pick a little bit on some of the failings which have been perceived at least out there. Now you took a rather strong stance this morning saying that you disagree with many of the criticisms which have been raised in terms of regulatory uncertainty, for example, and what that meant for the future of the banking industry and, for example, the issue of consolidation, which came up time and again in the first panel today. I'm just going to try and go back to a few issues which I know are in the minds of bankers. I mean, for example, when it came to transparency, people say the SSM hasn't really been as good as it should have been, for example, in deciding when a bank should be declared failing or likely to fail, you know, how to establish the capital shortfall in the case of precautionary recapitalization, or more generally, you know, with the issue of capital requirements for banks. Now in the industry, there is a lot of, you know, some, there is some disquiet about that. So, you know, my first question is really do you accept these criticisms or in your view what are, what's still there to be done to kind of improve on what the SSM has been doing over the first five years? I always listen to criticisms carefully. I don't always accept the content of the criticism, but I definitely listen to them. In terms of, of your point, let's say, on transparency, for instance, I think and I'm committed to increase the level of transparency on what we do. I think, for instance, if you look now, take the United States, you know, they have the seeker process every year, where they do the stress test, after a few days they come out with a clear statement of where the capital bar is for that bank, for each of the banks under that scrutiny, and this includes both the minimum requirements and the stress capital requirements, and everybody, investors, depositors, other bankers know, you know, where the bank is with respect to the, to the requirements. I think this gives clarity and also allows, in my view, supervisors to disappear from the other screen for one year. I mean, if a bank has sufficient buffers, what do you say is not relevant for a while, and that's very useful. So in Europe we have, unfortunately, still very different practices in terms of disclosure of these requirements, also because of different practices amongst securities market regulators or different practices in the industry. I think it would be positive if you could, let's say, come to a greater clarity in that respect. I am less convinced on the second point you raised. I mean, the thing you like to fail is, by construction, in my view, a judgmental call of the supervisor. So the supervisor needs to be, and the resolution authority, of course, which also has this possibility to call a bank, if you like, to fail. I think that, of course, we have the minimum requirements as our yardstick, and this should be clear and visible to everybody, but I think it shouldn't be, let's say, I mean, we cannot and should not codify it in extreme detail how we come to these decisions, every crisis is different and we might need to enjoy some degree of flexibility there. Then we are subjected to a lot of exposed scrutiny in our administrative board of review, in courts, and the like, so that there are full safeguards for all the parties involved. In terms of the more general point on the stabilization level of capital, clarity on the level of capital, it is an issue which is always portrayed in a very simple way by the industry, it's not that simple, because sometimes you conflate very different drivers of the increase in requirements. So what I'm saying is that there has been a first wave of international standards, regulatory repair, which has clearly aimed at raising the bar for all the banks. In terms of level of capital, quality of capital, that phase has concluded. Also in terms of pillar two requirements that we charge on banks, they have on average stabilized in the last three years, I think. Then there is, of course, a number of idiosyncratic, let's say, upticks in the capital requirements that are addressed to specific banks. For instance, when conducting the review of internal models, if one bank is found, let's say, weak in some internal models, there could be a capital, let's say, charge until, let's say, the model is repaired. And this generally is communicated by the banks to the markets as regulatory headwind, which is to some extent a different issue. And then there is the upcoming reforms, which has been discussed in the first panel this morning of Basel implementation. And that, again, is not a package which, in my view, is aiming at raising the bar for everybody. It's a very distributional package. So it's trying to basically address issues of reliability and consistency in risk-related assets. So it is particularly heavy on some banks, particularly light or even positive in some cases on other banks. So we should not look at it as a sort of, let's say, general raise of the capital requirements. But let's say, in general, both the foundational projects, 3, my FRS-9, and the like, that we have been engaging in, are coming to completion. The Basel package will be completed, and that will definitely put the end to this, let's say, a re-regulation phase that we have gone through in the last years. Okay. Elke Koenig, the other issue which has been raised this morning was about the exit of banks, which is very much something you are involved in. And there were complaints, I heard, from IFMERSH, but also others that over the last few years, the exit process hasn't been smooth enough. The creative destruction hasn't really been as good as it should have been. And so, obviously, you are, to some extent, in charge of this process. So I would like you to reflect a little bit on what's going wrong there. I mean, there are two issues which I think are particularly relevant here. One is the idea of liquidity in resolution, which the difficulty in establishing that framework may make your life harder than otherwise it would. And then this issue of middle-sized banks, which comes up, I think, time and again, ever since the crisis in our country, Italy, of the Veneto banks, where it wasn't quite clear whether they were big, small, and in the end, they were in that uncomfortable middle, where a kind of rather bizarre solution or ingenious solution had to be found. So, can you reflect a little bit on these points and perhaps suggest some ways of improving the process? So many questions, and I would ask myself how much time do you have? But let me perhaps start and also build on what Andrea has just said, increased transparency. I think, first and foremost, we are not just in charge to resolve banks. We are not just undertakers. Our main work, and this is 90, and hopefully more than 90% of our work, is on resolution planning and making banks resolvable. And with that, hopefully avoiding the one or the other mishaps. But, and this is a bit going to the question of clarity. Let's face it, we have a resolution framework in Europe now for five years. We started out in our first year with still national frameworks. We started also with national baggage. And we have over time, I think, substantially increased in publishing what we assume makes up public interest in resolving a bank. So what is the topics and what are the issues we check to decide whether the bank meets public interest? So is relevant for financial stability, has critical functions, and therefore would be a bank unround under the resolution framework. And which banks don't fit these criteria? Because there is no financial stability concern for the country as a whole, because there are no critical functions. I was sort of saying left in this bank and the like. So I think this increases a bit transparency and hopefully makes decisions understood. The second part we've just published is a paper on what our expectations are, our expectations for the banks to make themselves resolvable. So what are criteria we talk about? Because let's face it, the word resolution in normally English terms comes, crosses your mind when you talk about first of January and you have got all good intent and it passes away. So I think transparency gradually to get there. You mentioned failing are likely to fail. Well to get transparency around the conditions of failing are likely to fail is the one thing, but perhaps something which I'm chewing more on is something that for example our UK colleagues are talking about, which are US colleagues for the largest banks do, is to publish an assessment for how resolvable do you consider a bank. I'm always putting a big question mark because I'm not sure what am I publishing there, is it something which the market is interested in or for journalists. I realized when our Swiss colleagues did something, published two years ago roughly for their largest banks, I didn't find a single headline anywhere that picked up on their topic. So transparency is always good to mention important and I think we're doing something. Now you mentioned liquidity in resolution and I think I would also like to put that in perspective. We have quite a good toolbox and I think we prove that this toolbox works for banks to be resolved. But we also mentioned we have the fund and the fund now currently 33 billion is available for capital purpose and it would be available for liquidity purpose. But clearly when you talk about 33 billion for a number of banks for capital purpose, that's already a lot. For liquidity purpose when you consider a very large bank, it's a drop in the ocean. And the major problem here is that this way we have said there is a missing piece in our framework, but there's also a missing piece in I think probably understanding. Because people always confuse liquidity need with capital need. Sometimes liquidity might be just masking another problem. But we are talking about liquidity in resolution. So hopefully I'm seeing my colleague, we have taken a very good decision over the weekend. The bank is definitely stronger than it was on Friday. It is recapitalized, yes, but it won't have access to the market on Monday morning. Because everyone is still scratching their head to see how it go. But it's not that liquidity is then the loss absorption amount. Liquidity is really, liquidity should be low risk. So we are talking about this now with the within Brussels, I think for more than a year. We are dancing around a number of solutions. Seeing my colleague's face, we are talking for two years. But we are trying to find an idea. There is an idea which is building on bonds issued by the SRB. And then pledged and the like has more than some shortcomings. And we have always, and we've been very constantly saying, well, the basic straightforward solution is that liquidity in this case has to come from the European system of central banks. Now I keep it open, whether it's national or European, I would prefer Frankfurt. But it gets a guarantee. So a first loss guarantee can always come from us. But then you need to go through this table. We will keep it on the table, and you see me always fairly relaxed there. If we really have a big bank failing, well, if we don't find an answer to liquidity over that weekend, the bank goes international insolvency because we can't provide a viable solution. And as I find this a highly unlikely scenario, it probably needs just good nerves over the weekend. But I would prefer to have a better solution beforehand. But you also mentioned the middle class. And I think this seems to be a bit the flavor of the year in talking. I saw that Martin Greenberg in the US gave a talk about the middle class. We are talking about it. And I think it's a fair statement. The resolution framework is for banks that meet a public interest test. And that comes a long list of requirements. But what we saw in previous years was banks that did not meet the public interest test. And then the first and simple consideration is, well, in that case, it's for national insolvency procedure. And national insolvency procedure means 19 different ones. Some more, some less fit for purpose. So our plea also, because it's always our counterfactual, for harmonizing the insolvency procedures for banks, or at least to come up with a liquidation framework for banks. Now I could carry on, but this is one step which could make things easier. But then clearly, as of today, and this is perhaps adding a bit to the confusion, the very moment the bank is entering into national insolvency procedure, it's also for the national government to define the way forward. And there you have cases which then went into straightforward national insolvency procedures and others. Thank you very much. So Elena Carletti, I will ask you, first of all, if you have any comments on what's just been said. But I also wanted to ask you about another controversial aspect of what the ECB and the SSM have been up to over the last five years, which are these new measures of early intervention. In particular, the idea that the SSM can remove the top management of a bank when things don't look that great. And we saw that with Carigia, the Italian bank just at the beginning of the year. And there are bankers who are quite alarmed about the potential misuse of this measure and what this means for shareholders and shareholder protection. So I wanted to hear your views on this particular subject, but also if you had that comments on what's just been said. So thank you. Let me start with the intervention measure because then somehow I will make some points that refer to what both Elk and Andrea have said. So let's, first of all, let me distinguish what exactly we mean with the intervention measure. As you said, the one used in the case of Carigia are the intervention measures that are under the article 27 of the BRD. This is not to be distinguished by a second more, if you want, broader connotation of early intervention, which is the very early stage of the crisis management treaty on which, and this goes a little bit towards what Elk was saying about the middle-sized banks. So in terms of the early intervention measure, indeed, if we look at what is the main difference in the case of Carigia relative to other, it seems to be that the bank has been placed under temporary administration and this is a novelty that the SSM has used. And, but more than the measure in itself, I think it's important to distinguish when these measures should be applied. And this goes back to the idea of maybe coding or clarifying some of the conditions for entering into the crisis management treaty. So what I mean with this, so if you read the BRD, it says, the banks that are still solvent, so we're still under going concern in a way, but that are likely to breach the regulatory requirement in the near future because there is a sudden deterioration of either capital or liquidity on both of these. So it's a sort of preparatory phase to resolution. And indeed, what it seems to me the main difference between normal supervisory measures and the early intervention measure is that it's the obligation of the SSM to inform the SRB and the involvement of the SRB in the process, although we are before the failing or likely to fail. So this is a phase in which the SRB can start acquiring information on the bank, maybe start preparing the evaluation of the asset for the failure or likely to fail test if eventually the bank needs to go there. And also eventually help the bank or somehow facilitating the search for the potential acquirer of the bank. So these are, in my view, the main difference between the normal supervisory measure and data. Now, is this an effective and should the shareholder or bankers in general be worried about it? I think it very much depends on the conditions under which the early intervention measures are applied. And in this, not because we need to code everything, but if we go and look at the prompt corrective action in the United States, which I think is the sort of comparable phase in the crisis management framework. There we see that the prompt corrective action really somehow codifies the banks depending on their compliance zone. So banks that are well capitalized, that are under capitalized, heavily under capitalized, and so on. And depending on the compliance zone, which is typically defined on capital, on the level of capital, but all actually the regulatory requirement on capital, not just core equity tier one. Depending on where it is placed in the compliance zone, then the bank is required, and then the supervisor has a certain measures that has to apply. And some of them are mandatory, some of them are discretionary. So although the conditions if you want are coding the framework, what the supervisor can do is also embed the sort of discretion. So I wonder whether in a way there is the need also in Europe to codify a little bit more these conditions for early intervention, and maybe we can discuss this more. But in general, I think it would be nice to distinguish a little bit, in order to create more clarity. For shareholders, for investors, for everybody, I think it would be somehow useful to clarify the different supervisory measures in the different stages and the conditions that apply to the use of one versus the other. Instead, if I can still comment or if you want, maybe I can. So if I go a little bit towards the middle-sized banks a little bit, so because that's also related to early intervention. Now the early intervention more in the broader sense, which is the early intervention when a bank has a capital shortfall and there is the need or the possibility to have a private solution. So the very early stage, irrespective of whether the bank is in early intervention stage or not. So that seems to me that this has been the case also to some extent for carriage but also under discussion for the Nord L&B. And apart from the merit of the case, I would say that in particular for the banks that at the moment don't have a strong MRL buffer yet and are unlikely to go into the public interest and therefore into the resolution stage. I think having the possibility of having a private solution, either from the IPS or the DSG is probably a good idea. Because in a way, it should preserve the value of the bank more rather than entering into the national insolvency. But if we go in this stage, I think it's important to clarify again what's the role of DSG and try to find an harmonized framework for the use of DSG across the Euro area. Because the schemes are very different, the powers they have are very different and so on. So I think first, if we go for this, we should do it at a very early stage. Where the franchise of the bank is still preserved. So then Shahold as I think are also much less worried about it and the investors in general. And again, the criteria and the role that DSG should have. And if as a panel point, maybe we want to discuss also whether the DSG solution is a solution that you want to have all in this transitionary phase. When there is not yet the full MRL built or whether we should rather also have it more permanent if you want a solution. Maybe for other different type of banks in the long term. Let me pick a little bit on this point because actually I think ties very neatly with the one event which has spiced up today's conference. Which is the obviously was cited before the opinion piece from Minister Schultz on the Financial Times today. And I was just going to ask Andrea and Ria whether. I mean, the message there is a message of movement, which in a sense is very good and promising for those of us who believe it would be good to have a joint deposit guarantee scheme across the Eurozone. But then when one goes through the kind of other, as it were, ideas which the minister puts forward, which include some form of not stripping sovereign bonds of their risk free status. And even going into harmonization of corporate taxation to some extent. One wonders whether these are, we're back to the kind of red lines problem which has marred the development of banking union, especially in the last couple of years. So I was wondering how whether this morning you woke up much more optimistic about the future of a joint deposit guarantee scheme. Somewhat more optimistic or just as pessimistic as before. Well, I mean, it is in any case a positive step. I mean, I think there is a recognition that we are in a deadlock and that action is needed to address this deadlock. The issue is also on the agenda of the new commission. The new president of the commission signaled the need to complete the banking union as an important point in the next five years. So I think that having movement and commitments in that area is definitely a positive step forward. And of course, let's say it will be, I give it for granted that, I think I said it this morning. I give it for granted that this will not be a simple discussion. We know that the topic is very sensitive on political tables. And it will probably be a lengthy discussion. I don't expect the European deposit guarantee scheme to be in place during my mandate here at the SSN. So for me, let's say, for me the point is in any case to address the issues which are underlying the lack of the deposit guarantee scheme. So I think we need to, which in my view is mainly the lack of integration in the banking union. But in any case, it is a positive step. I mean, I think that, again, in my view, the lack of the deposit guarantee scheme has two negative implications. The first one is that depositors in different countries might perceive that the real coverage they have on their deposits is lower. And if there is an idiosyncratic shock in one country, you can see deposits moving to other. We have seen some of these during the crisis. And that's what we don't want to have because it adds to the complexity of the crisis management. And the second is that the fact that the deposit guarantee scheme is nationally sometimes used as an alibi to avoid, let's say, letting capital and liquidity move more freely within the union, within the banking union. So I think we need to address these issues. And I hope that the political momentum will come. And if there is, in any case, a commitment to move into that direction, probably progress can be made already before, let's say, the actual deposit guarantee scheme is established. I'm sure we'll get there at some point. The point is to try to address the issues already now. If you allow me a few comments, the point that Elena raised is very relevant. And I think it's also relevant in the respect of the proposal that has been made this morning by Olaf Scholz. So if you have at least a stage or if this is a permanent feature in which national deposit guarantee scheme are remaining in life with their insurance mechanism, then you need, in any case, to clarify the rules of engagement and harmonize the way in which they would intervene. Because what is really damaging right now is exactly that you have some DGSs which can intervene both with the private and the public head, others that can only intervene as under the least cost option on the public side. And there are others that are only pay boxes. So you really don't have the same degree of intervention by deposit guarantee scheme. So if you move into that direction, we should, in any case, try to harmonize that feature. I think that's an important element. On early intervention, let's see, I'd like to avoid that people leave this room thinking that we're not applying the existing legislation. So of course we do regularly analysis of whether the conditions for early interventions are met. And if so, of course, we start. We still have actually some banks in the early intervention measures. The problem we have is that in the current, that's a point that we have raised several times. Under the current regime, the early intervention measures are to a large extent overlapping with the ordinary supervisory powers that we have under our regulation. And actually the supervisory powers are under the regulations attributed to the ECB, while the early intervention measures are under the BRRD. So they're under national implementation. So you have this sort of misalignment which makes the use of early intervention measures very complicated. So we have always advocated that there is a need to separate the two set of tools and to also put the early intervention measures maybe in the SRM regulation, so to make them, let's say, exactly the same at the European level. On that point, I'm quite positive on the fact that we could codify a little bit more the levels of engagement, but we should do it under the regulation, I would say, rather than. Sorry, I know that's a, but if I can have another minute, I think that's a very important point. Elke raised very correctly the point of differences in national liquidation regimes, which cover today, I mean the bulk of our banks, no? And to me, the real point is if you compare, I look at it also from the point of view of the effect this has on, again, the functioning of a single jurisdiction, like the banking union, no? If you look at the US, I apologize to those who have heard me saying this other times because I always use this argument. It is an interesting research done by Daniel Gross. Daniel Gross has compared, for instance, the crisis in Puerto Rico and in Greece, not to similar countries, similar size, similar dynamics. So the state goes into very difficult conditions and these impact the banks immediately, and the banks go into a crisis, basically. So in the United States, you have the FDIC entering the banks in the weekend, taking control of the banks through purchase and assumption, and then selling the assets, liabilities, and branches of these banks to banks, in most cases, from other states, no? Customers don't notice anything, depositors don't notice anything, and basically you have a clear case of private risk sharing. So shock hitting a banking sector in a state, and let's say the safety net, distributing the effects in other states and the banking sector diversifying into this state. If you look at the case in Greece, I mean it went into a loop within the country, and it never went out, and 80 years after the crisis, we still have banks which have an NPR ratio of 41%. So that's really an issue of technology, having a common technology for resolving these banks, having common framework, and then I hope that the next commission will try to move forward towards developing a single administrative tool for liquidation that ideally, in my view, I don't know whether LK likes that I say that or not, but I think should be managed by the single resolution board should be European, and that would provide a big step forward in terms of effectiveness of crisis management and in terms of integration in the market. And on the point about the ECB being the source of liquidity? On that, I mean we are bound by the treaty and we can provide guarantees only, let's say when there is, sorry, we can provide liquidity only when there is a full guarantee or a collateralized guarantee, with collateral which is accepted by the ECB. That's what we understand happens in the UK, the Bank of England has communicated, they will provide liquidity and the treasury they are provided an unconditional guarantee to the Bank of England. In the US actually you have a line of credit directly from the treasury which is even a good commitment, so that's at the moment the position we are in. Okay, I can, I don't know whether you want to. I would like to add first and foremost I think on early intervention, Andrea is right, it needs to be clarified, it's not about there are no tools available, but it is, the good news is nevertheless you rightly spotted that the SRMR requires that there is early involvement of the SRB in case of early intervention. I can assure you there's also early involvement of the SRB in case there's no early intervention measure, but regulatory, regular supervisory measures taken. But perhaps to say I seem to be an optimist by nature, I'm at least more optimistic than you, your term is for five years still. I hope that we see the first steps of ED before the end of your term. Might be not before the end of my term, but we'll see. Now I think going back into this topic, what I found not surprising is the article basically picks up all the existing points and it adds taxation, but that for me was more like, and don't forget this is a topic. Might be my reading as an optimist, but I think he rightly spotted that the topic of harmonizing an insolvency framework, trying to find adequate solutions is on the agenda together with the idea of now, will we ever get something for sovereign? It might take longer, but we'll see. For harmonizing also the ideas around what a deposit guarantee system can do, please don't forget there's also one more player on this field, which is called digital competition. The use of deposit guarantee systems is considered potential stay date, and I think it would be very much warranted really to clarify and to have a harmonious discussion and a clear cut system of what considers a valid intervention of a deposit guarantee system, and most people have heard me saying, pay box is obviously the worst of the options, entirely a pay box, which is assumption, transaction, so earlier intervention might be by far more saving cost, but then comes the famous words, the US always says, least cost, and how do you define least cost? And I think all this warrants that it gets addressed, and of course, it somehow fits together. You need to have a resolution regime, you need to have for those banks for whom the full suite of resolution is probably not the right solution, well, then you need to have a liquidation regime that's fit for purpose. You can shift the barrier and say, well, I want to put everyone into resolution, but you can't have the cake and eat it, because this would mean probably most people would say, where's my proportionality gone, to mean that you have full emerald for all these banks, that you have a full suite of all of this, I'm not sure that this is the right solution to go, but you need a clear answer how to deal with the small banks, how to deal with the middle class banks, and I think to invest more time into that topic is definitely warranted, and it's linked for me with deposit guarantee, because if I don't have an understanding of when does the deposit guarantee scheme in, I will always find someone who says, sorry, someone wants to get my money and not. Right, and let's remember that on that question, there is also a court case going on between the commission and Italy, and perhaps that will provide some additional clarity, but let me stay with you and make justice of the 90% of your time at the office, which you were referring to, I don't want to be unpolite, what you and your colleagues spend most of your time on, which is preparing, as you were, for the future crisis, and obviously, as you were, you've alluded to the fact that the SRB has handled a number of crisis so far rather smoothly, I think that's the general consensus, but the critics say they were all kind of rather small banks, as you were, you haven't yet handled the big tsunami, which, for example, we went through a decade ago now, all of us hope that will never come, but one never knows. So obviously my question is, as a journalist, but also as a citizen and taxpayer, how ready are you to handle a big systemic failure, and can we be confident that the current toolbox, including the BRRD, would be flexible enough to accommodate that big bank failure or not? What answer do you expect? Of course, we are ready, I can't say anything else. Now, let's be serious. I think we have worked for the last 45 years really in trying to make banks resolvable. This is something you can't achieve like that. We are at the point where EMRAW, our version of TLAC, is being built up. Now, when we go back to the first comment on regulatory uncertainty, we are just trying to get our arms around our own policy, how to interpret the new rules in BRID2 and SRMA2, and we'll publish that hopefully early second quarter of next year so that everyone is aware as a final paper, but EMRAW being built up, you could easily say the glass is minimum half full, probably it's more, because in some cases we have already the full EMRAW that is needed in a bank. In some other cases, there is still the need to build it up for some more challenging than for others. So this is the one area, the other area is clearly resolvability is not just about EMRAW, it's about operational continuity, it's about data. And I think this is something which is a bit building on what you said in our previous discussion. When you look at when can you be successful in a resolution, well then be realistic that most likely what you need is a bank that has already been somehow trying to be on the market because you need a data room. Nowadays to find someone who wants to acquire a bank, well it means that they need to do their due diligence and the like and there needs to be a franchise. So there needs to be something that people want to invest in. When you talk now about a very big bank, our assumption would always be like for our colleagues in the US and in the UK that what you do over the weekend is you stabilize the bank, you bail in, so it's open bank bail in as we call it and then the restructuring comes step by step thereafter. So if I look at our framework, do we have the tools for that? Yes, the BRID gives the tools. The BRID, our framework gives us the chance to take a decision and to move forward. I think we proved that at least in one case. Where do we lack? Well, probably in that case, we come back to your first question. Liquidity for this big bank Monday morning was something to be addressed and by the way it was a bit ground talk day. This is what we always hear from the ECB. They have to adhere to the treaty and this is why they need good quality collateral but as long as there's good quality collateral, the bank can get the liquidity. So this is a bit a endless loop. So I think we are getting there but my dear hope is that we don't need to test it. And I think for that, hopefully our resolution planning helps that it gives the bank early enough sufficient option not to be our client. Right, and I think that's a shared hope in this room and beyond. Elena Carletti touching on what Elke Koenig said, she was talking about Mrelz and she made it sound like a very smooth process which is going very well but you actually, when you walk outside this room or maybe to talk to some of the people in this audience, you hear a lot of bankers who are complaining about the speed at which Mrelz are being raised. For a while there were complaints about market conditions. I think that's changed a little bit now because the market seems calmer than it was a while back. Do you think these concerns are at all justified and more generally would you agree with the assessment rather positive obviously which Elke Koenig has given about how ready they are to manage a future crisis? So I think we need to distinguish again about the type of banks. So on the one hand there are the bigger banks in particular the GCFs that of course have been already long time subject to TLAC requirement. So those banks are almost fine almost with also Mrelz requirement. I mean, let's not forget Mrelz requirement is yet an additional requirement even on the GCF. So it's not that it's a complete substitute with the TLAC, it brings additional requirement. But nevertheless given that the TLAC has already been there they started the years back to actually issue these liabilities. So in a way they are much better positioned than the smaller banks. Now also, now forget the bigger banks in particular because now the Mrelz requires also the subordination criteria of liabilities in the larger part. The bigger banks are the banks that have already been able to top the market for subordinated instrument even before the TLAC requirement. So again, when we think about the Mrelz probably the banks are certainly as also the EBA has said recently the banks that are in a shorter deficit are the medium size banks. The medium size and the smaller banks. But for the smaller banks we there is the possibility more of exempting the smaller banks from the subordination requirement. So I guess, I mean my feeling is that the medium size banks are those that are in bigger need of Mrelz. And I think recently I was seen a study for example by BBVA that estimated that 63% of the current Mrelz requirement shortfall sorry is concentrated in the midsize bank. So this is clearly although they make up for 47 of total assets. So they are smaller in terms of assets but in bigger need of Mrelz requirement. But on the Mrelz I think the BRDA2 and the new risk reduction package is a big improvement because it clarifies a lot of criteria for the eligibility of the instrument. Nevertheless, it seems to me, I'm not a legal expert but it seems to me that it is a framework which is much more complicated than the TLAC. And there we go a little bit in the middle of the European compromises. It seems a little bit, it smells a little bit that way rather than the TLAC which is a little bit more straight I would say as a regulation if one can say. So why is it complicated? Because it introduces a sort of exceptions that can be used for the calibration of the Mrelz. And this we go back to the general team of transparency, clarity. Investors need to price this instrument. So now not so much the shareholders but investors need to price this instrument. So they need the clarity as to whether their instrument fits and what it is. And banks need the clarity in funding plans when they need to know what yet they have to plan. So I think they are, again, if we could clarify what are the conditions as much as possible for the senior exemption. And I know it's complicated because it depends on the resolvability of banks and everything else. But I think it would be an improvement if we could clarify as much as possible. Well, let me first react on your comment market conditions. You're talking to a former CFO. If you know that you have to fund your company, you go to the market whenever there is a window because you don't know whether the sun is shining tomorrow or whether it's raining. So this idea of, sorry, not now, well then the system is out for five years. You could have started and who tells you that it's easier tomorrow. So I think just to clarify. But you're right, we have clearly an issue and it's in a topic where market access and also the business model are a bit a point to be considered. Well, we have always talked in the TLAC context about the bank, when you talk about GSIPS, the fully deposit funded bank. Now this is not the model of a GSIPS normally, but clearly if you've got the middle class of banks that have so far not tapped the market, that have not the need for this kind of capital, then you clearly have to consider two things. First and foremost, how can you gradually move there? Or are there other ideas of resolution tools, ideas how to prepare that might get you into a viable resolvability without a fully swing emerald? Now this is always easier said than done and I think we all have to also acknowledge that we have a number of banks for whom because their country has not real access to the market that don't have access to the market. But there you are a bit stuck because you can't say you are life and kicking bank but you don't have the capability to make yourself resolvable. So over time you can give time, this is what we work with but you can't say, well, for those we waive our interest. So I think this is, and for the very small banks or for banks for whom insolvency is the option if something goes wrong, then let's face it, then emerald means the capital requirements coming here from Frankfurt or coming from their national supervisor. There is no emerald in this case because you don't need to have additional recapitalization amount. I agree with you that definitely the new system that we are now trying to implement doesn't make life easier but it has in particular one area which I'm concerned about and sorry and you also write compromises always and in three versions you can read one sentence and then you need to find out which version is the one you want to go with. But there is one area which I am really worried about and that's the interplay between potentially internal emerald and emerald at a group level. There is a bit a system where the sum of the parts should normally not exceed 100% but with the compromise found within the package you might end with pre-positioning a lot of emerald in various subsidiaries and a parent that might not have sufficient firepower to solve a problem that comes up somewhere else. So I think this is an area we need to watch. I don't want to go into any detail. It's not that I can prove it, it works this way but just reading the regulation, the sum of the parts might be a real challenge to be addressed and where it comes from and it goes then back to the discussion home and host consideration. I've recently said I find it difficult to consider that one of the banks in the Eurozone zone has us but still considers the country where there are domiciled to be the home supervisor. So we have a home host issue within the banking union. We have a home host issue within the European Union and we seem to have less of this for GSIBs worldwide. It's a bit of a weird situation. We seem to trust each other more between the US and the Europeans than the Europeans trust each other just as an argument. Yes, it's a sad consideration but I think it reflects reality unfortunately. A final question to Andrea Ria before we open it up for questions. Just, if you look at the next couple of years or even less, there are, look back at what happened 10 years ago. I mean, there were two sources of, as it were, building of banking vulnerabilities in Europe and beyond. One was what happened to the economy with the kind of sharp contraction in GDP industry production in a number of countries which led to, for example, a buildup of non-performing loans. Now, obviously we are in a stage of decelerating economic growth. There is talk of perhaps some fear, recession even in this country, Germany, is that something which is worrying you, the impact of the economic slowdown on the banking system. And then the second issue which came up a few years ago was the quality of management of banks and obviously the ECB has introduced fit and proper regime. Are you pleased with the ways being applied across the Eurozone or are there some countries or cases which are of concern? So, in a way, have we addressed the sources of the two sources of the last crisis or not? In terms of the deterioration of macroeconomic outlook, of course this is one of the main concerns. I mean, we published few weeks ago the main risks and that's something that is very high in our concerns. I would say that, let's say, we tested already in 2018 in the stress test, no significant deterioration of the macroeconomic outlook in the stress test run by the EBA and all in all the system came out relatively resilient, able to absorb quite a significant heat in terms of losses. If you were up to me in the next stress test cycle, I mean, that stress test had an irreversible, so it had a spike in rates coupled with a recession. If I were to design the scenario for the next stress test, I would be more focused on a scenario of a recession hitting together with a further, let's say, lowering of interest rates, deeper into negative rates, lower for longer, which would have a double one in terms of the profitability pressure and the asset quality pressure coming together. That's really what is the concern in my view at this juncture. If I may add, as there was a discussion this morning also on shadow banking and the like, I must say that also the risk on attitude which is now prevailing in markets is concerning me in some segments, if you take for instance the high-level finance, we see that the market is increasing a lot. We are trying to monitor also through inspections the exposure of the banks, but we see a lot of known banks which are increasing their exposures and we don't know what is the indirect channel that can come back on the banks as we've seen in the past crisis. So that's another point I'm concerned about. So this is, but having said that, let's say again, we start from a much stronger position in terms of capital, asset quality has improved a lot and so we are in any case starting from a more solid point. On your second point on management, let's say indeed yes, we are putting a lot of emphasis on these controls. Governance by the way is one of the few areas in which the SREP scores deteriorated recently in the last two years. So that's an area in which we are focusing more and more our attention as supervisors. On the fit and proper process, I mean let's say that's an area which for us, the status quo is really not sustainable. We have to apply 19 different set of rules. We try to, it is, I didn't know that when I joined but I found it very interesting. We harmonize the way in which we do it. So we apply the European process but then when we come to the conclusion we have to see whether the conclusion of our process can be enforced under the national law. And sometimes it happens that under national law, let's say a certain assessment, sometimes a negative assessment, cannot be actually passed through because the national legislation sets the bar very high. I mean there are countries in which you need to have a final criminal conviction with jail sentence to be able to, you know, actually have a negative assessment which puts the bar a bit high for us. So I think that in that area we are really pushing on the commission to take initiatives and also from the legislative point of view to fix this issue and give us stronger tools in this area. Okay, well that's, we've covered a lot of ground so I hope there are questions which go back to some of the points we've raised or perhaps to some which we've neglected. David, to you too. Raise your hands and please say who you are and don't be shy because I'm sure there's a lot going through your mind. We are the session after lunch. Maybe. Oh, yes. Thank you. Nicola Duamel, BBC again. Thank you. If I understood well for small banks, mile is not a mandatory in your view. Don't you think it's a matter of level playing field and it could increase the accumulation of risks in portfolios of small banks? And another point also if I understood well the Tercas decision whom you quoted is on course but I understand that some observers think that if the Court of Justice confirms the decision so the depositary guarantee schemes, the national ones have more power to put early intervention measures and according to some observers it could be a signal that morale also for middle banks couldn't be so necessary. I think I wouldn't see a level playing field concern. The question is you need EMRAL if you want to implement a resolution strategy. So if you don't implement a resolution strategy but this bank if and when it fails will be resolved under national procedures, well then you have in place the protection of your depositors because let's face it we are mainly talking then about the deposit taking banks and so depositors are protected and the rest is the normal procedure for a bank that's failing. If you want to shift the bar and to say well we should have a dedicated procedure resolution for all banks then you would increase of course here but I'm not sure whether you would really add value when you talk about the fairly small banks. I find it more interesting then to talk about to have a really fit for purpose system and a clear interplay with what a DGS is for and what a DGS is not for. I won't comment on TACAS, this case is now going into the next it's appeared but for me I think the general line is we need to align what DGS is allowed to do what our DGS is for to some extent to broaden their scope because the directive always allowed what they call alternative measures but then you need also to define how far do you go what is meaning least cost and the like and there as I said before you have basically on the one hand the deposit guarantee systems but you also have DG competition who so far considers the use of a DGS the use of public money and therefore a use of money by the public and therefore has its own rules and I think clarifying that would help for transparency. Can I add something on this? So I think it's what eventually the TACAS confirmation will imply is that if a deposit insurance scheme is privately funded then it can be used, right? And here I think it goes back to the idea of that you need to harmonize the national deposit insurance scheme because at the moment this would imply that in some states, in member states you can use it and some other states you cannot use it and I think this would not be a fair result of this. And I hope this would maybe lead also more to the urgency of a European deposit insurance scheme because that would be in harmonized framework or at least a reform of the national ones so that you have an harmonization of the two. But I would like to make one point on the DSG which worries me a little bit. At the end of the day it's an insurance mechanism. So it has to be designed in a way that doesn't lead to moral hazard because otherwise we are basically re-spreading the difficulty of a bank on the system and I think that is something that we need to worry about. So instead of an MRL, maybe this can be calibrated through the deposit insurance premium. Maybe there is a need of rethinking that but I think this should be kept into account. No, I think this is spot on that you need to consider that a deposit guarantee system is an insurance system so it needs to have a risk adequate premium so it can't be the system where the one takes all the advantage and every goes wrong the system pays. So, and this means you need to have risk sensitivity in the system and I've now to take it from my former background. I would have always said for the German supervisor the private deposit guarantee systems were the best allies because they were very much watching their banks to see whether there is a risk building up because they would have to be to fund it. So I think there needs to be a very much risk sensitive probably more than we have it today. Risk sensitive system also to avoid moral hazard. But let's start first to align it and not start with the last element first. I must say as an observer I would, perhaps banks should be a little bit more vocal about this particular point because you rarely hear the stronger banks making this point publicly when I think they probably should because they are the, as Professor Calletti was saying, they are the most affected by and, but often they keep quiet in this kind of frame. If I have to say, I think banks are starting putting as a KPI in RAF they start thinking about introducing KPI in terms of bailing losses from other banks or contribution to the positive insurance scheme. I'm not so sure this is where we should go. Yeah. Okay. Any more questions? Yes to the back. So encouraged by you saying not to be shy, as here perhaps also some provocative. Could you, could you say who you are? Yes, sorry, I am Bartja Arson from Free University Amsterdam. So I have two, one point is that it's effective crisis management in Europe not hampered or hindered by two things that we have built in in the system. And first is, yeah, the difficulties and the difficult concepts of introducing the state aid processes into the system where for instance, drawing from the single resolution fund, which is completely funded by the private sector is difficult to conceive why that constitutes state aid. So that's the first thing. The Americans do not have these concepts and basically the involvement of the US authorities in rescue operations has give them a lot of effectivity in resolving as Mr. Henry just told. And the other one is aren't we worse off with the no creditors worse off principle? Shouldn't we try to look at resolution processes as the true replacement of bank insolvency procedures? And get rid of the idea that a liquidation of a bank, whether it's a small bank or a big bank can be done in an effective and a feasible way in an insolvency procedure. So these are two comments. I think they are probably directed at me. I agree that we, I would not say it hampers effective crisis management in Europe, but I agree that we need to align the ideas of what constitutes state aid and also which is then going to the DG competitions internal ruling on the banking communication and what would be the consequences because you could easily otherwise say you are somehow in competition. We bail in, we start with restructuring and at the same time you get a restructuring plan because you've used now fund money meaning state aid. Now we have not been there and as I said I'm optimistic we will get it sorted out, but we have for the time being an inconsistency in the sense that the banking communication has a burden sharing in which is not aligned with the requirements the BRRD and SRMR put on burden sharing. So there is clearly a need for alignment and you could ask yourself whether the fund used is state aid, it's funded by the industry but the idea behind is like in DGS is as it's used by a public body it's state aid. I leave the call out whether this makes sense or not. The second part is I'm not a lawyer and I'm definitely not a constitutional lawyer but for me and my understanding no creditor worse off and the valuation afterwards and the counterfactual is basically the price you have to pay for having very far reaching powers because take the case of Banco Popola, the SRB overnight wrote down equity, wrote down or converted and wrote down sub-ordinated bonds of this bank and clearly with this act of expropriation you need to have a counterfactual to say what could have happened if this had been? Is it a very easy task? Is it something that makes life easier? I think my colleague would for the time being say he could live well without this because he's still managing this process but I think it's the logical counterfactual for the far reaching powers a resolution authority has because otherwise it's, you're deprivatizing people without and say I've decided so. Well on the first point I must say I have some sympathy for the comment. In a sense, let's say state aid legislation and the controls by the commission have played and do play a very important role in a setting in which you have very different setting at the national level and then you can have one arrangement in one country that is particularly generous and of course distorts the commerce between states which is the basis of the treaty article on which the state aid controls are based, no? But if you build a European set up that is played according to centrally defined rules on how to deploy the support by the resolution fund or by the policy guarantee scheme and the European policy guarantee scheme tomorrow I think that the need for checks from the state aid perspective would become redundant, at least that would be my assumption. The point is that we are not there yet but the objective in my view not because I want to kick off the stage of my colleagues in digital competition but let's say because I would like to have more European arrangements would be to reduce the role that digital competition plays in this framework. And on the second point I think that maybe, forgive me if I misunderstood you but my impression is that for instance in Denmark there is a system in which banks that do not go into resolution would go into ordinary insolvency like a normal corporate which of course would be very destructive in terms of value and that's why I understand that the Danish authority have decided to extend the concept of resolution also to banks of relatively smaller size. But that's not the case in other countries where you do have administrative tools for resolution that mimic to some extent and try to address the failures that you have when you deal with a bank which is dealing with deposits so I think that all in all again in my view the solution would not be to have a resolution for everybody but we need more to have let's say a harmonized administrative tool for liquidation that in my view would be the right way forward. A very final question. Is this better? Christos Hadzimanual University of Piraeus LSE and Bank of Greece. Effectively it was exactly about what Andrea and Ria was just saying. I cannot subscribe to the view that you either have resolution for systemically important banks or normal liquidation proceedings for everybody else and I don't buy the argument about moral hazard if you apply resolution to everybody. I think that you need to distinguish between the financing of resolution and then there is a strong point that there should be no external financing of resolution actions involving non-systemic banks and the use of the resolution tools as such. The Americans and we should take a leaf out of them. In fact, we have used the American example again and again today, applied the same resolution tools without the bail-in tool of course, long ago and quite successfully in order to resolve all and some dry and I think that we need the special resolution regime for all banks and if there is an issue of moral hazard, this would be addressed simply by not making available the resolution financing tools in the case of smaller banks and I think that this also makes sense and I conclude with that, simply because of the economics of insolvency. A lot of people talk about moral hazard but you need to think about how to maximize value in insolvency and the economics of insolvency are quite clear. Exandee and exposed incentives are different. Exandee and exposed optimal solutions are different and here we could use our experience in order to have a much, much better type of approach, exposed approach once a bank has already failed. Thank you so much. I think we are all aligned in the argument that the current situation was 19 different, more or less suitable systems for bank insolvency, partially judicial, partially administrative, is not a sustainable solution. So if we want to go that far to draw some inspiration from the FDIC, well then they are the administrator of insolvency for all banks and to go for, as Andrea said, to go for an administrative bank liquidation too might be a step that is easier to go than to talk about a full harmonization of insolvency systems and the like and I would agree to that. It still leaves you with a question on how to dock this, how to fix then the deposit guarantee system. So I think we have addressed all these questions today with your questions quite successfully. Thank you, and it's always good to end on a note of agreement. It makes me feel quite good but please join me in thanking our panel for a very interesting question.