 Welcome, and thank you for joining us. Good afternoon. Very kind introduction. I don't need, therefore, to do an introduction of the very distinguished panel. We can go straight into the topic, which is the future of financial services. We could spend the whole of the conference, which is two days discussing this. Unfortunately, we don't have that time. So let's actually just divide a very vast topic into four main themes. First, we will look at the broader backdrop against which the finance sector operates, its profitability consequences. We'll turn to policy makers and the finance sector as frenemies, if you like. There is regulation, but there's also regulation of new disruptors, which could be beneficial for established incumbents. So we'll look at regulation in general, but also at big tech, big data. And lastly, we'll talk about green finance. One day, that's going to be tautological, but there's still a long way to go. And our panellists have thoughts on what we can do to get there. Let's kick off with our first theme, which is the paradigm in which financial services are operating and how it might shape their future. So one of the biggest overarching problems is the low interest rate environment, which now looks set to persist for much longer than we expected perhaps a year or so ago. And perhaps Jose Manuel, I could ask you to kick off with the question of how you think financial services will handle the low profitability that all of this might entail. Well, thank you. Thank you very much and thank you for inviting me to the panel. Let me focus primarily on banks, you know, which is obviously a big chunk of the financial sector in the European Union. The profitability challenge has been around for a number of years. You know, according to the data for the second quarter, the average profitability in the EU is 7 percent for banks that return on equity, which is slower than the estimated cost of equity for these banks, which is the rates of 809 percent. So that's in itself, it's a challenge. When we think about what are the underlying trends on the low profitability, I would like to highlight basically three major issues. You know, one is that, you know, in this current macroeconomic environment of low rates, of course, the top line, the net interest income is not performing well, and that's a big challenge for the banks. But more related to that one, I would say that that part of the low interest rates is bittersweet because it's got some good components, which is the cost of funding and the ability of banks to build up part of the liability of the balance sheet, particularly the embryo-eligible securities. They've been issued a lot over the last 12 months and it's something they need to build up, so that's a good sign. But nevertheless, on net, the income is suffering. And the third aspect I'd like to highlight is that, fortunately, the cost are not keeping up with the income behavior. So the cost-to-income ratio of banks is slightly going up on average in the industry, you know. For last year, I think the average is not for this, it's around 65% or 64-something percent, when last year was slightly below around 63%. And that's a challenge because of course, you know, banks need to restructure, need to find a way to make themselves profitable if the top line is not going to do, but that's much better in this context of lower interest rates than they need to work on the cost. And that seems to be very, very difficult to them, you know, that how they work on that cost adjustment, whether it's through restructuring internally, whether it's through external process of restructuring, entry, exit, acquisitions, things of that sort, that's for the banks to decide, but it's a process that needs to take place. And at the same time, which we'll talk later, they also have big challenges on investments, preparing for the future, and I need to be ready for that. I don't know if one of the other panellists would like to come in class, perhaps you would like to... Yeah, this one, I was fully shared this analysis. The question is, you know, the commission, what do we do about it? Because I think it's inevitable with the pressure that we have on low interest rates in particular, but also digitalisation that will come. All this is pressure for banks, and I think some restructuring in the banking sector will be inevitable in the longer run. Costs are probably too high. So the question is, how can we kind of help this process? But I think at the end of the day, the most important for us is still finishing the banking union, because you need to be sure that this process actually works well and is efficient overall in a single market. So that's why I think we're trying again now to finalise the banking union. I think it's important, common supervision, common resolution, but I think we need to finish it. We need to have it as in place because it stabilises the whole banking sector, and it will also make it easier to have this transformation process. But once you know, actually, that at least from liquidity-decided positives, you are relatively safe no matter where you are, in which you member state you are. And another thing that is still we're working on, we've been trying last time to do again, is we also need to finish off the single market in a way that we're going to finish the single market in a way that we have really a free flow of services, which we haven't fully achieved yet. Edith might be a way to persuade host countries to be a bit more open, I should do this flow. But at the moment, we still have a lot of regulation that is imposed by host member states, which doesn't help in this creation of the single market. John, I think you had some thoughts. Yeah, I just wanted to go sort of top down rather than bottom up from a broader financial stability perspective. And low for long, maybe now we think it's going to be lower for longer, but actually this has been an issue since 2013-2014 that we've been in this environment. What you would expect to see, and what I think we are seeing, is the financial sector in a low for long environment reaching for yield. And you see that in the banking system, particularly in the non-bank system. You expect to see less resilience in the banking system, which is the issue of net interest rate margins that we're talking about. So you have a financial system which finds it harder to build up resilience and at the same time is being pushed towards a set field and you find some business models now become very difficult, not just in banking, but in insurance as well. I mean, annuity products are a good example of that. But I think you have to look at the whole picture in a low for long, very low for long environment. Just as you need financial stability to assure macroeconomical monetary stability, the thing runs in the other direction as well. And I think it's sometimes forgotten that we need effective demand management of the economy to avoid macroeconomic tail risks that would then come on top of a less resilient, more risky financial sector. And I think this point is often forgotten that actually if you can't manage macroeconomic tail risk through your monetary or your economic framework, you're more likely to run into stresses that then impact on the financial sector. And what lesson do you take from that? I think the first lesson is macro prudential policy needs to try and create some space for monetary policy. And we all need to reinforce and make more effective our macro prudential frameworks. And in a low for long world, I expect to see more leverage for the obvious reason that it is cheaper and it will build up. And I think macro prudential policy has to be for the first protocol to try and manage that leverage. Sometimes from the macro prudential point of view, we say we just don't like leverage, you can't, you can't. It's wrong wherever it occurs. But I think it's quite important for macro prudential authorities to distinguish what sorts of leverage actually create the financial stability risks, whether what the risks are from fiscal leverage, from sovereign debt as opposed to bank debt, as opposed to overpriced assets, and to try and distinguish and manage those risks. And the last thing I'd say is on this agenda, building buffers in the banking system, not just to increase resilience before you have the problem, but buffers you can release in a macroeconomic downturn if we're going to face more of those tail events, trying to avoid the non-bank system becoming an amplifier of risk and dealing with some of the new challenges are going to be hugely important. But I think for macro prudential authorities, we need to recognise that this is a more challenging environment for us going forward. Sharon, I think you had some perspectives. Yes, particularly I think on the macro prudential aspect and maybe drawing on some of the comments the President made in his opening remarks on a bit of our own experience at home. So people will know obviously it's a very big banking crisis in Ireland, in particular a property element of that. And in listening to the President though, talking about some of the other sectors that need to look at insurance and broaden things even as John says into the non-bank. I think an interesting development in terms of property in Ireland has been in commercial real estate where the search for yield, we see significant investment now, particularly by insurance companies and pension funds and so on. So I think the point is about trying to draw together all of that, all of those different dimensions and the macro prudential tool kit has clearly had some effective uses over the last number of years, particularly in our case for example in banks and the President also cited a number of countries using the counter-signical capital buffer, but I do think we have to have that kind of broader dimension both in terms of sectors like insurance, non-bank and so on, but also looking at issues wider than say domestic property and to commercial real estate and so on. OK, I think we could probably carry on and dig into that, but let's turn to another big picture issue for the moment for finance. We've had the rising possibility of a shift from a dollar centric world to a multi-polar one, especially if the dominance of the US currency in the global financial system becomes increasingly weaponized and finance is at the heart of this dollar centric world. Clas, perhaps I could ask you, what do you think EU policy makers see as challenges and what do you think we can expect as a response from EU institutions like the new commission? This is one of the other big challenges that we have. Obviously the world around us is changing, not only Brexit, but also obviously US policy, China and the question, obviously, is I think a general question as Europe, where do we stand here? And what is our role and what is the role of our currency in that? I think it's a general debate that we're having and I think it's relatively clear to us that there are a number of advantages if there were a bigger role of the euro internationally. It's both obviously economic in terms of trading, hedging costs, it's also sort of financial stability. We had a last financial crisis, we had obviously dollar shortages, that was because we were very much exposed to the dollar and it's also partly a sovereignty issue. We saw that also because the more others using their currency also in terms of foreign policy, I think it's more important that Europe has used its own currency and this is more stable and it assists the most sovereign overall. Now, the problem is obviously is that we're not pretending that I think the euro will come out and overtake the dollar anytime soon. I think that's not what it should be, but what we're seeing is we're going into more, as you said, multipolar world and there we want to make sure that the euro is well positioned. I mean that the Chinese currency is still behind, I mean probably it will come in the future but there should be still a window here because as long as in China you have restrictions, capital restrictions, controls, I think it will not take off. So this is a, we think a kind of window for the euro to expand a little bit at least. The question is what can you do? I mean it's not one single issue say, okay you have to use the euro now. I think we need to be attractive as a currency. So what I said already at the beginning is the banking union but also capital markets union. I mean people need to feel that safe investing here and you have something to invest in and as that you can invest in. And on the other hand we're looking also into, I mean there's no silver bullet I think, I mean other issues like financial infrastructure, trading platforms, derivatives in euro is a kind of, so it's really a number of different issues that we're looking into to try to consolidate the position of the euro. Did you have something from this? I just, just on the very big picture, I mean there is very lively discussion going on now about whether the role of the dollar as an international reserve currency has grown far beyond the share of the US in the world economy and the world trade and the extent to which that results in spillover effects for other countries. We know from the experience of sterling that it takes an awful long time for a reserve currency to cease to become a reserve currency. But the question is really what are the risks, how long can you continue to be using the dollar when the US is just less important and elsewhere in the system? I think on creating new reserve currencies as the UK discovered at the end of the sterling era, if you want to be an international reserve currency, you open yourself up to risks from the rest of the world because you don't control the use of that currency everywhere. And I think for Europe, and I've said this before, there is a little bit of a tension between if you want the currency to be used everywhere and to be traded everywhere and sold and put through platforms everywhere, then you open yourself up to other players in the world. As the dollar does at the moment, a majority of dollar derivatives are cleared through London, for example, alternatively you can decide you want the other thing which is very tight control and you want everything to happen within your jurisdiction and your control, but it's hard to have both at the same time. And I think what I sense in Europe is the debate about whether you want openness and full integration. I can say we want at the moment, I think, at the moment. Whether we want full integration into the global financial system, the world economy and a currency that goes with that, or whether we want regional. I think that debate has yet to happen in the European Union. I hope it'll happen under the new commission. Is there anything either of you wanted to add? If not, I'm going to draw the first topic to a close with a couple of questions from the floor. We will take questions at the end, as well. If you have something on this particular session, if you want to raise your hand, we'll take it now, or you can also come back later. No? OK. We'll do this at the end of each big topic, so keep in mind if you have a burning question at the end of the one. Just to maybe... Yeah, I can see. No, because you're off the panel. You can ask me. But you're right about the debate that we need to have. On the other hand, some people think that because we were actually for open trade, international standards, I think we were the role model for that, and we think we still are. But some people are saying, look at what the others are doing, in terms of trade and the things that, in fact, some tell us we'll be naive. We think international standards are everything and the trade dispute settlement and all that. It doesn't work anymore because others are not playing by the rules, you see? And so there's a whole debate about this. Are we now... But that will depend also on how other jurisdictions will go forward, but you're right. So while some of you think it's a question, I think you're entirely right and there's a big issue and we'll come to it when we come to data and other things about whether we're heading for regionalisation or whether we can hold an integrated global financial system together. And it's not black and white, but you can see forces going both ways. My point was not the others are playing fairly or unfairly. My point is if you want to be an international reserve currency, then there's a certain set of choices that have to be made there with them. Perfect. I think there's just one question at the front. We'll take that before we move to the next topic. If the microphone's just coming. If I could ask you just to introduce yourself when you ask, the microphone's behind you, sir. Would you make an additional comment on how threatening are non-banks for banks when it comes to providing services? I mean, the non-banks, when I say the non-banks, I mean, it's the new... I mentioned this morning, Libra, but how threatening is this for banks when it comes to you mentioned the rising costs and so on? And secondly, I mean, can you be a regional reserve currency unless you are an international reserve currency? This is also initially. Sorry, John, you were taking the last question. I think the answer is yes. Yeah, you can make. In China, it's a reserve currency, but do you want to do the second question? Did you have thoughts? No, no, go for it. You're right. On the international currency, obviously, there is a certain choice to be made because if you want to... Others use more of your currency and obviously you're also more dependent on how they use your currency. I mean, I think that's inevitable. On the question of banks and non-banks, what is true is that we're very much focused about banks. Now, on non-banks and funds, you see that maybe a bit less in Europe, but at least globally, that lending is going up considerably by funds. So it's a community-different system and there are also risks coming from there. And so I think what in the longer term we need to look at is whether we got our regulation right. But the moment we think that banks are this, but banks take deposits and they give loans. Now, is taking deposits that? Okay, that's obviously a bit different because you want to protect deposit holders, but do we need to have a broader thing about what about funds lending? I think there's a debate that has to start on, do we regulate in silo? Do we regulate, should we regulate the product rather than the bank? That's all, but this is a very long-term issue. But we need to look into funds a bit more, I think. Okay, talking about regulation, why don't we skip to the next topic then, which was about the relationship between regulators and financial services. We've already touched on the issue of cost of capital for banks and things like that. The issue has been that supervisors have had a hawk-like focus since the crisis about making sure the global financial system is safer, more resilient, and that has led to regulation, which has reshaped the business model for banks. You touched on the cost of capital issue, but can I ask you particularly in Europe where bank financing is far more important for the economy than, say, the United States? Could we perhaps start off with, what do we think that supervisors should take into account, central banks should take into account, and also whether there's any chance of the pendulum slowly starting to swing back, say, from the US or in other regions on regulation? I don't know who would like to kick off on that. I'm happy to pick up. I think, as you said, there's been a big, big effort in enhancing the regulation worldwide led by the Financial Stability Board and other actions from the G20 and other aspects, and I think that that progress has been made in many areas, not just in banks, but also in other parts of the financial sector. I think that a lot of the regulation has been put in place. Oh, it's in the process of being put in place. For instance, you're asking Europe, I think that in the part, I'm talking about the single market, probably on the prudential part, the regulation has been progress a lot in the resolution part, we've made a lot of progress, but there's still progress that needs to be made in the implementability and making sure that we are operational functioning properly in that area. There's a lot of area that should be worked, probably in other parts, you know, more related to conduct areas of other issues, we might be a little bit behind, but I do think that in terms of overall, for the banking sector, there's been already a big enhancement on regulation, and I think that the regulation probably there might be some unintended consequences, but overall has been clearly enhancing the stability of the financial sector, and we do see also banks that are much more capitalised than they used to be before, you know, that have better risk management systems, better governance systems as well, they're important, you know, better assessment of their liquidity position in the short term and in the long term, but their assessment of their funding position and better tools to resolve themselves when necessary, and that's all being probably good. Having said that, I will pick up on something that was said before, there are two aspects that I think we need to continue working on. We need to be aware that although all this regulation has been in place, the degree of cross-border activity within the European Union has really not been picking up, and that's a challenge that we have, to foster the single market and foster a more effective financial sector and financial ecosystem, and that's something that we need to work on, and I think we need to work further. The second aspect that was said by the chairman in the speech, you know, is the speech in the macro prune and other aspects, not just in the macro prune, but in the macro prune area, very clearly we have less tools available to manage other parts of the financial sector beyond banks, and that's something which we need to work as well, you know, because that part of the banking of the financial sector has been grown, it has unique challenges, and we need to make sure that we are up to the task there. Sharon, I think you just wanted to... Well, just on the pendulum having swung too far, I mean, I think it's a constant debate, okay, and that happens. In fact, even just going back to what you said about the president's remarks earlier, he talked about macro prudential policy before it was ever called macro prudential policy in, you know, from more historical context and where we've come to since. So I think it's always a risk that that happens, and you see different pressures on points in different parts of the world and so on, but I think when we get into it a little bit more later on, I think first of all the importance of global cooperation when you see some of the issues like non-banks, for example, and how they operate across border and so on. But I think for us, for example domestically as an institution that has a very broad mandate covering everything from, you know, banking supervision, macro prudential, et cetera, you know, we see a big part of our role about advocating for the importance of strong regulation of making sure that, you know, the mistakes of the past are not forgotten and that we kind of keep reiterating that message on the importance of the progress that has been made in dealing with risks and in building resilience and so on. So I think that is a big part of our role and responsibility. Just on the pendulum, I gave a kind of introductory talk to Bank of England graduates last week and a number of them kind of weren't teenagers when the financial crisis happened. So it's very much in our minds but from their questions, you know, it's clear that they, it wasn't that they didn't remember, they just didn't know and financial crises so far don't come round or haven't come round of that scale very often, so I think macro prudential authorities and micro prudential will have a hard job over time just reminding people about why we need to, I mean the easy part was taking the wave of political energy behind reform and turning it into regulation, the hard part is sustaining Do you think the political energy and willpower behind it is dissipating and is it harder to convince people of the need of it? I think it is, A it is dissipating or dissipated and B that's entirely natural because the political system focuses on the things that most concerned citizens at the one side. I never thought I would hear the president of France and the Chancellor of Germany of the UK discuss the conditions on which assets could be moved from the market book to the banking book. That never struck me that world leaders would actually talk about that but that was the issue of the day and they did, it's not the issue now and they've moved on. I think sustaining societal acceptance for macro prudential and micro prudential will have to work harder to just explain that and that's and as Sharon says, the pentadoms moving all the time. Just a word on the fund side if I might. I think it's important to recognise the investment fund universe market based universe, they're not banks so banks their business model is leverage and for many of these funds even synthetic leverage is used for hedging. It's not a business model that requires leverage so the risks are different and you deal with them in a different way. But we've been concerned for a long time to have others that these funds have moved into more illiquid investments and yet they promise their investors daily redemption. It's not the promise of a bank you don't have the right to have exactly the amount you put in taken out but you have the right to have the value of your investment taken out on a daily basis and though it hasn't happened in the past the risk is that in certain sectors there is a loss of confidence in an asset class and there is run risk on the funds and that will drive asset prices down and as has been said we don't have the tools to deal with that and we don't actually have the information because central banks, macro prudential authorities don't have never really sort of got into the world of market based finance that's been for securities and investment regulators who are more concerned with market integrity and consumer protection and it's an area where we will need to go to deal with those run risks that I think exist in the system. You have very good agree with that I mean you saw that the financial crisis and the amount of legislation that we was passed through following that showed also the concern and the interest it had for the politicians to go forward. The problem is now the cycle is more or less over now we are doing the last parcel implementation but then I think the cycle is over the question is now what is new what do the risks then come from a different world and this is I think what we need to look at the funds, one issue of liquidity so I think we need to be broader I think we also need to think about potential tools even macro tools for as was said before for funds for example or insurers but that's in the next step because I think more or less obviously the single market and banking union has to be completed but there is another area out there I think that we need to look at because things are changing so fast that we need to be ready I presume going back to the point you made earlier John that the search for yield has taken you into places outside people's comfort zone into a liquid as you say and perhaps even in the retail world which is a I think if you looked at the retail world sort of 15 years ago the bulk of it would have been in equities, S&P 500 which are big markets and you can get liquidity very quickly even under stress much more retail you see in bond funds which are dealer intermediated markets so that depends on a dealer balance sheet emerging market and I think it's the search for yield that has pushed funds in that direction but of course then if there is a loss of confidence in an asset class the chance of fire sales from redemptions grows and then we've seen individual problems in funds but then you worry whether something more systemic might occur Right Let me turn perhaps then on a slightly different strand of this relationship between sort of official sector financial sector about the big financial infrastructure issues and a question of who is spending the money whether this is a public good it's something that real time gross settlement system which the Bank of England is rebuilding is something that should be done by the public authorities or is it something that the private sector should be allowed to develop now in the US where the Fed is developing its own real time payment and settlement system I think it's expected to launch in 2022-23 small banks think this is a great development they don't have to pay big arrivals larger banks have already invested and spent the money in developing this infrastructure and will think otherwise and see maybe as a rival to their own system although there's interoperability issue perhaps I could ask I don't know from the banking perspective or John from yours fairness and access is great but fairness to whom is it the end user, is it the taxpayer what are the balance where does it lie So we're rebuilding the real time gross settlement system as you say which is the central, it's the spine of the system the retail payment systems in the UK are privately run they were they used to be user owned utilities, they've now become like much financial infrastructure more entities by themselves my sense is the whole of payments and payments infrastructure which was a fairly sleepy part the financial system is being shaken up by technology and by competition and I think from the point of view of the bank we want to give more access to the central system to smaller players and potentially to non-banks it's not a question of fairness of who paid for the infrastructure it's a question about getting the most efficient and effective payment services for the economy as a whole and I don't think from the point of view of a central bank we have a remit to protecting companies or not in terms of, in the UK, in terms of the competition I think the UK is probably unique in this many aspects in this particular aspects that we've set up an economic regulator not the Bank of England an economic regulator for payment systems payment systems regulator which is trying to open up the market create competition in the payment systems I don't know anybody else economic regulator for payments like you might have for electricity or water but I think what matters in the end is the efficiency flexibility of payments in the economy and whether people can use the payment system in the way they want to for modern life I mean our experience in terms of the structure of the payment system is a bit the same, the wholesale payment system for us as a member of the euro system as part of the euro system system the retail payment system has traditionally been provided by the private sector I think the other dimension for us though is the kind of public good element around resilience for example when things go wrong and then I think you do start getting into these wider issues that I'm sure we'll talk about later about other technology providers and so on but we've had a number of experiences of very significant problems in the payment system for retail customers either through particular issues in a bank or other forms of payment card payment and so on so from our point of view thinking about the resilience of payment systems contingency planning around payment systems you know and how firms deal with those issues and again it raises the issues I mentioned earlier around international cooperation because in many cases we're dealing either with banks who are subsidiaries or connected with other international banks or we're dealing with card systems and so on which are global players so thinking also about kind of regulatory cooperation about resilience and contingency planning and so on I think is another dimension and as I said I'm sure we'll touch on more when we talk about some of the new players and newer developments around that It was interesting for us obviously to see whether we can have something like a cross-border instant payment system because we have the platform built by the ECB the target instant payment settlement tips but the problem is it's not fully there yet so we have a national level a lot of these instant payments but we have not really taken up yet cross-border we would like to foster I'm not sure we can do it by regulation but we need to find a way that someone is carrying that also cross-border and that would be a major change also for us Just to add as we think about those just payments but all these investments in new technologies and I think there's a basic principle that we need to think about which is neutrality for the productivity of the authorities neutrality in terms of technologies that we're not choosing the technology is the market dynamics that opts for the best technology we can try to prevent issues that we see as potential risk or potential inefficiencies or risk of financial stability of market concentration things of that sort and also technology between players neutrality between players between incumbents, newcomers, banks, non-banks small, large banks I think that's a very important as a matter of principle to start with Okay, as we draw to the end of the second theme before we go on to the third are there any questions on this topic from the floor on payments cooperation, regulation specifically you're saving them all up for the end I see we'll have a flood at the end Well as you point out this is about neutrality and it's not just regulating the established financial institutions or the services that they've been provided but let's look at perhaps the new providers that are popping up the new technologies they're using either to provide completely new services or old ones much more cheaply so some of the positives of the big tech, big data world and the disruption is perhaps low cost structures which are passed on then to the end user however there are also some potential negatives say the risk of dominance through data could I ask you perhaps in turn I'll start with you John to go around and say whether you see the glass as more half positive or half full or a little bit empty and where the balance as you look at this issue how you think it should be So I think the glass is half full I think what the new providers can I mention the old word You should go ahead and actually be as specific as you want Libra for example has I think just push the debate further so we all knew that these things were happening in small pockets in technology space and then the thought of a very large player coming in potentially with 2 billion users shortly I think has concentrated the minds in the official sector and I think that's useful and I think all of these players and not just Libra have shone a light on some of the inefficiencies in the payment systems the costs that are higher than they need to be across border worlds so I think there is opportunity through technology now to reduce some of those costs to increase financial inclusion all those things I think make the glass half full but I'll go back to the point that was made earlier we have to make sure we treat the risks in the same way and that's harder than it sounds because in the past if you could regulate the big banks you effectively had your arms around the payment systems because there were few players who did it now the payment process the payment production chain has been chopped up into lots of slices all done by different players and it's much more difficult to get an end-to-end view of risk so the challenge for us is to ensure that we think in an end-to-end way about the stages of the chain if I wanted to take what I think and I think Libra there is still a lot of discussion about what exactly are the specifications but something which is creating a financial asset is creating a payment system through which to move that financial asset with a ledger based it's a distributed ledger based system to keep the record is then creating an ecosystem of wallets or places where you put your financial asset etc we need to think about all those things and say how do we ensure that we are managing the risks of all of that not just each individual compartment but actually the whole chain end-to-end so if you bring a new payment ecosystem into being and people have to think about the ecosystem as a whole not the individual parts but I think if we can and it may be where the balance between the public sector and the private sector in the provision of some of those things lies I think remains to be worked out but the opportunities for financial inclusion lower cost and just integrating payments into the sort of peer-to-peer way that people want to live and transact I think they made the glass half full if we can get those things right Yeah so again the ill word so I mean you can imagine that there was a lot of discussion on this now first what is it is it really is it im money but then you realise is not one to one because it's ok it's a stable coin but it's not really at par with the euro so it's something that we don't really know exactly how to capture it with existing legislation so we need a bit more creativity there and also the question is how much do you want to regulate or even tolerate it then there's a lot of discussion going on I mean one thing that I think you cannot have is that you want to make sure that laws that you have on cyber security money laundering, data privacy tax compliance all of this I mean if you have all these laws for the normal payment system obviously the same needs to go for any alternative payment system so I think some regulation will be needed the question is how do we do it and I think we are not at the bottom of this the moment we are still and we are not fully clear yet how we work, we see a roll out and it will be also an international question but it's the biggest challenge to data I think for me if you go back to the kind of simple thought about our mandate and about serving the public and the public good and in this case about the provision of safe and efficient and effective payment systems that really should be our focus so when we are looking at all of these different things like new emerging technologies I think it's incumbent upon us to make sure that all of the different dimensions of the possible risks are considered particularly some of the longer term issues so these kind of new innovations and so on can seem to solve lots of current problems very good but there are also long term potential consequences as well so if you see some of the developments around social media, around data, around privacy things that seemed very convenient and very useful have turned out to have side effects later on so I think the rigor with which we have to consider these issues and what the risks are and particularly how they may play out over the longer term I think is very important and then maybe drawing on just very briefly on our own experience at home I mean we have a very broad mandate we've consumed protection, anti-money laundering we're a potential regulator and so on so we have that kind of quite wide remit all the way up to including macro-prudential and I think it's a kind of microcosm of many of these issues so you really have to think about all of those different dimensions and connections and then for these issues replicate that on a global scale and it makes that cooperation not just across regulators internationally but across all the fields through which we think about regulation and through which we think about risk I think quite important in trying to make sure that we have a very coherent and very joined up approach to thinking about those issues while also maintaining important principles like market neutrality and so on which I agree I mean I like to broaden a little bit beyond payments and talk about innovation technology and I think that innovation this is an obvious thing but innovation once is discovered it doesn't go away it stays with you but then you can try to prohibit it you can try to regulate it, you can try to live with it and the second big aspect that innovation is not new to finance the finance industry has always been very good at incorporating innovation so I don't think what this time should be different what I do think is important is to highlight some of the things that John's already said you know is that the characteristics that the current innovation has has I think three aspects that are maybe more unique than before and that puts new challenges the first more important act is that it breaks the value of the chain I think that's very important he mentioned the contents of payments but I can think you know outsourcing of banks for instance of information systems and going to the cloud that's now a very important concern is that the concentrations rising on the provision of those services by a few providers out there you know that although on the micro individual risk of an individual bank you might not see problems but you might have systemic problems by that concentration that's just one small aspect but if you build upon that then it's a second aspect that I think is important which is the cross-border nature of the break of the value of the chain it's much more bigger than it was before and therefore the need for co-operation is much larger and then the third aspect which I think is important is that the cross-sectional aspect you know because we are I mean like I represent here a sectoral regulatory theory we regulate banks but many of these technologies go across sectors and when we think about cyber issues when we think about data issues when we think about that type of stuff you know it's inherently cross-sectional a cross-sectoral and that's much cross-sectoral cross-border makes it much harder to manage you know in the banking sector in the financial sector we have a long history of international collaborative bodies and we don't have any criticize now like others less you know but they are in place in these other new areas when I think about data or when I think about cyber the degree of ability to even just generate collaborative bodies within a country because it's cross-sectoral within ministries because it's cross-issue and then let's say cross-border is a big challenge and I think that's one thing that we need to live up to I mean we keep touching on this I think you want to come back as well John you wanted to say something else I just wanted to endorse and emphasize and bring out Sharon's point which is we saw what happened with the development of this technology and data in other areas that the problems appeared after the wide-scale adoption and I think when we think about the development of new technology and finance I think we're all very concerned to ensure that we don't get to a position where we have 2 billion people using something and then we discover that there are problems so sometimes here well you have to let it develop, see what it's like and then respond and in these new technologies the speed of adoption is so quick that I think it's quite dangerous to wait and see because then you find actually the problems are there and you can't deal with it on the scale of cooperation I think this whole area of technological innovation will challenge our regulatory for cooperation for a number of reasons data is a very good example because data is deeply rooted in different data control in different societal choices and societal preferences but also because we don't have an equivalent to the kind of international community of financial regulators on the data side et cetera so I think for for us we are not only going to have to try and I won't say intervene but get engaged very early in international discussions and coordination so we try and build in a consensus view where we can before things start we're also going to have to reach out to other regulators that we haven't really met before and try and make bridges with them and maybe in some cases help bring into being an international community of regulators which in some areas just doesn't seem to exist at all because you were saying that it's difficult even within one country to join up these things how do you think any of you if somebody else would like to chip in as well how do you think this would who would be the regulator of this I think Mr Carney said data is the new oil at one point who regulates this new oil in which is very very much more lucrative perhaps in the old oil I don't know what level this is at and how quickly we can get a global approach of national even it's proving so hard perhaps we could start maybe at EU level yeah but you're right the problem is that EU is so very nice but it's not enough it's a global phenomenon so I think we need to find a global answer to it for regulators we need to reach out and see I agree actually with John said that you have to if you want to regulate it you have to do the very beginning because once it's there adopted and all the people are using it you're coming too late so I think we need quickly to understand I think that's already happening so I'll extend and reaching out and have some global answer to this I was just on the privacy point because I think from a European context to take your point about this kind of global cooperation particularly from a privacy perspective but I mean the framework around the GDPR I think gives Europe a good start but maybe a slightly different dimension which was reminded by one of Jose's remarks about innovation more broadly so given our broad mandate you've had lots of firms coming to us with ideas for financial services firms but also for innovative services for financial services firms and we have a kind of innovation hub now to try and coordinate our engagement with those firms and in fact at that about a third of the kind of approaches and enquiries that we get are not actually about becoming regulated financial services firms they're about providing services like know your customer platforms or you know platforms to support the provision of credit and so on or data analytic platforms to regulated firms so a lot of the innovation I think is much broader than firms actually becoming regulated and in fact it's one of the challenges for us as a regulator in dealing with that kind of broad spectrum of firms who don't necessarily have a background in financial regulation and the processes and so on that underlie that so that makes for I think quite a big communications challenge for us as regulators and trying to make sure that the standards do apply consistently regardless of what type of firm it is for example you know if it's doing a business regardless of the different type of firm it might be that is treated in the same way Turning back to Libra I don't know why it's called the L word I know Brexit is the B word Anyway Were you surprised you were saying that normally John regulators or supervisors have tended to see adoption, wait for it, see how it pans out the speed of the response this time however was very swift I think we and a number other jurisdictions and really in the international they've been awareness that one of the big techs one of the big platforms might well come into the payment space or other areas credit intermediation other areas of financial so I don't think we were surprised that it happened there was warning for quite a while that actually this could happen I think the political side may have been surprised and of course because of the it came from Facebook it awakened a whole political debate in a number of jurisdictions but I think the it just catalyzed a lot of collective thinking that have been going on but just wasn't going on with that urgency not because it's a bad thing or a good thing and go back to neutrality point and managing risk but just because we've seen how fast the big technological players can actually bring innovation in at scale and this goes back to if it's small you can if it's small you can somebody called Libra the elephant in the sandbox it's not my phrase it's a good one there so you can have a sandbox exploratory approach to something that is quite small but something where you think it could develop at scale or whatever you really have to do a lot of the thinking ex ante Do you think there is any risk for any of you think there is a risk that the speed and perhaps vehemence of the response to floating this idea was such that anybody else who might have been thinking of being innovative, dipping their toe in the water might actually let Facebook go first and see where it pans out and it might just slow down the pace of this development not a concern My view is what we will I hope be able to do is set out as Jose has what issues need to be addressed and how you approach holistically a whole range of things many of the stable coin projects that are out there are very different to Libra so they all combine these elements in different ways with different risks but if the official sector can start to set out these are the things we have to deal with this is the way we want to look at end to end risk management I think that will help the developers of other systems because at least they will know what we are concerned about and then there is an issue which I said the public sector will have to reach some views and it may be different in different jurisdictions about what things in that collection of functions that are being done in these new projects what things need to be done by the public sector and what things need to be done by the private sector so I think it will help innovation I will see but it is true that Libra is a completely different dimension to what we have seen before so before it was okay it was not really about visibility risk cryptocurrencies maybe it is a question of consumer protection some extent but that was it and now obviously that is completely a different scale which means that also the highest that we need to see how you react to this that is the catalyst also let me sticking with the big tech and big data but also perhaps looking at the positives of it what are the opportunities do you think for banks, supervisors, regulators and the like to improve risk models reporting and analyzing regulatory data by using some of this new technology and AI I don't know was it manual? as I said finance has always been very keen in incorporating innovation so I think there is a number of ideas that are working with financial institutions are working banks are working on basically how to enhance the risk management models that is a very important area how to be more accurate in the appropriate provision of services to customers by using data in a more smart way, interesting way another aspect that data has that has a strong potential going forward is on the REC tech area the regulatory reporting area as well they can think that they can use that so there are a number of areas in which they can work also the technology has other characteristics that in some ways are favoring some of the issues that have been long time concerns for part of the financial system it's much easier many times in some aspects to trace transactions in other aspects it's much harder because at the same time you know they become faster flow across the world so you know there are areas in which we are going to see changes but I think the traceability of the information and the ability to use this to better assess customer needs and risk management possibilities is clearly there if there are a few questions I think from the floor if you could just wait for the microphone there's somebody just up here in the third row there are two actually if you could just introduce yourself thank you Javier Suarez from the advisory scientific committee of the ESRB also from Senfi I want to elaborate a bit and ask the panel on connection of a couple of ideas so the connection of the idea of being neutral across technologies and players that Kampa was establishing with the debate on Libra and the risk that we all get a bit excited by the technological part of the innovation in some sense to a first reading Libra is an innovation because of the technological support that it has but it's not an innovation in history it's yet a form of private money private money was already innovated in the middle ages and in the middle ages the sovereign recognized the power of having a monopoly on the issuance of money there was a resuscitation of private players attempt to issue private money in the free banking era and the reaction of the sovereign and the authorities was to create a fractional research requirements system by which essentially the sovereign retains control on means of payments by requiring those that issue means of payments until recently deposits being under the sphere of regulation so you know I will say that in application of the neutrality across technologies and players something like Libra which is just new technological support for private money should be regulated as a bank and it's means of payments should be subject to something similar to a fractional research requirement and I actually am sceptical on the capacity of these private money to survive once they are subject to proper level playing regulation I just want the panel to reflect actually one of the largest innovation in recent history is the active monetary policy and the danger of something like Libra from a financial stability perspective is to lose power of having an influence on monetary developments if a parallel monetary system emerges around a means of payment that is out of the control of the sovereigns Thank you. I don't know I think that was a contribution and very welcome. I think perhaps the gentleman next to you I'm Steve Cicchetti I'm first of all Javier's colleague on the advisory scientific committee and I'm from the Brandeis International Business School I have two points questions about the technology as well there's this great evidence from Tomofili Paul that the cost of financial intermediation has been somewhere between one and a half and two percent of assets for 130 years there's been a lot of technological innovation since 1885 so I'm kind of wondering why we think that it's actually falling or is it really falling now or not so I'd be interested in people if people actually think that's happening the second point which is somewhat similar to Javier's there's a tension it seems to me a tremendous one between what the computer scientists are trying to create and what financial regulators try to do so computer scientists are trying to create systems where we don't have to trust anybody and we don't even have to know who they are that's critical for them and at the same time I think that we all feel that identification of counterparties is pretty important for for compliance purposes so how do we resolve this tension between the technology that's trying to get rid of the need for identity and things like AML, KYC tax compliance terrorist, just all the FATF stuff on the other side which I'm sort of big on I like that stuff but I also wouldn't mind actually having the computer scientists version if you read the history of the Bank of England we have a political and national debate about money and what is money somewhere between every hundred you know, eight hundred years so this is not new normally the bank resists any change so we don't like going off the gold standard we don't like going back on to it and we do like private money as we've done so my sense is we all get used to kind of money in certain forms I'm using it in certain ways and then some technological or social innovation comes along and it changes and we have to redefine what's acceptable so this is it's just our time now to go back into some of those issues I think on Libra and some of the other stable coin type products it's not just when I said it's a kind of financial asset or a money it's a number of things in that ecosystem and you know it's not clear to me at the moment just what the thing is so you said it's a bank and fractional reserve banking maybe maybe it's a completely narrow bank so we allow Scottish banks to issue their own notes we've allowed that for a long time it's very important and Northern Ireland it's very important in that economy and society but they're backed one for one with central bank money and that's a complete narrow bank these stable coins are not fractional reserve banks maybe they're narrow banks do they want a bank do they want to back up one for one an e-money which Sharon mentioned is exactly that you can use your e-money but you have to back it up one for one it raises other issues that's not just the only issue if I put my e-money or my asset or whatever in a custodian account it is regulated differently in a bank account for transactional balances in a custodian account the custodian just looks after it and has to give it back in the bank account the bank can use it the bank owns it but has a promise we regulate those two things in different ways I don't know whether Libra wallets or the next section of wallets will be custodial or whether there will be transaction accounts and it may be that we discover that we have been regulating things in different ways for a number of years because they never came together so it poses a whole load of issues in the chain and most importantly if I hold one of these stable coins what is my claim and on whom do I have a claim and we haven't resolved any of those so you're right some of it is the Libra issues are around money and what is money and what can we allow people to use and as a central bank I think we would be very concerned if people are using something as money and they don't know what the claim is or they don't have a claim and the claim is not assured there are big financial stability issues when confidence goes in that but I think it raises a lot of other issues as well and different people are combining these things in different ways and that's what I meant when I said we have to try and have an end to end view of the risks in the system I'll leave the costs of finance and somebody else is clever than me I'm not going to talk about the cost of finance I know that evidence but I'd like to come back to the issue of of technology and whether technology provides more anonymity or provides more ability to identify people and you can put it in both ways because one thing technology has for centuries the most easier way to do criminal activities was by using money to provide anonymity and money was actually provided by the state so this trade off clearly in that direction it raises new issues but I do think that it has also at the same time the ability to be able to have better tracking potentially of what goes also through the financial sector of course it requires much more international collaboration much more international integration much quick international collaboration and that's much more difficult to work much more than we were before because the sense of borders is a long time gone in the financial sector becomes more and more obvious as we introduce more and more of this technology but the fact that through technology usually there is a better way to track the transactions in itself it's a limit to anonymity which I think is fundamental for national activities Thank you I think we had a question on the middle third row just here Sorry just the other side Good evening I am Ratna Sahai from the IMF and it's more a comment I'd like to make and I'd like to hear your reactions and the comment is I think we are not making a distinction yet between really the big techs and then there are also a lot of small fintech companies which are taking advantage of what technology has to offer and I want to point out to a study that's ongoing that actually I'm leading at the IMF which is looking at fintech from the perspective of financial inclusion We are doing empirical work but we've also visited about 10-12 countries and what we are finding especially in the likes of India, Latin America East Africa is that actually fintech companies many of them they are small, they are filling gaps they are providing speed, efficiency flexibility and customising the needs of many of their clients for example small merchants small loans for students also and when we think about financial inclusion it's not just about payments it's about payments credit, saving instruments insurance products and so there's a lot of innovation that's going on that is indeed benefiting vast numbers of populations and I will also confess that I thought the biggest benefits are going to be coming in low income and emerging markets but then I went to UK and also to the east coast in California and I was amazed as to how these fintech companies are also providing very useful services especially on the credit side to a number of very small clients so I just want to put a balance to how we think about that and finally I just want to say that indeed there's a very big difference if there's a huge big company big fintech company that comes and takes over the world and takes over the world on the payment side let's not forget they will also take over the credit side and every other side so let me stop there I think you already touched on the inclusion issue but if you have any comments look some of that is behind my glass half full comment earlier and I wasn't just talking about big tech I was talking about technology as a whole and we released a future of finance report done for us by Hugh Van Steenis before the summer and the banks response and one of the things that we we will work with the government to help do is to use technology for portable credit file for small corporates because we have the real issue in the UK with SME access to finance through the banking system and technology can actually help solve that and build a platform that many other credit providers can work off so there are really big opportunities here the reason we focused on the big tech is because they have more attention but right across this world if you can understand the risks and deal with them I think there are big very big benefits I think we will take one more question if we could hold that one for the end we will definitely come back to yours but please sorry Richard Port has flooded business school and ESRB advisory scientific committee but also the joint expert group on non-bank financial institutions and I want to focus on the latter President Draghi said we need new instruments to deal with the risks arising from non-bank financial institutions and I'm asking myself why it is that this has been so long delayed in the sense that historically after all we had LTCM non-bank financial institution very risky very dangerous we had in 2007 and 2008 we had AIG and laymen both of them not banks risks around so it's not that there's something new there what is it that has delayed so the development of regulatory instruments for the non-bank financial institutions is it lobbying power is it just the banks were first and foremost somehow but why we have to say that in Europe we're still very much bank centric so the first thing if you want financing of the economy to a large extent it's banks that's one thing the other thing is obviously that you have depositors and you want depositors to be safe so these are it's not only investments it's also the role opposite of the head at least at the time of the payment systems they're really crucial for all of this in the public interest if you want whereas funds were not important and you had less policy issues although obviously things are changing now because the more obviously they're in the system the more they grant loans the more we will also have the attention on those but I think there are obvious policy reasons why you looked at the banks first just to go I think part of the challenge as well is that although those institutions were not originally banks and that's where many of the issues arise the transmission mechanisms and then where they materialize particularly in taxpayer money in many cases was through the banking sector and it was the banks that at the end had to be supported by the public sector overall and that's where the challenge is another part of the research is that probably we talk about banks and the non-bank sector and the non-bank sector is a mixed plot of very different things and then it's easy to think about an instrument for a particular institution and it's difficult to think about an instrument for a range of different institutions for a range of different alternatives and I think that's probably where the challenge is that data is much more difficult much more fragmented the identification of the actual institutions that are doing what you think is bank-like type of activities or risky type of activities outside the banking sector is more difficult to identify that would be my guess I think I disagree with your assessment so we tackled money market funds which is one of the big issues we tackled broker dealers which is your Lehman example we tackled non-traditional non-insurance activities by insurance companies which is your AIG example we put in very heavy leverage controls on and lots of controls on own account dealing by investment banks etc so the universe the so-called shadow banking nexus that we saw over the crisis I'd say actually instruments and controls actually in some cases just prohibitions have been put in place to deal with that what I was talking about was retail investment funds and I think the outflow from retail investment funds during the crisis was between 3 and 4% a year and the industry would tell you that huge redemption flows out of retail investment funds pension funds and insurance funds have not been a problem one of the big problems in previous financial crises and my answer is it hasn't been a problem in the past it's bigger now, it's in riskier activities and we need to look at it and one of the reasons why it takes time to develop the tools is partly because we don't have macro prudential authorities in that world and we don't have the data but the answer that's taken us since 2008 to sort of deal with those problems this is a different set of problems to the shadow banking problems on the crisis but I can continue the discussion let's move on to the last big topic that we'd like to address with this panel which is about the green finance issue very much a hot topic with the news that's coming out of the UN in New York I mean the demand for green finance is outstripping even the global record issuance we're seeing there are huge numbers of aspects to this but class can I start with you first so the European Commission has already weighed into this debate I think there's a 414 page tome online which you're not supposed to print out in the interest of the environment about the taxonomy of green finance it's very clear on the website don't print what is going to be I mean there's work and building blocks already in place so I don't want to make it sound like the Juncker Commission didn't do anything what is the new commission's priorities when it comes however to greening financial services and into the future I think in green it's to a large extent a combination we've already started I mean if you want to have green bonds you want disclosure green you want the first thing you need is a definition of what is actually green and you see in the discussion that we have already on an taxonomy that you can have different views on what is actually green if you want an example the nuclear power is a green is not green I don't want to say what I think but just to show you that it's not that easy and I think this is really the first thing that we have we need to have a kind of common understanding what is green then you can also have it as a label and then the whole system can react to that and things can go off I mean this is our first priority also now in the new commission I don't know whether anybody else wants to jump in on this but the issue also arises of greenwashing into this and the retail products that are being sold around green ESG issues and stuff how concerned are any of you about the understanding of what is and is not green as you say Claude what is categorized as green is perhaps not what a lay person would sometimes understand and what the risks are associated with this well I think that just to add a couple of things you know I mean we work very close with the commission on the taxonomy and we agree that this is a very important starting point is first to clarify what are we talking about what are the things that we are talking about once that is in there then we can start talking about disclosure of what's the activities what's the amounts that we want to go in that direction and not and how do we get there of course with green many times also people link brown because this is a transition this is a transition from where we are today where we want to go and part of the challenges that we have we think about green finance but more broadly Claude a change coming back to you is the risk the risk potentially linked to climate change the risks that are there in society that we need to also to measure and we need to measure and monitor and make sure that we transition throughout those risks into the new opportunities and that's for our point of view we think about the banking sector that would be the next step so let's start thinking about first what's green, what's green in their portfolio where are they stand, what are the money how can they measure and assess risks that exist in those portfolios transition around those risks I think I've been struck particularly I think about the change in momentum over the last number of months and I know you mentioned the UN but even from a central banking point of view so we have now there are colleagues here in the room who are involved also in this network for the greening of the financial system which has taken much more active interest in this particularly from the dimensions of central bank mandates and I mean I think that's taken a very broad view whether it's financial stability some of the issues about the risks in terms of financing investment into the future and transition costs and so on understanding the risks to the financial system but also understanding the role central banks themselves play as investors for example as purchasers of assets we have an investment portfolio ourselves as a central bank and I think that's been a very useful forum for us to exchange experiences and build some momentum as a central banking community around some of these issues because it allows us to deal with some of these issues by definition and taxonomy and what do we mean and so on and that's the way of dealing with that Thank you and perhaps one of the other issues that comes up and as you mentioned this network has grown very rapidly in membership I think it's up to nearly 50 or something like that including observers from a standing start in April what I guess one of the questions is there are inherent risks that need to be stress test I think the Bank of England was one of the vangards in this about stress testing financial sector risks and exposures to climate change but where is too much for a supervisor or a central bank to do in this process where do you think is not enough and where do you think is too much John If you'd have walked into the Bank of England about nine months ago there was a group of very youthful and energetic protesters outside our door saying you can make money can you make some for us so green QE could we print money for QE so there are limits to what central banks I think can do but I think what I'd say mainly from a financial stability perspective I normally get a cynical laugh when I say this but the financial sector is supposed to be in a way the brain of the economy it's supposed to be directing savings no cynical laugh you're fine I get it more in the private sector actually it's supposed to be directing savings and resources to where the economic opportunities are greatest in doing that in an efficient way and no matter what you think about climate change whatever if governments act in the way they've said they'll act and the momentum really has changed then not just oil companies but the economic return from investments in the economy will change insurance companies have been quite good at measuring that it's true also that if governments don't act then you will find we have more climate related events and that will change if you like the return on investments in the economy as well and what we're trying to do with this stress test and we'll do our normal capital stress test of banks to make sure they can weather a severe but plausible event but in addition this exploratory test what we're trying to do at the Bank of England is to test the extent to which banks are ready for and can measure those risks in their portfolios and be able to do it over time because if you don't have a way of assessing how the return on investment will change in different scenarios no action by governments action, late action then actually the financial sector is going to be caught out and resources are going to be misdirected and then we'll see financial instability effects so we hope to release it's not easy to do this our exploratory stress test we've done a couple already normally have a a 10 year horizon maybe that's not long enough for this you have to decide whether banks balance sheets stay static through 10 years or whether you allow them to change and how you would allow them to change you have to specify scenarios to be specify one scenario or more than one scenario so we hope to go out with a discussion paper before the end of the year setting out some proposals for how that test will be constructed and then to spend 6 months after that in discussion with the financial sector and others on what the best way is to do the test that's why the test is some sort of 18 months into the future but the idea is really to get the financial sector thinking about how it measures risks and risks in its investment I should say when you look at the insurance sector I think there are a lot further advance that for me is very squarely in the mandate of central banks I mean the idea that we wouldn't care about how the financial sector deals with a huge change in the economy I think is very different and I think people are starting to realise that if the financial sector starts to anticipate and deal with that change then the change itself will be smoother and potentially faster Oes Emmanuel, let me turn to you in something to pick up on carrots and sticks incentives and you know how banks look at their green exposure I mean the EBA I believe is doing some analysis into the issue of whether risk weighted assets should take into account green exposure in fact could you just sort of talk us through the state of play some of the pros and cons as you're doing this analysis well as I said we're working on a multi year plan to think about how banks should integrate these risks into their balance sheets and that plan basically starts from working on the taxonomy to have a clear understanding of what do we think are green, what are they green, what does it mean then the second part is that we will come up probably with a communication by the end of the year encouraging banks that they should start working on risk management models and on disclosure of what their exposures are and how are they thinking about managing those risks to send a thing that risks are going up or they're going down in which direction you know it's beyond that they should start farther down the road stress testing testing how far they can go and where they can go in the medium term and then as a result of that analysis later on the supervisors on the other hand should also start working towards then those assessments by banks are contrasted by them check adequately and banks adequately provision and able to manage the transition of those risks that's a multi year plan but basically starts from as I said before information first clarity of what are we talking about taxonomy, second disclosure third better risk management, better assessment of how to manage those risks and then fourth assessment of stress situations that we properly prepare for managing them One thing because already in the last banking package actually when we negotiated that this came in a bit another question is and I think I fully agree with that that there is a role obviously by supervisors to understand what they're doing because it's also a stability risk for them obviously if they don't get it right on the other hand there was also a big discussion about whether you should incentivise banks actually by for example having lower capital requirements when you invest in that and this is where actually we didn't go that far because then you come into this really issue what is potential and what is actually green because you can have something very green but it's badly managed and potentially not sound so there's a minute debate will come back but I think it's much more efficient to have a proper risk management actually and not a general discount that they get for green across the board over there Perfect. I just want to emphasize what he just finished and one of the first is proper risk management because you cannot trade off more green for less financial stability that's a very risky trade off you need to make sure that at least you are engaged in that OK, on that note of unity perhaps we'll turn back to the audience and any more questions I think there was a gentleman at the back who had his hand up and didn't get a chance to ask the question last time and then we'll come back over here If I can return to the previous topic briefly Jack Schickler from Emlex you referred in the previous discussion to high transaction costs and inefficiencies in payments and so on and there's obviously some discomfort about new players like Facebook entering that space what can traditional incumbents particularly banks do to reduce those inefficiencies in payments and how can regulators help them to do that by providing a framework or providing an infrastructure and any thoughts on how that might go forward Greggie So I think banks have already started in many countries to do that certainly in some countries not the UK they've developed bank-to-bank payment systems like the swish system in Sweden to bring costs and speed down and on the question of so this is not we're going with new technology and the existing banking sector doesn't get a chance I think it's the idea to have a level playing field for competition and regulation I think as far as the public sector is concerned you look across border payments a lot of the friction and cost is the way we act so real-time gross settlement systems open at different times in different jurisdictions and some of the delay in a payment is waiting for the system in one jurisdiction to open and deal with a payment coming from another central bank system we don't have common identity protocols which would avoid money laundering checks being done at multiple points in the chain which seems to hold it up there's a report by McKinsey which says that 60% of the cost across border payments is simply because it's unpredictable when the money will arrive so firms are holding pools of liquidity in different jurisdictions so that they're not caught out so there's a lot I think the public sector and particularly internationally the central banks working together could do just to make the existing system work better and of course the banks would plug into that and to me it's not axiomatic that you need DLT distributed ledger technology to get many of the benefits many of the benefits around inclusion and cost we may be able to get through more efficiencies in the existing system Thank you I think there was a question just there about which went up in the green finance section Thank you Alex from the ECB I have a question on this bank of England climate stress test which I find extremely fascinating so I want to break European unity so I take a hypothetical example where the Fed does the same test as you do and then marks down a bank because it has chosen to listen to the president to assess the climate change as a hoax so I find it difficult to stress test banks insufficient preparation for actions by the same sovereigns that basically delegate to supervise the authority onto the central banks so how do you think that could be resolved I said our stress test was not the capital stress test pass-fail do you need to have a capital plan to increase your capital or do you not can you make distributions the exploratory stress test that we run we've run one on lofa long and new technology two years ago we're running one now on liquidity these are exploratory they're not pass-fail and part of the aim is to force thinking inside the banks about how they deal with things so the idea that we would then require more capital for one bank and in the US they would do something else it's not that sort of exercise the exercise is designed to focus banks on this change and actually they're very keen because they want some way of stressing themselves this is the momentum point that Sharon mentioned and also if they start asking companies well what's your assessment of your risk to an increase in carbon price and the like and companies don't have an answer then actually that will stimulate more measurement down the system but this is not a I don't envisage that problem occurring and I would counsel you not to break European consensus not always a good thing are there any other questions sorry just thank you I work for a security supervisor and I wanted to make a reflection on what we're talking about the non banking or this area I always move in my chair when I hear that this part of the financial situation is not regulated it's regulated and supervised by us it's true what one panelist has said that we have a different approach we are more worried about market integrity and consumer or investor protection but I think that in Europe there are many rules that has tried at least to tackle many aspects you have mentioned many market funds for example there's a regulation I think another important regulation is the one related to securitisation we have this new regulation of STS which is also trying to produce financial products that are more simple that are safer for the public and with respect to investment funds we have a lot of rules we have the fifth version of the youth's directive we have a more less recent directive for alternative investment fund managers and this where for example this direct lending new phenomenon coming from funds should be deal with my reflection and I wanted just to see if there is any reaction to this my reflection is that sometimes I feel that it's more a question of financial literacy in respect that we are talking about different animals I mean that people investing for example an investment fund that is making a direct lending activity these people have to know where they are investing they are investing in a fund that is going to take some risk making loans and then if these loans are not refunded they have to assume their losses for example in a different kind of investment fund if there are liquidity problems we have for example the possibility of suspension of redemption but the people has to know that this is only a way to try to know which is the value of their investment and at the end of the day they are going to have the refund of this investment but at the value that it has is very different of the case of the banking system where we have deposits and then these deposits have to be protected and they are giving credit this was just the reflection that I had to make thank you I don't know if anybody actually has any comments on that but I thank you for your thoughts I think I tried to say exactly that when I said these are not banks and we shouldn't look at them as banks but if you're telling me they're not riskless and some of the changes we've seen I don't have the data it's one of the problems but I can't look at macro prudential many of my best friends work in the financial contact authority but this is not there this is not actually what they are set up to do and when a fund offers daily liquidity and invests in instruments that take three weeks in a stressed market to liquidate then I do worry perfect I'm afraid we are actually out of time I thought one and a half hours was quite extensive but not for this subject so thank you for your contributions from the floor and your thoughts but also may I ask you to join me in thanking our panellists for their thoughts on their discussion