 Welcome back. We will now have our first panel discussion which is on credit risk and how the banking industry managed through the pandemic. The moderator of this panel is Patrick Jenkins of the Financial Times. Welcome to this session on credit risk and managing through the pandemic. I'm delighted to welcome a really top class panel to discuss this topic from very different perspectives. We are joined by Anna Bottin, who is Group Executive Chairman of Banco Santander. She's also President of the European Banking Federation. We also have Elizabeth McCall, Member of the Supervisory Board of the European Central Bank. David Tytelbaum, Head of European Advisory Offices and Head of Global Fig Advisory at Cerberus. And finally, Nicholas Verron, Senior Fellow at Bruegel and Peterson Institute for International Economics. Welcome everybody. Thank you so much for being with us to discuss what is a pretty vital topic. We are clearly still in the middle of this dreadful pandemic and you have all been thinking about risk management from one perspective or another for the past 18 months or more. So I'd like to kind of reflect on that and also look forward to future risk management challenges. I wondered if we could start with you, Nicholas, because thinking about it from a kind of macro perspective here. The key question is how far we are through things, I suppose, to put it simplistically. It does feel like we're at a bit of a pivotal point in terms of the debate that's going on in central banks around the world about levels of inflation, about what that should mean for monetary policy. And I think it would be really interesting to hear from you your thoughts on that kind of big picture perspective and indeed whether you agree with that point about being at a pivotal juncture. First, thank you for having me and for organizing this forum. Indeed, it's a good moment to reflect on these questions. I think it's perhaps good to start with looking back a bit as Christine Lagarde and Andrea and I have already done today. But from my perspective also look back at all those things that have worked pretty well. I think the reaction both from a central banking monetary policy perspective and from a supervisory perspective in terms of all the shock and uncertainties that was brought by COVID-19. That reaction seen in retrospect with the hindsight of now more than 18 months of observation since the shock started has been reasonably good. And I don't think one can identify major blunders or mistakes. And on the contrary, I would say a number of things have worked the way they should have worked. I think this is true in terms of day-to-day decisions and Andrea and we are reminded us of what was done in terms of, for example, dividend and allowing banks to use buffers. I'm sure we'll come back to that. But also in terms of the regulatory framework, for example, Basel III, thanks God we had that at the beginning of the pandemic so that banks were able to face this shock with sufficient capital. Now, your question is forward-looking and looking forward, you know, it cuts both ways, right? Clearly, as we've been reminded again by Mr. Andrea, if rates go up at some points that can be good for bank profitability and from a narrow banking P&L perspective, at the same time, there are plenty of risks in the economy and there are many challenges for monetary policymakers. But because this is a supervisory conference, not a monetary policy conference, I will say that what is probably most important for supervisors is to really keep an acute look at asset quality to be very mindful of all the extraordinary support measures and moratoriums, some of which still exist, even so many of them have been withdrawn by now, and to keep looking really at credit risk in a granular way in bank balance sheets. So, Andrea told us this was the case and there's no reason to doubt it. There have been no embarrassing mishaps so far, but clearly there have been a lot of changes in corporate business models. There are many companies that are not yet back to a normal steady state and this requires a lot of continued attention. And just one follow-up with you, if I may, Nick, in terms of where we are on this curve in the Eurozone, clearly there's kind of a lag effect compared with the debate in the US and the UK at the moment, for example. Are you factoring in an assumption of rates staying where they are until Q3 at least next year in the Eurozone? I mean, it's not my value added to put to date on this. I will say that it seems perfectly reasonable at this point that the ECB would not be synchronized with the cycle in the US and the UK. So I'm not worried about that. Now, how to fine-tune that? It will be fact-dependent. I think many comments on this tend to underestimate the uncertainty we still live in. So, you know, looking one year ahead is very long. We still have a virus out there. We still have the possibility of mutations, variants. I think, you know, we shouldn't overestimate the extent to which we know what is going to happen in 12 months' time. OK. Maybe a good place to bring in Elizabeth, from your kind of perspective on the supervisory side, kind of on the ground, if you like, the extent to which, particularly over the past 18 months, the record can be judged, both from, as Andrea and Ria was reminding us earlier, on the regulatory side, on the kind of dividends in particular, but also all of that fiscal and monetary policy intervention. What's your kind of view of how that all added up to protecting the banking sector and protecting the broader economy? Thank you. Thank you, Patrick. And thanks for inviting me today. It's very exciting to be here. A couple of things come to mind. First, I would give a big disclaimer. I'm always a cautious person, and I think that, you know, really making a judgment about how we've done in, you know, final terms, we're not there yet. So maybe what I would do is focus on a couple of key things. And the two watch words that I would use would be resilience, but also complacency. And in the context of those two words, I guess what I would say, after 20 months into this, we're gradually moving out of the pandemic crisis, and we can see that real GDP in the euro area is going to exceed the pre-pandemic levels by the end of this year already. So some signs of some success and some concrete signs of economic recovery happening. And on the complacency side, while we can see that the policy responsive had success, there's some observations I would make. Yes, there's the strong and the coordinated responses of the fiscal and the monetary policymakers, and this has definitely helped to reduce the impact of the pandemic, not only in terms of the GDP that we can see, but also very concretely on the lives of individuals on households on the planet, small, medium businesses. And we can see that our objective to cushion the effects of the pandemic. Our job isn't the health part of that. And I would say that's the most important job, the vaccinations and the care of the people in this tragedy that is happening, but we're doing our job, I think, rather successfully in the cushioning aspect. We've also been able to absorb the shock, the first shock really pretty well. Better than we feared, may I say, and I think we have our policy making predecessors to thank for that first, because of the regulatory reforms that were introduced after the great financial crisis, and then second, and you know, maybe I have a bit of awe about this and it is the single supervisory mechanism. Had we not had that would we have been able to put such a coordinated response together only in it's only six years after the creation seven years after the creation and it's really something quite striking to me to observe the real coordination. We can see that the banks entered the crisis with far more far stronger capital positions. And that's as a result of the reforms as well. And there was additional capital space generated by relief measures from the ECB by the national macro economic macro prudential authorities. And the fiscal supports of course to households and businesses, help the banks sustain the lending to the real economy. And when we look at lending. Just to take a look at that for a moment. What we can see is that there was a much more moderate tightening of credit standards when we look at the reaction to the pandemic and we compare it to what happened post great financial crisis. We can see that lending continued to households and it even continued to grow two and a half percent since 2019 until the mid 2021 point. We can see in the last two quarters that banks have kept credit standards largely unchanged. And this suggests that even in spite of supply bottlenecks banks are maintaining a balanced view of their of their credit risks and this is in line with the economic recovery in the last two quarters and with continued benefit I need to emphasize this of the monetary, the fiscal and the supervisory authorities. So we have a supportive lending environment that is created by the monetary policy, and we expect and see that banks are continuing to accommodate demand for credit. We can also see that the capital ratios in the eurozone have stabilized it's around 15 and a half percent C to one ratio at June of 2021, and that's above the levels when we entered the pandemic, where we were at 14.9% C to one ratio at the end of 2019. So, I would say though, it's it's you know there's good news here, quite a bit of good news. We've got a stability we've got growth we've got lending continuing we have some protection that we see of households and businesses. But I want to really make sure that we don't succumb to any complacency as we take stock going into the end of the year we really need to encourage institutions to have their houses in order to make sure they understand the credit picture they have the risk management processes in place to identify businesses that might have been struggling when they came into the pandemic or as they have, you know, certain sectors certainly been more more adversely affected by the pandemic, and we need to continue to promote resiliency. History has taught us that in good times and bad, good strong credit risk management good plumbing is is essential for his for resilient banking sector. So that's, that's sort of where I would see things. And very helpful kind of laying out of the land as you see it what I just wanted to kind of come back to a couple of points that you made that rightly worn against complacency but you also said that the banks were able to withstand the shock really far better than the global financial crisis, which is obviously true, but isn't there an argument to say that actually the shock hasn't hit yet that in fact, yes the cushions were bigger in terms of capital standards and capital levels and in fact they've gone up as you say. But the fact that they have been able to go up during this period of what otherwise would have been stressed does not speak to the fact that actually the fiscal and monetary interventions and cushions that was supplied means that actually the banks haven't been tested yet at all. And, you know, it's a good point that you're making and it's why I bring a cautionary eye to this overall picture, the pandemic Nicolas said it then we're not through the pandemic yet we see even infection rates rising in various countries in the eurozone right now. And we're looking at, you know, some sort of trajectory to end the fiscal and the monetary components coming. It will come. I don't have any crystal ball about when that will happen. But remember I use the word we've cushioned the effects on households and businesses. And our expectation is that we will see, well well npl numbers right now are favorable they still appear to be declining from the end of 2019 was at 3.22% at the end of 2019. And now it's at 2.32% at the end of June 2021. So I'm sure that we have to keep a real weather eye on. We're starting to see some bankruptcies creeping up in certain sectors, especially. And the expectation is that as the supports are removed you're going to see increasing bankruptcies in this type of thing so you know that this picture the story is not ended and this is where it's a it's a very good moment to be strengthening credit risk management inside the institutions the governance of those processes, and to make really clear that unlikely to pay scenarios for born scenarios stage 1 stage 2 classifications are being really adhered to and we have work to do on that. This is the moment to be doing that. Okay, well maybe we can come back to that in a little while. I wanted next to come to, we've heard the kind of macro view the supervisory view I wanted next to come to the bank of you and bring Anna in. But before I do that, and I wanted to ask you in the audience for your view on this pretty central question which I'm going to ask Anna about in a second, which is what we've just been discussing really to what to what extent. We've seen the worst or not so the poll I think you're going to be asked to vote on is a simple, a simple question, and that is, is the worst behind us in terms of the pandemic fallout, or is it yet to come. So, I'm hopeful that the technology will work, and that everyone in the audience will be able to use the voting software to be able to come up with a polling result on the extent to which you think the worst is over or it's yet to come. I think it may take a few seconds for that to come through. So, I will keep babbling on while it does. But I think, yeah, I can't see anything yet, but maybe while that result is coming in, Anna, I can turn to you for your view on. Elizabeth's point is a very important one that we can't be complacent, but would you go further than that, would you say actually, in my rather provocative question that actually we haven't been tested at all yet. Thank you, Patrick. And yes, we're at a very interesting moment, but I want to start, like Elizabeth, by saying that if we take their perspective of measuring the worst by human life, the worst is probably behind us. And so I really want to stress that first and foremost, we have been in a global health crisis, and that has had a very negative effect on the economy. So, you know, we monitor every week what's happening with the health crisis as we think that's the key metric to make us understand what's going to happen. We have effective vaccines produced in record time in 10 months, usually takes us 10 years. But there is still a major challenge in terms of distribution of the vaccines globally. So this is really, really important. So, having said that, I really want to stress that we are very much focused on the fact that there is still a lot of uncertainty about what it means to live with COVID-19 as an endemic disease, especially through the winter. So we are absolutely not complacent on that. And that's to me a key point. The second one is that we are entering a phase of strong economic recovery with banks exiting the crisis, safe and sound. This was confirmed by the EBA stress test, but we do not take success for granted. And so we are very much focused on helping companies get back on their feet, create new jobs, and yes, we need banks to keep on lending. So to me, the real question is, is the recovery sustainable in the face of inflationary trends? Because that ultimately is what's going to drive whether we see an uptick or, you know, credit losses getting at some point worse again. So I want to repeat again that financial institutions, we have been part of the solution. Santander lent a billion euros a day every day during 2020, as did our peers across Europe and actually across the world, I would say. And so we were very much focused on providing liquidity, supporting businesses and households and so on. All our indicators are showing an improvement on macro and improvement of the main credit risk metrics, supported by less volatility and of course less uncertainty. NPLs have improved as we've heard. The ECB data, Elizabeth referred to that on NPLs, has improved year on year by, I think, a bit more than 60 basis points. But, you know, I just want to stress that this is not the only concern we have. Let me just end by saying we're absolutely very vigilant. We are focusing on the pandemic vulnerable sectors from a credit risk management perspective. And we very much support the ECB's efforts with their horizontal reviews on food and accommodation, commercial real estate, because I really want to stress that the pandemic has affected sectors in a very, very different way. So not all sectors have suffered. Actually, some sectors are doing better than ever. So the only other thing I would say is that, given my first point, that we're not out of the health crisis, we've probably seen the worst of the health crisis, but we're not out of the crisis. So, you know, what happens if we slam on the economic break globally and then try to restart the economy. And what we've seen of the complex networks of supply and distribution, we have never seen this. And so to me, what is unique about this, and I'm, you know, I did study economics, but there's other people on this panel, we have never seen this huge, you know, V crisis. And this is really what we need to understand better. Is it a demand or a supply or a both problem? And I go back to my question of if this is a sustainable recovery or not, and what is inflation? Is it here to stay or not? I think those are the big questions for 2022. And that is going to drive very much whether we are going to see more or maybe we don't see any more worsening of the credit credit, let's say, situation on banks. Yeah, I mean, that is obviously you make the important point that the health crisis was obviously the most important thing here for the world. And happily it does feel as if we've made a lot of progress over the past 18 months. And hopefully there the worst is over on the narrow point of focus for this panel the credit risk landscape. I think, well, you've you've you've spoken eloquently about your view. And the one thing I would just to come back to my previous point with Elizabeth, in addition to the kind of inflationary pressures and monetary policy decisions that are looming. And of course, the related issue of the extent to which things like furlough schemes and other government interventions, as well as the ultra loose monetary policy cushioned the system, the banking system from effects that will now come through that now that some of those measures are being withdrawn. And just before you respond on that, I'll tell you and everybody else that the result from the poll, very scientifically conducted obviously is that only 38.5% of the audience thinks that the worst is yet to come. 61.5% of people think it's already behind us. And that is obviously on the credit risk side. And would you say that that's kind of your view, Anna as well. Well, exactly. The question is, is, is, you know, as I said, I think a lot depends. So all our indicators are positive at the moment, the economy is clearly recovering. The big question for all of us that will drive whether, you know, we do or don't see and we're very much on top of especially the sectors that are most affected. But it really depends on whether the recovery is sustainable. If the recovery is sustainable, some inflation and, you know, some slight increase in rates is actually, you know, going to help the banks right so growth with not negative but let's say slightly positive rates will borrow some feedback what they need is growth. And so, so to me that is the key question. And of course that is, I want to throw the ball back into the central bankers court. And they know this very well that, you know, how, you know, how long do they wait and do they err on the side of, you know, to lose or on the other side of trying to stop inflation and this is really the, it's a science but I'd say also an arc. Yeah, it's a pretty narrow path. And just to press you one final small thing that do you in terms of that kind of consensus view that the eurozone won't be likely to do anything on monthly policy until the quarter fourth quarter of next year versus perhaps much sooner in the UK and US. Is that the right call do you think I'm not I'm not a central banker on the panel I would defer that to Mrs. McColl. But just to cover, because I think I didn't answer your question but on the furloughs and, you know, more than 90% of the expired moratoria are actually doing quite well so customers are paying without significant problems the levels of areas are lower than pre pandemic. And I do want to make a big distinction between individuals consumer lending and SMEs in specific and more affected sectors I think that's where banks are, of course, focusing much more closely. And I mentioned the horizontal reviews which is very much the way to go. So we can discuss more details as to what banks are doing on that policy. I'm not, I'm not the expert. I can say that growth with slightly higher rates is a much better environment for banks right. Absolutely. David, sorry to keep you waiting for so long to have your say, there's, there's a very interesting. This is a very interesting debate obviously but as a, as a pretty active investor in the European banking market. I wonder what your view is of the way that banks have kind of managed their way through the challenges so far, particularly interesting obviously is what's happened on on provisioning, I would say. I mean, there was a lot of very cautious provisioning on average, much of which has now been written back those provisions on the assumption that the worst is over, as, as, as the poll has suggested, the majority think. What's your view on that, and also what that means for the investability of European banks. Well, two big questions. I think on the first one, I think it depends very much on which economy somebody is business might be focused in to the extent that they're not in multiple jurisdictions, as well as where their balance sheet is focused as a broad comment. I think, as has been said during this discussion that the complement of monetary and fiscal policy, together with, I think the forbearance that's been offered by the regulator in order to take advantage of the buffers basically that had been built up following the global financial crisis. And the encouragement to extend credit with the the public guarantee mechanisms allowed banks I think in a prudent way to extend credit and keep the economies going, which was ultimately in the collective interest of everybody. So, I think that broadly speaking, what what I would observe is that credit policies and in fact probably a more equal approach across economies as the SSM has has had its role has been quite helpful. The PECB has done a terrific job in trying to harmonize and clearly there is more work to be done, which I think all parties recognize, but I think the banks have done a very good job of navigating the crisis. Of course, at the same time, one has to remember that a part of extending credit more quickly than you might normally and during a pandemic is that some modicum some element of decisioning probably gets delegated down to a branch level that might otherwise have had greater review at a level as an example. So I think while I do believe that the the worst so to speak and obviously from a human standpoint let's hope very much the worst has been seen. I still believe that there is uncertainty and I presume we'll get to it as it relates to how all of these loans will end up performing as some of those support measures come off. I'm not very irrespective of the conclusion to that, however, i.e. if there is a significant pickup in MPLs. I still believe that the banks have by and large done a very good job of navigating themselves and the other element of this, both for banks and really people outside of even the financial services sector is the way in which they've embraced technology and have been able to work remotely. And so I think as a broader comment the banks have done very well given how dependent they are on their own core banking systems to to navigate that crisis successfully. Yeah, absolutely right. I think your point on the MPL outlook is a crucial one and we'll come to it in a second. I wanted to bring Nicholas back in though on the comment. I guess the kind of macro regulatory side of things in terms of managing that cycle. David alluded to the latitude that had been given at the right moment to use buffers. And is this a vindication? Nicholas, do you think of the system that was put in place? As you said, thank God for battle three. But what's your kind of overall view of what worked well and maybe whether there were any shortcomings in that kind of a broad framework? You know, Patrick, there's a lot of debate about that and whether the fact that banks didn't eat more into their buffers, whether that's a problem or not from a policy perspective. I for one don't view it as a problem at all. I think we haven't really tested what would happen if there had been a need to go more into the capital conservation buffer in particular. And I think we've learned lessons in terms of how the interplay between different regulations and the maximum distributable amounts and all that might prevent that from happening. But the fact that it hasn't happened, that banks haven't taken down their capital conservation buffer, I don't view as a policy failure because that was not needed. What was needed is that the banks would continue providing credit to the economy and they did that. And they did that without teaching into the capital conservation buffer and what's not to like. So basically what we've learned is that the counter cyclical buffers are a really good idea. There should have been more of it built up between 2017 and 2020. Some jurisdictions did it probably not enough. I was going to ask you on that. Obviously the counter cyclical buffer was a key innovation post financial crisis, which going into this pandemic is hard to imagine as being more at the peak of a cycle. And obviously in some ways we've stayed at the peak of a cycle in terms of asset valuations but it was, there were many markets in Europe and around the world where there was zero counter cyclical buffer in place which is a bit nuts wasn't it. It's exactly the point I was trying to make and that includes the US by the way but includes, I think means European member states and certainly several of the larger ones. So, the lesson looking back is yes, there should have been more build up of those counter cyclical buffers and that's in the current state of regulation is a national responsibility not the responsibility of the ECB. Next time, which is now probably makes sense to think about building up these kept these counter cyclical buffers or more quickly than last time. But that's to the general architecture of the buffers, which I think is very much being debated right now. I don't think we have seen any general failure of the system. We just need to make sure that there are no negative interference between the conditions on maximum distributable amounts sorry to talk jargon and what happens when a bank eats into the capital conservation buffer. But I think it's certainly not a good idea to decrease the capital conservation buffer as some industry lobbyists are advocating. The only question is whether to replenish or replenish because they haven't done it in the first place as a counter cyclical buffers perhaps more quickly than in the past, taken in on board all these lessons. That would be my summary. A perfect segue to Anna to ask whether you would agree with Nicholas's contention and my contention actually that surely this is the time over the next couple of years to start building up that counter cyclical buffer because it was a lesson surely that should have been in place. You know, since the financial crisis banks in general and European banks have done that, especially over the last, you know, six, seven years, we have built buffers and buffers on buffers, because it's not just the buffers that the regulators and supervisors ask us, but it's buffers on those buffers to make sure that we don't eat into the regulatory buffers and so I'm sorry if that sounds a bit like in Spanish would say trabalenguas but that's exactly what we're doing we want to make sure that we do not eat, even on to the, not just the required but the guidance given by regulators. So, you know, this has been one in 100 years crisis, yes, there were a lot of support measures, but I want to stress again the support measures were not for the financial sector were directed to people and businesses that were suffering from a, from a war, a war against the virus, and its government's responsibility to take care of its citizens and, you know, to some extent businesses and that's how I think we should see that in that context. And again, it's not just European banks but banks across most of the world did really, really well. So, so, you know, I do think banks have adequately capitalized that we have the buffers and the buffers and buffers we need and we have proven that in the crisis. And I think the question is the one you also at the beginning so you know how much increase in non performing loans. So do we expect going forward. My view I think I've said that I don't think we should expect any increases in non performing loans in the coming quarters payment indicators are good economic indicators are good. The question is, is the recovery sustainable or not. And to me the question for banks and as a prudent bank manager. The question is not so much what you expect as what you plan for. And it's a big difference between one and the other so I want to be clear, our expectation is that we will not see. I want to caveat on the health crisis as I did at the beginning, but, but credit risk NPL is a closely linked to underlying economic growth on the health of the economy right. And so, again, going to the planning what is it we plan for some time there make some of the largest provisions of any bank through the cove it we had, especially in Europe, a significant SME portfolio on the assumption that a long period of economic disruption would be ahead and could bring a search in bad loans. Again, we plan for it we continue to plan for it, but much of that provision is still on the balance sheet. And this is what I want to stress because this is the case for most banks, at least in the Eurozone, where those provisions are in the balance sheet. And yes, they will be used down the road, but the provisions are there. They're on the balance sheet so what proportion of the provisions that you took during the height of the pandemic have been written back in the past few quarters. No, not all of them know this. I mean, you know, we have different systems in the US in the US there's more volatility, of course, in Europe. IFRS nine is the first time we're testing that it is more. It is more, let's say, marked to market, but less than in the US. We have the provisions on the balance sheet for the expected losses that our models are telling us. So this is what's important. So again, I want to make an important point here that is crucial also and this is that the payment culture. And this is really important. The payment culture has been reinforced and has been very important during the crisis. They have faced the payment commitments. And again, individuals especially have proven very resilient, yes, in part because they were the support from governments. Okay. Can I bring Elizabeth back in at this point? Anna's saying that, you know, they're cautious, they're well provisioned at Santander, but that her base case is that there won't be any increases in MPLs going forward. Is that your, do you have a similarly sanguine view across the industry? Good word sanguine. A supervisor is never sanguine. We have to recognize that. You know, nobody has a crystal ball, right? But we can only, you know, have a very good thumb on the data and make sure that we have the processes and the information and the projections that are realistic and are appropriate. You know, and I guess when I look at the picture, you know, the net profits and the banks are recovering, the cost of risk is reducing, it's 70 basis points in June, 2020 to 52 basis points in June of 2021. And we're seeing that the MPLs are going down. I think there's, you know, very good reason to be very cautionary about where that picture goes. In what way? I think it's, you know, it's the case that what's happened is we have forbearance in place, we have fiscal supports, we have loan guarantees, and all of this is entirely appropriate and it shouldn't be withdrawn in any abrupt manner. But we know that it will end at a certain point in time. And if we're masking what the overall credit picture is, what the asset quality on the balance sheets looks like. We will miss the overall picture. And, you know, you can look at some vulnerabilities in real estate markets in certain countries. You can look at asset valuations also that are increasing quite a bit. I think the picture is broader than an MPL question, Patrick, really. I think it's, you know, what, you know, where do we see the potential for buildup of risk. And I always call this convergence of risk. And if history has taught me anything in my career, it's that, you know, it's where that convergence of market risk, credit risk, and opacity collide that you see a buildup of risk that can cause balance sheet problems. You know, while we're very focused on the asset quality component, I really want to emphasize that we're looking very much in this calm picture that we are in with profits increasing and PLS reducing, etc. What kind of risk could be building up just beneath the surface? What are the vulnerabilities that are there? And Archaegos, I think, you know, has been something of an indicator to make us look carefully at credit risk, market risk, opacity convergence. And also to correlate that to what's happening with the non-bank financial institution market, it's more than doubled in the eurozone in the last 10 years. And so, you know, looking also systemically, this buildup of risk in opaque transfers of credit risk that have market risk components, component structured credit products, for example, derivative products, for example, and the lack of visibility across the whole landscape is something that, you know, we don't see all of the transmission points because there's indirect exposure through portfolios, there's direct exposure through asset management arms, there's direct exposure through lightly regulated, Archaegos was lightly regulated in the U.S. as a family office, vehicles that have a lot of leverage. And, you know, the leveraged finance component is something that I think we need to be very, very carefully looking at. In summary, it sounds as if you feel we're in a state of calm before the storm. I would say we're in a state of calm making sure that we understand what turbulence is beneath the surface. And history shows us that in times of benign times when things are going well and credit is easy to obtain and by the way, search for yield is incredibly intense because of the low interest rate environment that sometimes outsize risk taking can take place. So I'm not predicting a storm. I'm more saying let's navigate through potentially turbulent waters very carefully looking at these winds that are there quite prevalently. Okay. David, against that background, you kind of started to answer, but I'd love to hear more of your thoughts on this theme of investability of European banks. Obviously, you have been a significant investor in the sector in Europe. And there have been challenges along the way, maybe more turbulence to come as Elizabeth says. What do you think could and should be done by policymakers to make this a more investable sector, and perhaps help to close the huge valuation gap between European institutions and those in other parts of the world, particularly the US. I think the ECB has obviously done a terrific job in helping create a framework for stability for the institutions and also, as I said earlier, create an environment where the institutions are encouraged to extend credit in a time of distressed as we had it, in the pandemic. Having made that comment, I also agree with Anna's comment about the buffers on buffers. And indeed, I think one of the issues is as banks think about their ability to use a buffer, but the need to quickly replace it, that in turn has an offset impact in terms of the willingness of those institutions to extend credit. That's a bit more of a macroeconomic comment as opposed to a comment about the equity in banks. I think, but it still gets to the point, which is ultimately investors are thinking about what the return on equity is. And if the banks are having to carry an enormous amount of equity, that drives down the returns. And if a comparable institution and other regulatory frameworks doesn't require as much capital, that's obviously an issue. Another one, which I know is sort of a work in process is trying to create a bit more, let's say, of a level playing field across various geographies, because not all risk assets are the same. In other words, a loan that's extended in France, maybe of a lower risk than a loan extended in another country. And I think understanding the differences that are sort of endemic and also commented about borrower behavior. I spent a lot of my career working in Asia and there is a culture in many of those countries where a borrower really takes it seriously upon themselves to repay and some of the European countries most definitely have that same thing. So I think there are soft issues which ultimately can be borne out in analyzing the data. But I think all of that is critical, which is saying to the question you asked, which is what would make the environment more attractive. I think one of them is having an appropriate amount of capital that the institutions need to carry while at the same time, of course, being entirely prudent. Another is we talked a little bit about or I think somebody may have mentioned about dividends. Obviously, restricting dividends forced the banks to carry more capital. In turn, I guess they wanted to deploy those that had capital to be able to try and earn an income on it with a lower opportunity cost and not being able to distribute. But also what makes banks attractive for an equity investor is an expectation that over some threshold level they will see dividends and you're not sort of waiting and waiting and waiting to get the dividends. And so I think, again, when we look at US multiples versus European bank multiples, that's certainly part of it. I also think a burden on the part of management, which is I think US banks, because you asked about US banks are typically more efficient in terms of driving down their cost-income ratio, simplifying their products, simplifying their businesses. And so I think this is where, in my opinion, many of the European banks need to, as I know many Spaniards would say, do their homework. And then another comment I would make to make the market more attractive is to reduce state ownership effectively of financial institutions, because I think that having equity investors who are seeking a return on capital also will help make sure that the pricing of loans and other banks will ultimately reflect the risk that's being taken and the value they franchise that the customer is interacting with. And then finally, probably, in terms of driving valuations is technology that ties back to simplification and ultimately trying to seek a better cost-income ratio. I think that there are things that the regulators are doing and can do, which will make it a more attractive environment for investors. And equally, I think there's more that the financial institutions need to do, oftentimes the midsize and smaller institutions who may not have the management to be able to develop things. If you look at Santander, as an example, with PagonX, and what they're creating is a legitimate fintech in a period of a year incubated within the bank, taking advantage of this installed base across 10 countries. Having kind of an innovative mindset and being willing to invest and stand behind something ultimately will give the regulators better visibility across borrower exposures, but I think it will help drive shareholder value. So thank you. Sounds like you should be investing in Santander on that basis, David. We don't have an investment in Santander, so I feel very comfortable to speak to the great work being done there. Thank you. I love that my one minute of marketing is done by somebody else. Thank you, David. Just one follow-up, David. One thing that plays into a lot of the points that you made is the lack of scale in European banking, lack of cross-border M&A in European banking, which I know that the ECB is very keen to encourage, and certainly a lot of policy makers more broadly would like to see, and investors would like to see. But it's just never happened, and I wonder whether you have a kind of magic formula for facilitating it. I don't have a magic formula for that or anything else, but I do think that having a easier ability to move capital and liquidity across different geographies is critical. And also thinking about some of the, let me say, the penalizing implications of larger institutions acquiring smaller institutions and then having to attract more capital around that. So I think that this is, I know this is something clearly that the ECB has been talking about and is focused on and is trying to encourage. And indeed, I think it's part of where the future of banking should be, but I think that we need, you know, there are a lot of things that I think would probably be required in order to change the current paradigm and really start to see an environment of cross-border transactions, which I think would ultimately be great. Particularly if I may say involving those countries where the banking systems are overly fragmented and again where you have very significant government ownership. Private market actors can deploy private capital, typically in the form of publicly traded financial institutions, to acquire these institutions, I think ultimately will lead to a healthier banking system. I'd like to bring Elizabeth in on that point in a second, but just to remind audience members that we'd love to take your questions, do pose them using the button on your screens. And the question I just asked David was an almost exact replica of one that Andreas Corona from Handelsblatt wanted me to ask, which was whether you see a need for these cross-border mergers, which indeed it sounds like you do. Bringing Elizabeth in on that, it is something that the ECB has been arguing for, and I know that you have made some efforts on the regulatory capital side to not to penalize if you like M&A on a large scale, but do you think there's more that can be done? No, you're right. We published a guide on consolidation to make clear what our regulatory expectations are, and that was largely because we realized that there seemed to be some misperceptions in the market about the stance of the ECB with respect to consolidation and a concern that there would be additional capital charges or how would risk-weighted assets be recognized, etc. So we've tried to clarify that through the recent consolidation guide that we published. We are not here to drive the market, obviously. This is something that has to be, there have to be market-based decisions made about mergers and acquisitions and consolidation. As I said that, we're also not supposed to be an impediment to it inappropriately. And so my hope is that that guide really puts very clearly forth the position, David, that we've made that we're not going to be in cases where there is not additional risk being generated, additional capital charges being put in place for consolidation. Probably speaking, Europe is very much in need of consolidation. There's an overcapacity of banking. If you make a comparison between what happened after the great financial crisis in the U.S. versus Europe, I don't remember the exact numbers, but the consolidation wave that occurred in the U.S. was enormous, exponentially greater than what has happened in Europe. We have impediments that are legislative in nature that relate to the need, the very big need to complete the banking union, especially to put together an EDIS, a deposit scheme that covers the whole Euro area. But let me say there are some bright spots that we've seen. M&A activity has picked up even significantly, albeit much of that has been on a domestic basis within country where we've seen that consolidation taking place. And this is also good news, though, because the driver there is cost efficiencies. And we have very much been focused as a supervisory priority on business model sustainability in light of also the overcapacity that's there and the need to embrace technologies in order to deliver cost effectiveness. So, you know, my expectation is that we would see more consolidation and we're very happy to have any input about places where we are providing any sort of impediment to consider. Okay, that's really good to know. I don't want to stray off the core topic too much, but if we're talking about credit risk, there's two other issues that I think it's important that we consider in relation to the kind of post-pandemic risk landscape. One is a kind of, well, certainly a vexed topic, and the other is China. We'll come onto China in a second, but on the vexed topic, I mean green finance. Obviously, we're still in the middle of the COP26 event. But I think the kind of merits and demerits of penalizing brown finance, incentivizing green finance, and the whole kind of asset quality issue around that, including credit risk, is a hugely important one. And it is going to dominate, I think, the post-pandemic landscape. Nicola, I don't know what your thoughts are on this very big picture, but it would be interesting to hear how you think the market's going to evolve. So I would relate it to a broader question about transparency and transparency about what banks are doing, which I think is a huge challenge in which actually European banking supervision can be part of the solution and probably do more even so they're already doing a lot. So European banks are not very transparent. And I think if you think of green finance now, the challenge is not really having somebody out there saying, this is green, this is brown, because what we've learned in the past few years is that these sweeping labeling exercises are not, if you allow me, ready for sure. It would be nice to have a system in which we could say, okay, here is the bottom line of this bank or that company's behavior and here is their green or brown index, but that's not where we are. The issue is much more complicated. So what is needed instead is a very granular, very detailed apparatus of disclosure to investors. And I'm not cynical about this. I think investors are genuinely concerned about the behavior of banks and companies. But basically what we need is much more disclosure at a more granular level and to the extent possible more standardized. But that also echoes more issues of disclosure where we haven't had enough frankly from European banks and I will dare say even European supervision. You compare the information that U.S. supervisors give about U.S. banks and the information that is available in general from European banks, be it from the ECB, the EBA or the banks themselves. And frankly, it's night and day, but the night is not on the U.S. side. So you look at the FFIC portal into U.S. and also quarterly information through cold reports that is available there. And there's nothing. There's nothing in Europe comparable. Even at a very high level, you want to have a list of the largest European banks or Eurozone banks by assets, you don't have that. So I would say green finance has to be part of a much larger push towards really updating the game in terms of transparency of the European banking sector and allowing investors to make more informed decisions. And trust the investor community that they're not going to be stupid. I mean, there was a debate at the beginning of the pandemic about tie first nine and expected loss provisioning versus incurred loss. And this debate is completely forgotten because actually what we've discovered is that expected loss provisioning makes a lot of sense. So it was right for European policy makers to hold their nerve and not say, okay, we have a shock. So we get rid of the transparency because that was not the right thing to do. So basically my point is to say we need more information, more granular. The banks have to be honest on this. The policy makers have to provide frameworks. The more harmonized the framework, the better. It would be a good idea for the European Commission not to reject the efforts that are being proposed by the International Financial Reporting Standards Foundation and their new international sustainability standards board, sorry for the jargon. And, and there are lots of ongoing discussions about this. But at the end of the day, more data, more data that investors can trust that investors can analyze and then forms their own judgment about where is the right trade off between green and green. Anna, do you accept this criticism you need to be more transparent. I think we have to be precise. If, if the comment about transparency is on green finance, I fundamentally disagree in the sense that transparency on green, or, let's say, brown assets for it to be useful has to be comparable. And as you very well said, the definition of what is green, what is brown, and a really, you know, solid and robust framework does not exist. And so banks are beginning now, and we have done that both, you know, we run a bank in the European Union, one in the UK, one in the US. So, I can say that the, I believe in this case European SSM and the ECB are ahead of other supervisors are at least not behind in terms of requesting banks to provide bottom up information. There have been consultations and I think on that, definitely Europe and the UK. You know, UK and the continent are ahead of the US in terms of what they're asking of banks in terms of transparency and methodology on measuring, you know, the climate risk. And so, if you're referring to other kinds of transparency, I think we have to be more detailed there are certain aspects of capital and stress testing where the US is ahead. And that's the only aspect where US banks are reporting some more detail on that than European banks. But again, we report us got we report in Europe. It's different. I didn't, I didn't intend to say that sometimes there was not doing enough. What I said is that we have to work on the framework and this is a generational charge so so it's not going to be fixed in one year. We're at the beginning of a long learning curve of what works what doesn't and we should be open minded so if it turns out that the European Commission's taxonomy for example is too simplistic to work and it should be revised maybe that the case maybe not. But I was not, I was not making a specific criticism at any bank or indeed the banking community as a whole I was just saying, there's a big challenge there, and it will require a lot of effort. Right. No, no, I'm not, I, you know, I'm not responding as Santander I'm responding as a European bank but actually not even that as a bank that has operations in the UK and US and Latin America for that matter. I think transparency, yes, but transparency one we can compare apples with apples and that's really what I'm saying to the market and we already are giving a lot of information if you go to the climate report of banks you can see that. But I do think we need to agree on the taxonomy if it's too specific. I think it's as bad as if it's not specific enough. But we do need comparable data and we do need a framework as you say absolutely agree that allows us to compare for example, you know when you do stress test the scenarios should be as much as possible a line. And if not we should be able to say this is the scenario the other one, but it becomes very confusing for investors so I do think we need a couple of years to ensure that we are you know getting the data that is quality data bottom up that we do have frameworks that we can work with across countries and across regions because this is a global issue it's not a Europe UK or Asia it affects the world and so we do need to make sure that as we report. If we do it in a way that's not comparable we're not provoking unintended consequences right. Let me just give you one fact because we talk a lot about carbon pricing and this is a Harvard study that I actually wrote about a few days ago on my social media. So fuels today is costing somewhere around 20% versus three to 4% for the average renewable project so we are that in some way or other pricing already the carbon risk. The issue is if we start reporting or if we start getting asked to potentially add capital because of climate choice we're going to stop lending to certain sectors. As long as other banks or others are going to support those sectors we're not fixing the problem right, but we're also potentially, you know, putting banks in certain jurisdictions at a disadvantage and so I do think, you know, we have been very upfront on the climate issue. As a bank and I would say Europe as a whole, but we do need to be very aware of the unintended consequences of trying to compare data that is not comparable of trying to demand certain banks to take action. And then allowing others to replace them so I, you know, and finally let me just say one last thing is that, you know, I'm now in Mexico. In countries like Mexico, Brazil, but also all the emerging economies, people need to buy a home right people need to, you know, have access to food for the first time we need to make sure that we help those customers transition. You know, in our case we have 152 million customers are responsibilities to help. And I'm talking especially about small companies and more vulnerable people that need our help to make the transition and I think that's something we have to really have front of mind. And David from an investor point of view, how do you think about this whole topic. I will look for for us as an institution. These issues are incredibly important, both with respect to businesses we already own and those that we look at making investments and it's a key sort of work stream of our of our due diligence effort and something which clearly is impacting all stakeholders and a priority. I think that that the sort of new regulatory measures clearly will continue to encourage capital to flow away from quote so called brown energy. But I also think one has to consider that at the extremists that would have other negative consequences on the balance of financial institutions. So, you know, I think there's some element of, let's say, balance that would need to be taken into account or at least to appreciate the consequences. And I think that's very much in the mind of the ECB in some of these policies, including the climate stress tests, which I believe are being performed next year unless I'm mistaken. So, that's that's that's my view on this. That's the perfect segue to Elizabeth and, you know, from what from everything you've heard in terms of the challenge for you as kind of framework provider. What are your thoughts. The, the, I was just going to talk about the stress tests and I think it's very responsive to both. Nicola and and Anna's points regarding the need for data and the need for transparency about that. We already ran a top down stress test looking system wide. And, you know, that driver gave us some important information about risks in different countries and banks in different countries that are related both to physical risk as well as exposure risk on the balance sheets. And we are running next year, a bottom up stress test in the banks directly that will, I think, really have the, the objective of hardening up the data that the banks have so that we have a much better perspective about that there is a need to make apples to apples comparisons. This is for sure, correct point. I'd also want to emphasize the point that I think we are ahead at the ECB very much so with running the top down stress test already and doing this bottom up stress test it's it's a leading position that we've taken in this regard that has not happened in the US yet. I also think that the steps being taken on disclosure and accurate disclosure to investors is going to be essential. And, you know, there are various regulatory bodies that will be charged with that. You know, on the security side in particular and we've already seen the SEC starting to take some actions with respect to disclosures that are being made, and whether or not those are accurate disclosures or not so I would expect the greenwashing component to be something that has to be very, we have to be very vigilant about this is a clear and present prudential issue, and there's physical risk and there's transition risk but I would use the word transmission channel risk, and we have to be extremely vigilant of what that means in prudential terms, in terms of liquidity credit operational risk, market risk, all of the components come into play. And I think it's, you know, quite a quite an important topic for us to be managing from a risk review. Okay, and we have only four minutes left. And while I appreciate it's a ridiculously short space of time to bring in a new topic, namely China. I thought it would be a very interesting place to finish perhaps if I could ask each of you to give me a minute, and I will hold you to that on the extent to which you see China as a real credit risk in the post pandemic economy. We've had quite a lot of noise from the property sector in China. There was a couple of very interesting articles written over the past couple of days about the broader junk bond market in China, getting out of hand. Is the corporate credit market in China about to blow up and is that going to blow up the world. I suppose is my question in short. Nicola first. The Chinese Communist Party doesn't like instability. They have a lot of controls on the financial system. So I think they will be willing and able to prevent systemic instability in that space. I'm not too worried. There will be, of course, turbulence in China because it's a big and complex economy. I'm not expecting that to create shock waves that would drag the world. I think the problem in the real estate market is more about the medium to long term effect on growth if there is long term deleveraging in that market that could put a drag on Chinese growth and that's bad. I'm not saying it's equal for global growth, but it's also sound because there has been too much reliance on the property market in the Chinese growth model of light. So I'm not too worried. Perfectly timed 60 seconds. Thank you, Nicola. Anna, are you as I said. Yeah, so 95% of our business is in Europe and the Americas. I'm given that I'm in Mexico and that we don't really have anything of any size in China. I'd say that what is happening with supply chain disruption, globalization being at least partly taking a step back. It's a huge opportunity for Mexico. The Mexican economy is recovering really well. There is a huge demand from the US with that's booming for factories in Mexico, and I'm seeing a very positive trends in terms of people, not just local investors but outside investors investing in Mexico, you know, to service a huge economy, which is the US. So, you know, I just want to say that this is a country that which has a lot of upside partly because of the situation in China that I would leave to others to explain. Elizabeth, to what extent does China figure on your kind of top risks for next year. I think that the I think that the property, the property market in China and the issues around the junk bond market in China are of concern. I would say that, you know, there's not necessarily a concern about direct exposures to the European banks. I think that there's not so much a direct exposure issue here. I think that the overall market concern that I would highlight coming from contagion risk if there's a sudden price correction or asset valuation change that occurs as a result of the uncertainty around the China property market issues, which are very large. I think we would be quite right to have close eye on any possible contagion risk coming from that. I would note that the Federal Reserve published its financial stability review and did highlight the Chinese property sector as a risk. David, thank you. Okay, well, I'll keep it to less than 60 seconds. Look, I think in terms of non performing loans, which is one of our major areas of focus, clearly China as an individual country has a very, very large inventory of non performing loans. I think at the same time you have a banking system that's state owned, and as Nicholas said, there's significant control that the government has. And so I think that there are, you know, substantial actions that they could take to buffer any of those sorts of difficulties. But on the other hand, one can't rule it out. And the only other thing I would say is, I think that the impact of sort of vulcanization of business activity and countries desire to start to have more independence from China in turn creates lots of business opportunities outside of China. Anna mentioned, of course, Mexico is a big beneficiary, but Mexico's perhaps not alone. And this is a trend we're seeing in businesses and in governments throughout the world is a desire to have less dependence oftentimes on China. Yeah, extremely good point. And a good way to round off our debate on post pandemic credit risk. And my thanks go to Anna Bartin as with McCall, David title, title bound and Nicola very on. It was a really interesting discussion. Everybody. Thank you very much. And audience. I do hope you enjoyed it. Thank you. Thank you, Patrick. Thank you. Thank you very much. Indeed. Thank you, Patrick. And thank you very much to all the panel members indeed a very rich and insightful discussion and you packed a lot of issues in there. So this concludes the first day of our conference. We will resume tomorrow morning at 10 CET with an with a keynote address by EU Commissioner Merade McInnes. And until then, I wish you a good evening and I'll see you tomorrow.