 to introduce Miss Sabine Lautenslager, who was last here, I'm happy to say, in June 2013, when she was in a previous role, and that time she spoke about, from supervision to resolution, a German perspective, and this time she's going to give us a different perspective. But before that, let me say that she is, of course, a lawyer and spent a lot of her career in the Baffin. I'm not going to attempt to pronounce the Baffin in German, the full version of it. And indeed, I think you were in the Baffin when you, in 2013, when you last came here. No, then I was in the Bundesbank. Oh, you had moved to the Bundesbank, okay. And she had several senior roles, and eventually was appointed the Baffin's Chief Executive Director of Banking in 2008, and in 2011, moved to the Bundesbank, serving the first female vice president, I understand, where she remained until January 2014, when she was appointed to the Executive Board of the European Central Bank. And as we all know shortly after that, she became, she was Vice Chair of the Supervisory Board of the Single Supervisory Mechanism. She also represents the ECB on the Basel Committee, which is a controversial enough topic these days, and on the Basel Committee on Banking Supervision, and indeed on the FSB Standing Committee on Supervisory and Regulatory Corporation. I should say that today, Miss Leviton Slager's title is, Waldorf, Banking Regulation After the Crisis. First of all, let me tell you, it's a pleasure being here. I do remember the last time I was here quite well, and it's a fond memory. I do remember having half an hour of quite a passionate, lively discussion afterwards, because there were some differences in opinion about resolution and banking supervision in 2013. So I'm looking forward to the next passionate, lively discussion with you. Ladies and gentlemen, you do know the title of my speech today. It's Waldorf, Banking Regulation After the Crisis. And I'd like to start with a general idea and statement that walls have their place in human history. Just think of the Great Wall of China, or Hardian's Wall, or the Berlin Wall. And then there are more abstract walls, paywalls, Chinese walls, walls of sound. In my speech today, I would like to discuss a banking regulation that is not really a surprise to you, but some see banking regulation as a massive wall of rules. And if you ask banker, some would certainly claim that they have been imprisoned by that wall and would even like to tear it down. Some politicians might feel the same way. However, to paraphrase the American poet, Robert Frost, don't ever take a wall down until you know why it was put up. You will understand that I, as a German, cannot fully support the statement. But with regard to regulation, this advice fits quite well. And following that advice, let us look at why the regulatory wall was put up. Why do we need rules at all? Rules confine us, they limit our freedom. Take the rules of the road as an example. You cannot drive as fast as you want. You have to wear a seatbelt and you have to stop at red lights. These rules exist to make our lives safer. They help to prevent accidents. They protect drivers, passengers, and pedestrians. And that also applies to banking rules. Bank take on risks that is part of their job. And these risks, however, can lead to huge losses, not only for the banks and their investors, but for the entire economy and all of us. And in the euro area, banks finance the economy. They take in deposits and provide other essential services as well in payments, for instance. It is crucial that banks work well, not only in the short run, but in the long run. So it makes sense not to give them absolute freedom, but to wall them off from the biggest risks. After all, bankers are people, like the rest of us. They sometimes tend to overestimate the potential profits and underestimate the risk. Markets can get carried away as Alan Greenspan said by irrational exuberance. So expecting eternal growth, banks might make huge investments, but at some point, reality hits and it might hit hard. And if it does, those who took on too much risk might fail. And the crisis taught us that the failure of a single bank can damage the entire financial system and the economy. In a nutshell, that is why banks need holds. And that's why the regulatory wall was put up in the first place. And following the financial crisis, we have repaired and modified it. I mean, we look back, you know, of almost 10 years of re-regulation, and not all banks, of course, are happy with the new wall. While they seem to agree with regulation and principle, they usually think it is too strict. They say that the sheer number and complexity of the new rules increase the costs of doing business. They also say that this limits their ability to finance the economy. In short, the banks stress that regulation hurts them, the economy, and thus, all of us. Well, it won't surprise you that I disagree. It is true, of course, that there are many rules, and it's true that the rule book is very complex. But then again, banking has become very complex. Over the past decades, banks have come up with ever more sophisticated innovations. All of them have added to the complexity of banking, but not always to its value. The rules just mirror the complexity. And let me give you an example. Banks favor what is known as internal models. Using these models, they calculate how risky their assets are. The risk-weighted assets then form the basis for calculating the capital requirements. So banks are clearly in favor of risk sensitivity of using their models when it comes to determining the adequate level of capital. And I too see many merits in that approach, in the approach of risk sensitivity. But internal models are complex, and to keep them in check, we need complex rules. These rules, for instance, require banks to comply with predefined conditions before they are allowed to use their models. Without these rules, we would quickly experience a race to the bottom in capital calculations and an uneven playing field. And it's true that rules impose a burden on those who have to comply. And the pressure on banks has increased quite a lot since the crisis. I won't deny that still. There are two points I would like to make. First, we seek to ensure that the burden is reasonable, take reporting, which banks often describe as a major burden. However, to do our job, we need data from banks, not just on internal models, but on all sort of things. And this data needs to be comparable across the euro area. We must be able to compare banks with their peers, be they Irish, French, German, whatever. We therefore need a European approach to reporting. And in this regard, it would lighten the load on banks if national regulators and supervisors were to adjust their own reporting requirements and processes to the new European reality. My second point is that rules may not only be a burden on banks, but also a benefit, strong rules foster trust. Would you get in a taxi if you knew the driver is not bound by traffic rules? Would you do business with a bank that is not regulated? Banks with a low level of capital and adequate internal controls are viewed with suspicion. Investors ask for higher risk premium and the banks thus face higher funding costs. Banks need people's trust to do business, but as a result of the crisis, they have lost a lot of trust. And they should bear this in mind when complaining about regulation. Now, do banks' rules harm the economy? This question mainly, but not only focuses on capital requirements. Usually the argument goes like this. Capital is expensive for banks and might prompt them to increase lending rates. And even worse, it might cost them to stop lending altogether for fear of not meeting their capital requirements. That in turn would choke credit growth and damage the economy, but consider the benefits. Banks which are well capitalized are well prepared to withstand shocks. It is these banks that keep credit flowing to the economy even when the going gets tough. These banks can finance the economy throughout the entire business cycle. Banks with low levels of capital on the other hand are more likely to face a crisis and banking crisis are costly. They inflict damage on the economy by hurting growth, destroying jobs and putting a burden on taxpayers. And as a matter of fact, recessions that accompany a banking crisis are much more severe than normal recessions. So strong rules put a burden on banks, but at the same time they do help the economy. Only well capitalized, well managed banks do well their job of lending to the real economy over the short, medium and long term. The net benefit should be positive. Empirical studies indicate that the benefits of a conservative capital level are indeed higher than the cost. And to me, conservative capital level and strong rules in general seem to be a small price to pay for a more stable economy. And the banks themselves also benefit from more stability of course. So against this backdrop, I favor a strong regulatory wall. But work on that wall seems to follow a pattern. After crisis, the wall usually is reinforced. Then after some time as the crisis fades into the background and tends to be forgotten, someone starts chipping away at it. The risk starts penetrating the cracks in the wall, eventually leading to a crisis and the cycle begins again. I see some of you nodding. I'm afraid that a change of direction lies just ahead. There are more and more voices calling for an easing of the rules. Not just banks, of course, but also some politicians. My advice to those is don't weaken regulation just because of a potential only short-term, short-lived increase of growth prospects. Instead, we should finalize the reforms as quickly as possible. We have been repairing and modifying the regulatory wall for eight years now. It has been a long time. And I understand that the reforms have created uncertainties for the banks and now it's time to finish the job. It's time to finish the job and to focus on implementing the rules. However, the job can only be finished on a global level. We must not build walls that separate nations. We must build a global regulatory wall. The financial system knows no national border and regulation must be equally global. It is the Basel Committee on Banking Supervision that is in charge here. Founded more than 40 years ago, it has become the main form for discussing and drafting global rules for banks. Since the crisis, the Basel Committee has devised an improved set of global rules known as Basel III. And while much of Basel III has already been agreed upon, some final issues remain open. These are still being debated by the Basel Committee. In my view, it is time to conclude that debate and bring the reforms to an end. With regard to the reforms, I sometimes hear people complain that the Basel Committee, which comprises central bankers and supervisors from 28 countries, lacks democratic legitimacy. They say it's an opaque body that imposes its rules on banks all over the world. The answer, of course, is that the Basel Committee does not impose anything on anyone. It does not set binding laws. It defines global standards, and these standards are mere proposals submitted to the different lawmakers who decide whether they are to be transposed into actual law or whether they are not going to be transposed. In the EU, it is the European Commission that proposes such laws. And the European Parliament and the Council of the EU then decide on whether to pass laws and the key decisions are thus taken by elected national and EU representatives. It is they who decide on European banking law. European law comes in two forms. First, they are regulation. These are directly applicable in all EU countries and they provide a truly level playing field for banks. And second, they are directives. These still need to be transposed into national law and this often leads to differences. The outcome in France might be different from the outcome in Germany or in Spain. This is not a problem in itself as long as the differences are rooted in countries' specific risks. But there are still some unjustified differences. There are some uneven patches on the playing field. Such patches run counter to the idea of a European banking union. They prevent the European banking sector from growing together and they make European banking supervision less efficient. They require us to apply 19 different national rules instead of a single European one. That is bureaucratic and it's expensive. First and foremost for banks. If policy makers are serious about European financial integration, they must harmonize these rules, the relevant rules. And there's another sort of fragmentation. EU banking law contains some provisions that are known as options and descriptions. Some of them give supervisors leeway in applying the rules. It was therefore one of our first major projects in the SSM to tackle the issue of options and descriptions. And together with the national supervisors, we have agreed to exercise them in a uniform way across the euro area. We have made the playing field a bit more even. But there are also options and descriptions which fall within the competence of the member states. And here harmonization according to the rule, same business, same risk, same rules, is paramount too. To sum up, I'm very much in favor of a strong regulatory wall and I'm convinced that it has to be global. I'm also in favor of harmonized rules in Europe and still for sure, I mean rules must not be carved in stone. Driven by innovation, the banking sector constantly evolves, new instruments are devised, new risks emerge. The rules must reflect such change. After all the financial crisis was partly caused by financial innovations that took place outside the regulatory wall. To be sure, eight years of regulatory reform have culminated in a comprehensive renovation of the regulatory wall. Now it may be time to check whether all the pieces, all the bricks fit together and to make sure the new rules have no unintended consequences. But I don't expect any major revision, just some minor adjustments. In any case, I welcome the fact that the European rules are now being reviewed in November. The European Commission made proposals on how to adapt and amend the relevant laws and there are a lot of good things in these proposals. First, they support the idea of the global regulatory wall. They seek to transpose a series of global standards into European law. The leverage ratio is one example. Second, they support the goal of creating a truly European banking sector. They allow for capital and liquidity waivers to be granted for intergroup exposure, not just within a single country as before, but on an EU cross-border basis. This would make life easier for banking groups that span the entire EU. And third, they support the principle of proportionality. They seek to ease the regulatory burden on smaller banks. And that's good. Smaller banks generally present a smaller risk and therefore do not need to be as strongly regulated as large banks. But there are also items in the proposal that should be further discussed. First, supervisors need to be able to act quickly and flexibly based on their judgment and expertise. A few proposals, however, seek to put a tighter frame around supervisory actions. That would limit our ability to adapt our actions to the ever-changing financial industry, an industry that is always looking for the best deal, that is always testing the boundaries of regulation and that sizes any opportunity to arbitrage the rules. And second, in some cases, the proposals deviate from global standards. For instance, with regard to liquidity rules. In some cases, these deviation just reflect EU specificities and do not run counter to the goals of regulation. In other cases, we need to ensure that the deviations do not increase risks. And third, I still hope for more harmonized rules. I have already touched upon that issue. There are, for instance, still some unwarranted options and discretions that lie within the competence of member states and these uneven patches in the playing field should be repaired. Ladies and gentlemen, I've argued that banks need rules and that these rules need to be global. I have therefore warned against leaving the global regulatory wall unfinished and even tearing it down. It protects us all. The taxpayers who had to bail out failing banks during the crisis, savers and investors who lost money, business owners who could not get loans and yes, it also protects the banks themselves. Still, the history of finance seems to follow an eternal cycle. A crisis happens and the rules are tightened. After a while, people forget the crisis and the rules are loosened. This leads to the next crisis which takes everyone by surprise. The rules are tightened again. Listening to some politicians, I'm worried that we are about to enter the next stage of the cycle, a new wave of deregulation. As George Bernard Shaw said, if history repeats itself and the unexpected always happens, how incapable must man be of learning from experience? Isn't it time to prove that we are capable of learning from experience? I ask you and I thank you for your attention.