 Okay. Good afternoon, everyone. I very much regret I haven't been able to attend the conference so far, but I hope this policy panel adds extra value. So I think we have a very nice range of perspectives on the panel. And in the preparation for this panel, we asked the panel to take some combination of the following questions. One is the appropriate role for the counter-sictical capital buffer. Two is what is needed for effective macroprudential regulation for banks and for non-banks. The third topic is the any possible interactions between monetary policy and macroprudential policy. And then the fourth dimension is the analytics of cross-border spillovers of macroprudential policy. Now, I think each of the panel members will focus in on particular dimensions of those questions and I will first of all turn to Anil. So, Anil? Okay. I'm sorry, seven minutes is the rule. Yeah. You're going to regret those 11 slides, Vitor. Yeah, I cannot. Yeah, I can do it from here. All right, well, thank you for having me. And, okay, so I did not coordinate with Jeremy, but my message is going to sit well with what you just heard. So, given that we've got seven minutes, I'm just going to try to make one point, which is let's walk through the thought experiment and just ask ourselves if we were lucky enough to have the crisis play out like it did last time, which I'm going to argue is probably not super representative. But just suppose we did, could we have used the CCYB, the counter-sictical capital buffer, to build up all the extra capital that we would have needed? And I'm just going to lay out the argument by showing it's pretty straightforward to do a calculation about how much that would have required ballpark. Let's look at what the indicators looked like when you were sitting there doing the job Kristen was talking about. Imagine you're the macro-proof committee and this is what you're getting. And then let's think about whether it's realistic that you would have done what it takes. Okay, so this is from a paper that I and some colleagues, and I should say I'm not speaking for the Bank of England here. So when Mark shows up later today for Ben Wasthing, you can't go running him and say, Cashup said the Bank of England. No, no, no, no, this is just me. So the paper I'm going to draw from here was something that I did with some colleagues at the Bank of England trying to just look back at the last crisis and say, you know, could macro-proof have worked? And at the core of the macro-proof toolkit is this time-varying level of capital that's importantly a buffer that can be built up in good times and then released in bad. And what we did in that paper was try to come up with an estimate of how much capital you would have needed. Now this is not rocket science, but you can just look at the ex-post outcomes and say that would give you a sense. So if you were to say the turning point was the tarp, the targeted asset purchases that were done where they bought bank equity, the amount that was injected in the U.S. was about $200 billion. If you compare that to risk-weighted assets, that gets you a number once you correct for the percentage of domestic risk-weighted assets of about a 3% increase in capital. If you say, well, that wasn't really sufficient, the turning point was right after the stress test when we announced that the banks would have to go out and raise capital, they raised about $70 billion right away. That would get you to a number that's more like 4.2%. If you decided instead that we're going to do a calculation that just said let's keep the economy on its growth path and ask ourselves how much extra lending would you have thought had to be needed there? You get to a number like 4.7. So I'm going to take Ball Park, a number somewhere between 4 and 5% is how much we would have needed. Now, turns out David along with some colleagues, Aikman along with some colleagues at the Federal Reserve when he was visiting there did an exercise like this. And you should not be surprised that it's pretty challenging. We have this large literature on early warning signs that point out just how difficult it is to forecast crises. What they did was the kind of exercise that I think most central banks would tend to do, which is take a bunch of financial indicators, locate the variables in their own historical distribution. When they're at the high end of the distribution, you color it red. When they're the low end, you do green. And then just ask yourself what the distribution would have looked like for the United States. And one of the points they make is depending on what exactly you're looking at and when you're looking at it, you'll get very different indicators as to how many things were flashing red. And one of the problems with all of this, of course, is that you're probably not going to be sure. And the way that the counter-cyclical capital buffer works is to say once you make a decision, banks have a year to raise the level of capital. We do that because we don't want them to have to go issue equity immediately. We want to allow them to essentially retain earnings, maybe cut dividends or slow dividends to build it up. But that means what Jeremy was saying was all the more important. Even if Don Cohn had had it exactly right in 2004, what he did with the CCYB would only be enacted a year later. So imagine you're starting out at a resting point of 1% or zero in the U.S. and then ask yourselves how many bytes of the app are you going to have to get the CCYB up to four and you're going to come away pretty pessimistic. Now, some of this thinking informed discussions in the U.K. So if you looked at the financial stability report that the BOE, the financial policy put out yesterday, we changed the resting place for the CCYB in the U.K. from 1% to 2%, precisely so that you don't have to have such a steep gradient. Now, even with a resting point of 2%, I still think it will be challenging. And I think there's three reasons why this is going to be hard. The first is, in most central banks, in most countries, a stress test is at the core of how you decide if you need more capital. There's a nice paper that Don and Don Cohn and Nellie Lang wrote last summer for a Fed conference where they tried to see how is it that you can get a stress test to show you that you need a lot more capital. And what they point out is it's just very difficult to get these things to become particularly counter-cyclical. It's easy to see a gap, but to get the gaps to move around is pretty hard. The second thing is I think the last crisis was a little special in the sense that everything kind of was going wrong. There weren't any macro prude committees putting their feet on the brakes to slow down things. And so it's almost certain that the next time around you're not going to have a situation where every indicator is in the upper quartile of its distribution. You're probably going to have to have judgment. You're probably going to be in a situation where some things are flashing red and some aren't. And so if you think about, okay, let's suppose we needed to get to 4% or get 200 basis points more. It's going to involve taking some proactive decisions. And as Jeremy was talking about, that's not a bias that's built into the system. If anything, it's usually, well, let's wait one more quarter and see. And then the final thing is a shortage of theory, which is we still don't have a workhorse model that allows for multiple channels of instability. So if you think about most macro prude tools, they're either on the lender resilience side where you try to build up the resilience of the banks and ideally the shadow banks as well. Or you can get instability through the borrower side. Think about it. There's no baseline model that's used in every central bank where you've got both forms of instability in the model. So if you were to try to do something like, let's suppose we had a good model and we could simulate lots of times to just understand its properties to get a sense of what would you have to do instead of just looking back at that one crisis. Imagine I could run the world thousands of times and see what's the constellation of risks is it going to look like? Well, we don't even have a model to do that. So for all these reasons, I think it's going to be difficult to get the CCYB to be super proactive. And so I think setting it at a higher level is a good first step, but it's going to be challenging. Thank you, Anila, and also for being on time. So Vitor, over to you. Yes. Thank you. I need the command. So my intention was to address the first two questions that were put forward by the organizers, but I see that in seven minutes, even the first one will be difficult. And because I prepared 11 slides, so I will very likely skip the second point and we'll talk then first about the CCYB. And its use and possible effectiveness and how the policy problem now can be seen in Europe. Now, if we look to the situation where this is from the latest ECB financial stability review, showing that the very nice systemic risk indicator that the ECB has developed since 18 shows already some going up. But in spite of that, you have on the right that the CCYB corresponds to the almost invisible red bar in the capital situation of the banks. So hardly used. Only seven countries have some CCYB and some of them at 0.25 basis points. I mean the 25 basis points. So very low, hardly used. In spite of the fact that that would be now very helpful. Indeed, since 17 just to give you an idea, there were discussions at technical level suggesting that in Europe we should adopt the concept of a positive neutral level of CCYB in normal times. As the Bank of England did when they put at 1%. And that has many advantages, of course, that I listed there. It helps to overcome recognition and implementation lags, helps against type one errors of missing coming crisis, makes it easier for the gradualism of completing the build up. All that are advantages of having that neutral rate. That was very much rejected by most countries at the time. And now we see that if indeed some slowdown is coming, it would have been very useful to start to build up something earlier. And that's the policy problem that now we have in Europe with this. And especially now it would be convenient because monetary policy is obviously constrained. So to have these two would be important. But to really have these two would be to accept the idea that it would be useful to use it to release it when the crisis come. And that goes to the discussion about capital levels. If they should be higher, even when the crisis comes, they should be increased. Well, that would put into question these use of the CCYB. But my point on this is the following. We should not look only for capital ratios of capital over risk weighted assets or any other type. Because after a crisis or during the crisis, banks increase sometimes their capital ratio just by the leveraging. Because it's a ratio and not by increasing capital. So the indication from the Alan Taylor paper that saw that after the crisis there was a slight, very slight increase in the capital ratio may be just a result of the leveraging that comes out after a crisis. So it's not, can be misleading. What is important, I think, is that when the crisis comes, the banks are very well capitalized. And then part of that is used as a shock absorber. And to be a shock absorber, it has to be admitted that it has to be released. It has to be admitted initially that the capital goes down on that part that is contingent on having a crisis or not. And then after that first moment which is then helpful to avoid or mitigate a credit crunch, then it's time for recapitalization. But not on the peak at the time of the crisis itself. And we don't have that in Europe right now. But there is a problem with CCYB which is that many are skeptical about the use because they don't believe that will ever be any release of the CCYB. Why? For two reasons. First, micro supervisors are against it, deadly against it. They say that if a crisis is coming or has come, then you need more capital, not less. So no release. And if you release, they will increase people to things. And then it doesn't work. The other problem potentially is that markets may penalize in cost of funding if they see that in the crisis banks are indeed going down in their capital, although if that is endorsed explicitly and publicly by the authorities, that can be, I think, overcome. So it's important to have this. But reluctance of micro supervisors is a big problem. And we see these in Europe, as I put there, that whereas in the U.S., in the stress tests, in the adverse scenario, the threshold to have some action is in the tail risk, not that yet materialized, is say five percent capital threshold, common equity, in Europe is nine. Because if the banks come in the adverse scenario below nine, they are supposed to immediately increase capital. That shows the reluctance of using any concept of capital instruments to be released at the time of the crisis. And these uncertainties are indeed another argument to be in favor of preferred board with base methods of macro policy that don't face this uncertainty. Besides the fact that indeed borrowed base measures can be more effective in mitigating the boom than just some increase of capital as the paper by Alan Taylor, Shularik and Jarda shows, because it does not really improve the probability of not having a crisis just to have more capital. So it's not so much about mitigating the boom. It's because borrowed base are more effective, but it could be very useful if there is something to release. And then there is this conflict indeed between micro and macro potential, which is, I think, more acute than the conflict between monetary policy and macro potential policy in some situations. Although, nevertheless, in the Euro area, within the limits of the competence of the ECB, it is clear that it is the governing council of the ECB that is in the lead in terms of macro potential policy and should exert the arbitrage necessary between the two approaches and the two policies. Where in the UK is even more easier because it's the best institutional setup to deal with the different instruments that the central bank has at this disposal. Now, being this the policy problem, then how to improve the situation. One thought came from what the UK began to prepare and also in the US. In the September speech by Randall Quartz, there was this fine tuning of a proposal that had been presented for discussion by the Fed in 2018 saying, well, let's create a concept, a new concept of a stress capital buffer that would include the conservation capital buffer, possibly some degree of a CCYB if ever it is decided. And then the capital requirements coming from the stress tests, the CCYB, which then would deal in the same virtual buffer, both what comes from stress tests and what comes from other origins. And then the initial proposal was this would have to be a minimum of 2.5 which corresponds to the conservation capital buffer, which is no longer a buffer or was never a buffer perhaps. It's still written in Basel III that the conservation, the 2.5% of the capital conservation buffer, and I read it, is there to ensure that banks build up capital buffers outside periods of stress, which can be drawn down as losses are incurred. No, the conservation is not to be drawn down at all, which has only shows this reluctance of using the concept of buffers. So by putting a minimum of 3% in the proposal of quarrels in this speech, that would allow already the Fed to decide the 0.5 CCYB within that new concept. In Europe that could be achieved by creating the same sort of virtual new joint buffer of several things. In Europe we could also add up the systemic risk buffer to the end, of course very controversial, the pillar 2 guidance element. What happens in Europe is that there is a big pillar 2 requirement plus a guidance. And that makes a big thing. And that's used across the board to all banks. There is a sort of minimum 1% that has to be there for all banks, whereas pillar 2 was supposed to be idiosyncratic according to the specific risks of each bank. That's not what is being used for, is being used as a sort of margin of safety for the micro supervisors. That's how it is used. And then of course if that would be put into this more general concept of a stress capital buffer, then that would allow now to decide an increase in the CCYB, increasing the amount that could be released when and if the crisis comes. Thank you, Vitor. Next I turn to Alga. Yes, thank you very much. I will make some comments also on the interaction between monetary policy and macro-prudential policy and my remarks are quite general, so I don't need slides. But sort of the starting point of my premise would be that it really depends on the source of the financial imbalance that might be building up, whether or not monetary policy tools should be used to lean against such imbalances or whether financial tools micro and indeed macro are more likely to be effective. And I would argue that in the euro area it's much more likely than elsewhere that the financial imbalance are either specific to a sector, to a market segment or indeed an individual country because of the much more diverse nature of the financial system and more diverse cyclical developments at the country level. So you could argue that monetary policy therefore has a minor role to play only, but indeed I think there is a heightened risk that any financial imbalance local it might be could become a systemic. The reason is the still incomplete architecture of the economic and monetary union that could mean that even sort of a relatively contained or containable financial risk actually starts to blow through the financial system because we still have no complete banking union and are also still doing work on the capital market union and we clearly also don't have a sufficient fiscal backstop at this stage. Equally I think it is clear that macro-prudential policies are no panacea. In fact they could become another euro area coordination failure. I think it's reassuring that the ECB has additional powers to add to macro-prudential measures which we didn't have in the other elements where maybe Europe failed to coordinate. If you either think of the buildup of payments imbalances in the first 10 years of the euro or more recently maybe the imbalances that are building up on the fiscal policy side. But it's not clear that it will be enough because there are clearly material challenges that still remain. We have subdued bank profitability. We still are working through some of the legacy issues of the euro crisis. We still have major obstacles to cross-border consolidation and we're now facing deeply negative government bond yields potentially for an extended period of time which also have a corrosive effect. So why not use monetary policy then because it clearly as Jeremy has coined gets into all the cracks. I think the main problem in Europe is that monetary policy historically has been used to paper over all the cracks especially in the wake of the euro crisis. And as a result the ECB is today left with limited ammunition to deliver on its primary objective price stability. So I think that in the whole lean or clean debate unfortunately the ECB most likely will be able to do neither. It's very I think debatable on whether it could actually justify to lean against the wind in an environment where we're still far away from delivering on price stability and the December staff projections again showed that even at the end of 2022 we're not really where inflation should be. But also if we sort of look ahead and sort of look at the ability of the ECB potentially cleaning up after the event I think that might also be quite questionable given the limited amount of monetary policy ammunition that is still left. So in my view that means that in the next downturn or the next financial crisis what we actually need is a coordinated effort but it's a coordinated effort between monetary and fiscal policy and I do think that potential measures macro-prudential or micro-public have more of a side role to play. So what can the ECB do? I think it might be worth thinking as to whether there is a place to include euro area wide macro-financial dynamics more broadly in what has been its much criticized second pillar in the monetary policy strategy. So clearly it's more than just money and credit growth that needs to be looked at but I do think that the upcoming strategy review would be a great opportunity to revamp part of this analysis and to integrate financial developments much more obviously into monetary policy deliberation to the extent that they're relevant for the euro area as a whole. So for instance a broad-based financial conditions index that maybe reflects prices, sentiment and quantities. I'm still wondering by the way for any sort of smart researchers in the audience on whether there is a elegant way to link any FCI to financial vulnerabilities using the area below the FCI as the key measure for financial vulnerabilities because it basically gives you a measure of the how easy financial conditions were and how long there were this easy which I think is one of the key drivers of financial vulnerabilities. But anyway so I think the upcoming strategy review is an important way to integrate this and there is already some of this stuff happening. So just as an example the ECB has done some work and we have tried to replicate some of it and extend it further to basically include in any estimate of the equilibrium level of interest rate a concept of the financial cycle so that your equilibrium level of interest rates actually balances not just the economy at full employment and inflation at target but also stabilizes the financial system. And then as a result if you either have major upward or downward movement in the system wide leverage you would need to recalibrate your measure of our star and your judgment of your monetary policy stance. So that I think would be one way how you can bring the macro financial link into the mainstream. But to sum up I think being able to debate the pros and cons to coordinate monetary policy and macro-idential policy unfortunately is not that relevant for the ECB at the current juncture. It's what you could flippantly call it would be a high quality problem to have. Unfortunately the ECB at the current juncture can probably neither lean or clean but that's of course because it had to do some serious clean up work after the global financial crisis and the euro crisis that followed which makes it I think at the current juncture even more important that the prudential measures are delivering and making sure that the monetary policy transmission mechanism is fully functional to take the remaining policy ammunition when it is needed but I do think at the end of the day it probably needs to be paired up with fiscal policy to work. Okay thank you very much and then finally Hyun let me get your slides here. Thank you Philip. What I thought I'd do is to address the question on the link between financial stability and monetary policy but through the lens of capital markets and just pose a couple of issues that have cropped up recently. Imagine that you're in a within the border of country A and there are some investors who are lending to some borrowers and the color here is the currency and we know from some micro work and here's the majority at our paper that lenders tend to lend in their own currency so if they're lending to borrowers outside their jurisdiction they tend to lend in their own currency which means that if there are some borrowers within that jurisdiction that are borrowing from foreigners they tend to borrow in foreign currency but the exception is the US where everything is in dollars and here the color is green and here is one very interesting chart from their paper for Canada for Canadian corporate bond issuance so think of it like this. So horizontal axis is the domestic currency, foreign currency distinction so if you're to the left you tend to borrow in domestic currency Canadian dollars if you're to the right you borrow in foreign currency the vertical axis is the internal external distinction are you borrowing from residents or non-residents so if you're close to the bottom you're borrowing from residents if you're up there on the top you're borrowing from non-residents and you see this line just lining up exactly so if you're borrowing in Canadian dollars you tend to borrow from Canadian residents if you're borrowing from foreigners then you tend to borrow in foreign currency but this is the US where everyone borrows in their own currency which is the US dollar now why is this important? I think this is important because when we think about the hedging demand for borrowers one way to understand this particular pattern is that the liability side of the lender really looms into view if you're a pension fund or a life insurance company in country A your obligations are to your domestic policy holders or to the beneficiaries in your own currency and so you tend to gravitate towards claims that are in your own currency but of course if you can hedge then you can convert that exposure back into your own currency this is where the banks come in because the banks are the ones that provide most of these hedging services now why is this important for monetary policy? well the BIS recently published its Triennial Survey and the left-hand panel is giving you a sense of the currency counterpart to the dollar and the dollar is the dominant currency here 90% of swaps tend to have the dollar on one side of the transaction and these color schemes are vis-a-vis the other major currencies and then the gray is vis-a-vis the other currencies and think of this as basically the amount that's being rolled over in the swap market so the amount that's been invested in dollar denominated paper that would rather not be you would rather not be in dollars but you have to because that's the most liquid market that's the biggest market and so you're hedging it back to your own currency and most of it is actually very short term so you're rolling it over in a number of days rather than holding it to term and I'll come back to this shortly because this is going to be very important and if we look at the IMF CPIS we see for example in Japan when you look at the international portfolio the blue is the amount that's held in US dollars there's a bit in euros but the blue is the big part here's Switzerland where the euro part is bigger but the blue is again very large now why is this relevant? well here's where the banks come in and the banks have not been doing too well they have been very subdued if we look at the asset growth pre and post crisis what we see are these hockey stick diagrams where before the crisis and these are in lock scale so the slope is basically the annual growth of assets and the annual growth of book equity which is the blue we had roughly 15% annual growth rate in assets and book equity on the left hand panel here for the US banks these are the large US banks but then after the crisis we are flattening out so yes assets are growing but at a very subdued pace yes equity is growing faster but it's this very sharp hockey stick pattern in the euro area it's actually even more dramatic we actually see a declining assets and for other European banks we also see this hockey stick pattern now partly this is due to low profitability but if you look at the dividend payouts this is a topic that Jeremy mentioned earlier in his keynote the dividends have been pretty high as well and I think here we have to look at things like the book equity ratio the market to book ratio where it is the marginal return to the shareholders and just paying out equity can be higher if the market to book equity is below 1 so what this means is that there is a limited capacity for the banking sector to receive and absorb these hedging demands and one indication of this is the deviation from covered interest parity we've seen since the crisis focus on the blue line because this is the average of the deviation from covered interest parity of 10 major currencies and the sign convention is that if you're negative the dollar interest rate that's implicit in the FX swap market is higher than the dollar interest rate that's implicit in the money market and what you've seen is that even though we are well past the crisis we have this very limited ability of the banking sector to absorb these hedging demands now how can we interpret this the way that we can interpret this I think is that the demand for hedging has gone up and that's because long term rates are low there's a lot of reaching for yield among portfolio investors and there's a lot of international demand for dollar denominated securities but the supply of hedging services have declined because the banks are less able to absorb these hedging demands now it's true that central banks can inject liquidity and thereby at least preserve tranquility in the capital markets but occasionally we're going to see these patterns where the high shadow price of balance sheet leaves the field to some leverage players who may take on more risk than may be optimal I think one of the indications of this might be what we saw in the repo market in September where if you read the BIS quarter review what we were saying was that yes the shortage of reserves may be one factor but it's also true that a lot of the treasury demand of the treasury holdings were actually in the hands of non-bank leverage players and one indication of this is the so-called cash future spread where if you have a futures exposure that's a zero money down bet it doesn't need balance sheet capacity to lay on that bet but holding cash treasuries needs balance sheet so if balance sheet costs are high you'll see a spread between the cash and the futures yield and this is the kind of thing that might crop up when you have this combination of high hedging demand and the low supply of hedging services so I think this goes to some extent to what Elgar was saying earlier where you can certainly preserve tranquility by providing plenty of liquidity to the system in the capital markets but it doesn't mean that we can completely eliminate some of these tensions the tensions will be there because we now have this combination of a banking sector which looks pretty constrained and the capital market which is very accommodative in some respects but maybe less accommodative in other respects Thank you so the decentralized equilibrium where everyone had chosen how to approach these questions I think worked out quite well we had a nice discussion of the CCYB through Elgar's contribution the route of roles of multi-policy and macro-potential which I guess follows Jeremy's keynote beforehand and we've come to the role of banks and non-banks and of course when the key cross-border spillovers is between the dollar market and the euro market and other FX markets so I think one very important point that came out was in terms of the timing of when the CCYB should be activated and again this goes back to Jeremy's burden of proof earlier on I can just tell you anecdotally from the central bank of Ireland when we decided we chose a one percentage point CCYB even though it was super early in the credit cycle I mean basic credit was still shrinking but the assessment was we did the basic calculation what's the problem of going too early versus the problem of going too late and the evidence and the central bank of Ireland there's a lot of published research on that it's not that the harm from going too early is not that much as long as you can dominate your banking lobby with that I think it's best to use the time we have remaining to take comments and questions from the floor for any of the panelists maybe after a day and a half of macro proof you're exhausted but please Benoit something that already Jeremy said and he stressed is that next time we won't have all indicators pointing in the same direction at the current juncture one thing that the Fed is stressing frequently is that if you look at the household sector they are consolidating you know the balance sheet is improving it has improved a lot in the crisis if you look at the euro area you see that credit is slow so you know Jeremy was pointing at the relevance and the quality of the signals that come from quantities so if we look at the US household sector in the US is still relatively large actually the largest economy in the global economy and the euro area is also fairly large so we can worry about China where credit is still very fast but if we think of these two places the US and the euro area we really at the signals we have from quantities are really mixed in the US and in the case of the euro area it's mixed as well because you have some countries where it's fast other countries where it's not fast at all and the debt to GDP ratio is declining so actually is the Fed too complacent to reassure themselves with the fact that the household balance sheet situation is improving or how do you want to weigh the signals that you have from the corporate on the one hand and the household sector on the other hand okay let's gather a few comments and questions and then I'll come back to the panel please Charles the best idea that I've heard in this conference for dealing with crises is to limit the amount of dividends that can be paid out and what I want to ask the panel is how easy would it be to introduce dividend restriction under such circumstances okay and maybe if we take one more question before I turn back to the panel okay we won't insist so let me turn in order so Anil okay on Benoit's question so I think it's helpful to think about the debt service ratio both for the corporate sector and for the household sector is the thing that you're trying to manage on the borrower side so imagine you've got a tail of highly indebted households or firms and what you're worried is they're going to the households that you ever cut their spending even if they don't default on their loans the businesses will stop investing and you'll get kind of an aggregate demand feedback into the economy from these defensive actions so I think a good way to think about this is to just look at how the tail of the highly indebted people look and then to try to do some sensitivity analysis of how much would interest rates have to rise or how much would incomes or earnings have to fall for you to go into the danger zone and so if you look at the Bank of England FSR they have numbers like that and at least in the UK right now the household sector is relatively safe I mean debt service ratios are incredibly low by historical standards it takes something like 150-200 basis point increase in interest rates with no growth in income just to get you to the average level I don't know what the US numbers are but that's the way I think about that Charles's point about the dividends I mean one thing that you see when you look at these stress tests is you hit these minimum distribution rules that automatically shut off dividends and I think that's a good thing after Hyun and I wrote that paper in February of 2008 we actually have an op-ed that was in the financial time saying they shouldn't be allowed to pay dividends it didn't get any attention but as a tombstone I'm glad that we wrote that at that time so it may be challenging I do think one thing that you get out of the stress test is you train the supervisors to have conversations with the management of the banks about the idea that you might force them to shut off dividends and so one kind of carrot versus stick thing is that at least in the UK stress tests if the firm has an announced policy that says we will slow down dividends we give them credit for that so that that counts towards making sure they stay above their minimum now I don't know to what extent investors take heed of that but I think that's a good policy to try to train them to say if you'll pre-commit that this is your policy then you're going to get credit for this and you won't flunk the stress test so I don't know if it'll work but at least there's a little bit of momentum in that direction one last thing I want to just endorse what Vitor said which is buffers have to be usable if this stuff's going to happen you can't say right at the time of the crunch that you're never going to release the capital if you do that you've defeated the whole point so I think that's every time anybody in a policy position that's setting a buffer talks they should remind people the buffers are going to be used okay, thank you, Vitor yes, thank you we'll just address the question by Charles on limiting dividends well in the present situation that would be difficult to have such a policy across the board let's say but nevertheless, and I would prefer clearly in this situation just to be possible to increase the CCYB in preparation for the future but I point out, as Neil already started to point out that there has been a change in treating and calculating what is called in the legislation minimal distribution amount that the banks can really distribute and initially in the European legislation in the CRD4 and CRR what is defined is that for that calculation the operational limit was just pillar one capital ratio but since 2015, pillar two has been added to it so there are more limitations were introduced since 15 to these minimum distributable amount that the banks can use so that mitigated a little bit the possibilities of dividends distribution but I think that to address the second part or the second question of the organizers which I had no time to address but now very briefly taking advantage from your question I don't think that besides the CCYB or something of that sort the priority as I see it is not so much to increase regulation on banks but on non-banks because what has been happening is that to also use one of your sentences regulators have forgotten about the boundary problem so it's all about the banks nothing about the non-banks which are growing in terms of assets much more than the banks to give you a number 2007 the total amount of assets under management by investment funds of all types was 17% of total bank assets in euro area now is 44% there are valuation effects here but nevertheless it's a big structural change and nothing is being done there in 2015 the ECB published public opinion saying well we need to have permanent minimum margins and air cuts both on applying them just to secure the financial transactions and also to the derivatives and there must be also there should be also a time-varying component in that the authorities could use in order to correct the prosyclic buyers that the market introduced in calculating and applying margins and air cuts nothing has happened the recommendations of the FSB are very mild and soft and very vague the same is true about the FSB recommendations regarding asset managers in general also very vague nothing will happen there and in Europe in particular there has been an increased mismatch between the maturity of the asset side of all investment funds and the maturity of the liability side so the mismatch has been continuously increasing and there are no tools in the hands of the supervisors the tools that exist in the law are to be used by the managers of the funds themselves so there is a lack of dealing with this question which that's my final thought contributes also in this environment to undermine the franchise of banks and with the meaning that in my view regulators and supervisors must not ignore the fact that the situation of the banks in Europe if you read the latest financial stability review of the ECB the picture is dire because in the baseline scenario the ECB is projecting a decline in the next two years of ROE of banks in the baseline so it's dire and the situation there exists is not totally created by things outside of the remit of regulators supervisors and policymakers and so part of the situation of that environment for banks is the responsibility also of authorities and I think it's time in view of this situation that European authorities wake to these problems of all the environment that now surrounds the banking sector in Europe Thank you Vitor Yes, just coming back to Benoit's question on the indebtedness I agree that at the macroeconomic level it is not particularly worrisome at least on the household level there might be some concerns at the corporate level in terms of how quickly indebtedness increases and also what the money is used for but I do think we also need to sort of go more into the details and look at some individual market segments or lending segments and sort of look more at the distribution because while on average there might not be an issue there might be tails or segments that are actually more of an issue and all in all at the moment financial vulnerabilities at least in the US on our estimates are well contained and as a result a recession indicator that we have built that sort of maps recession probabilities based on financial vulnerabilities so to some extent different than metrics based on yield curves or activity data is still pointing to a much more contained recession risk than what the consensus is currently forecasting for the United States what worries me a little bit though is that our financial conditions indices which have been pointing to a material improvement in financial conditions over the last nine months or so on the back of the dovish pivot by central banks that by the Fed last much of this year is not getting any traction really into better economic dynamics in fact now by now the economy should have picked up based on the material shift in the monetary policy stance and that's not happening and it's not entirely clear why that is yes some of it could be the trade tensions in Europe so some of it could be the fact that we are at a very low interest rate level and that the side effects are building even though they're still not outweigh the measures taken but there's clearly something going on and to some extent that worries me that financial conditions are easy and the stimulus doesn't find it into the economy so that could also potentially I think speak to some of our vulnerabilities building up thank you let me address both questions at the same time actually so Jeremy gave us this very insightful pairing of quantity indicators and price indicators I wonder whether we're currently at a time where those two indicators are pointing in different directions if we look at this chart quantity indicators are actually very far from flashing red because at least in terms of bank lending at least in the US and the Euro area we don't see very much but in terms of the price indicators and the deterioration and credit quality I think there are several indicators that credit quality is deteriorating I mean this is not to deny that outside those countries that suffered the brunt of the crisis we've seen that continue to grow very fast so in those countries that didn't really suffer the worst of the crisis we've seen household debt now continue to climb in many emerging markets that's true but certainly for the US, Euro area, UK those countries that really suffered the brunt these two signals are going in the opposite direction now what about Charles's point about what if you just stop dividends well I haven't shown you the dividend chart here but dividends have continued to flow at quite a pace and if you think about it think about Tobin's Q if you pay out your book equity you get one dollar or one Euro but what do you lose? you lose the equivalent of one share in market value so if the market-to-book ratio is less than one you're better off paying out and liquidating and so it's going to be very difficult to just require by Dictat that you will not pay dividends because it's going to be very very difficult to make that consistent with the incentives of the banks and I think this is where possibly we need to be thinking a bit more imaginatively so I think in the sense that we may be in a situation where the old rules of thumb the old rules of thumb that worked before the 2008 crisis may not be the right ones to look at right now and we should be looking at I think, in my view I didn't have a chance to go through the swap charts but we should be looking at the capital markets we should be looking at the international capital markets in particular and the role of exchange rates and I'll say a bit about this in the session tomorrow after Kristin actually in the session for Benoit okay, thank you so let me thank the panelists I think it's a very interesting panel and the event reconvene at 4 p.m. thank you