 25,000. This is the number of public inquiries we received last year. You, European citizens, really want to get in touch with us and have your voices heard. This is precisely the reason why we are here today. My name is Antonia Hamova and I'm your host. Welcome to the Civil Society Seminar Series of the European Central Bank. I see many familiar names today. This is great because it means that we managed to build a community of regular attendees. You would like to engage in a dialogue with DCB. At the same time, I'm glad to see some new names among our attendees. This shows that our community is expanding. Before moving further, let me mention a few words about housekeeping. Following my introduction, there will be a presentation of about 30 minutes. After that, all of you will have the opportunity to share your comments and ask your questions. If you have any technical problems during this seminar, please send a message in the chat to all panelists and my colleagues who will do their best to resolve your issue as soon as possible. So, what are we going to talk about today? Let me mention three global developments that have affected all of us. The COVID-19 pandemic has put a strain on our society and our economy. It has also affected European banks. Our increasingly digital lives are being targeted by cyber crime much more aggressively and so are banks. At the same time, the climate crisis is calling for urgent and collective action from all of us to save our planet and the civilization that we have built. The banking sector has an important role to play there in the transition towards a green economy. In such situation, our priorities are very clear. DCB as a supervisor would like to keep the money of European citizens safe and it is doing so by keeping the banking system safe, sound and resilient. Our special guest today is Elizabeth McCall. She is a member of the DCB supervisory board. Before joining us at DCB, Elizabeth had a very successful career across the pond. She served as a superintendent of banks for the state of New York, as head of the New York state banking department and also held several senior executive positions in a global financial consulting company. As you can see, Elizabeth has a lot of experience in the banking sector and today she is going to give us some more insights into the ECB's banking supervision. What conditions are European banks operating in? How do they manage to meet all the challenges that they are currently facing? Elizabeth, over to you. Thank you, Antonia. Can I say that I'm just delighted to be here today and I hope we can have a discussion. I'm really looking forward very much to talking with all of you and answering your questions and learning about your concerns and what you would like to know about. I'd like to say just a little bit more about myself and maybe starting with why would an American be the supervisory board of the European central bank? The first thing I need to say is that it is a complete honor for an American, this American to be on this board. It's something that all of my adult life I have admired and I've had a lot of involvement with all of the financial issues and the building of the banking union over the years. I would say that my real interest in the European project started when through the generosity of the German government, I received a scholarship to study what was then called the common market and I went to the University of Freiburg, the Institute of European Studies and I studied all of the European institutions as a university student, traveling around to each of them to understand it. But what I really learned about was the importance of the European Union and the importance of the European project and that that is about peace. So maybe in these days it's something very much worth reminding ourselves about. So I'm here to help strengthen the supervision to help contribute to the European project through the banking union and it's really very much my honor to do so. So maybe we start. I have some slides for all of you that I will take you through and I will very much today try to explain what it is that we're doing in the banking union and how we're organized and then also give you some insight into our very important annual exercise that we do and you can go ahead all the way to slide three if that's all right. So I'm just going to start with a little bit of background about the banking union itself and explain you know what it is that we have in the construct and where it is that we we hope to be going. And the purpose of the banking union is of course to first make European banking more transparent. It's by applying common rules and administration processes that we will have a more transparent system for the supervision, the recovery and the resolution of the European banks. It's to have it unified by treating the national and the cross-border banking activities equally and by delinking the financial health of the banks from the countries in which they are located and to make make it safer by intervening early if banks face problems in order to help prevent them from failing and if necessary by resolving them efficiently. So we have had a banking union in place on the through the single supervisory mechanism which of course came about because of the financial crisis of 2008. The whole concept of a banking union was meant to address that financial crisis and the subsequent sovereign debt crisis and it became clear that especially when we have a monetary union such as in the Euro area problems caused by close links between the public sector finances and the banking sector can easily spill over national borders and cause financial distress in other European Union countries. So we also have a single resolution mechanism which was established in January of 2016 and we are hearing in these days that we might be making some progress on the third very important pillar which is the European deposit insurance scheme EDIS and there's a lot of discussion that we're very hopeful about and very supportive of that is occurring in these days. To tell you the truth when I joined the ECB December of 2019 and I came to my first supervisory board meeting I was really awestruck by this table with all of the countries around it and all of the work that was taking place when it had just been a vision as soon ago as 2014 and the next slide please. So this is just to explain a little bit of the picture of how it operates. The SSM is a mechanism and that means that it is a series of coordinated activities including the national competent authorities and including the development of joint supervisory teams that exist inside of the ECB itself and the ECB coordinates and collaborates extremely closely with the national competent authorities. We have divided responsibilities in some way for the direct and indirect supervision. The significant institutions the large banks you can think of it that way are under the direct supervision of the ECB and then the national supervisors retain primary responsibility for the less significant institutions really the smaller ones. The SSM is one of the largest if not the largest single supervisory authority in the world. There are 115 banking groups which cover 81% of the Eurora banking assets that are under the direct supervision of the ECB and there are 2600 smaller institutions that are directly supervised by the national competent authorities and the banking assets that are under the direct and indirect supervision amount to more than 27 trillion euros. Next slide please. And as we are pulling that up I just make a comment. There are a couple of tools that we have that we use. We are very focused on new skipped one I think if you don't mind going back on the micro and the macro picture. We have tools as supervisors to use micro prudential tools that are really focused on intervening early into the banking sector in order to make sure that it is as resilient and as strong as possible. And there are a number of tools that we use there including licensing, withdrawal of licenses, sanctions, setting the capital levels, doing on-site inspections and we also have the macro prudential tools which are really focused on the financial stability. Now on this slide just to talk about where we are in the pandemic and you know I think thankfully a number of us have been really pleased with the recovery. If we look back to a year ago when we were analyzing the banking sector situation the economic forecasts that were projected were quite a bit less fortuitous than they are now. So the economic forecasts that projected output recoveries were not in the picture that we are here and we are already in mid-2022 returning to pre-pandemic levels which is a very thankful situation for us. The recovery has been even faster than we expected. Outputs already rebounded to the pre-pandemic levels and economic growth is projected to remain strong over the next three years but we're still in a situation where there is uncertainty. There's uncertainty about how the pandemic will evolve. There's uncertainty about variants. Will there be additional ones? How and it affects different parts of the euro area at different points in time and what will happen with supply chain disruptions? We've had an impact on the European economy as a result of supply chains being impacted by the pandemic. Next slide please. And so just to say that while the macroeconomic picture has certainly brightened and we're all thankful about that, the elevated levels of private sector debt, as well as the risk of credit reading downgrades is something that we see as a vulnerability for firms and for households leaving them in a potentially vulnerable situation. And if you go to the next slide, and this makes it this vulnerability makes it all the more crucial for our banks across Europe to have ample capital and liquidity positions. And after all, if we have the capital and liquidity positions in place, then we are sure that the banks are able to protect themselves, they're able to continue lending to households and to firms, they're able to support the overall economy, and they're able to support the recovery. So this is a an essential component is to make sure that that's in place. And we're pleased to report that throughout the pandemic, the banks have had solid capital and liquidity positions in place. They have ample capital headroom at their disposal. And so a number of the measures that we have put in place during the pandemic, for example, we provided a lot of flexibility in our SREP process last year, we did a pragmatic SREP, instead of a complete qualitative and quantitative SREP, we asked our banks not to distribute dividends in order to buttress their balance sheets during very uncertain times. We gave them the flexibility also to use their capital buffers in order to continue lending to the economy. And so we're pleased to say that the situation today is that we assess the capital positions and the liquidity positions to be solid. And we also see ourselves very much on a path to normality. We've restored the ability of banks to make distribution to their shareholders. We've lifted that recommendation, the dividend recommendation. We've confirmed that the relief from the liquidity recovery ratio will not continue into 2022, and that will be ending in March. And we've also said that we want the banks as they're exiting from the various remaining support measures to be able to operate above their overall capital requirements and their pillar two guidance next year. So our expectation is that we're very strongly on a path toward normality. Would you turn to the next page, please? And we see that our banks have the vast majority of them, the large banks, the significant institutions are reporting CET one ratios above the guidance. There are only two instances of a breach of the combined buffer requirement at the total capital level. And in all cases, the use of the buffers seems to have been driven by long standing structural issues inside the banks, rather than by the impact of the pandemic itself. And we understand that those two banks that are in breach by the end of the year, are really projecting to be backed on a path of normality with appropriate capital levels that would be in place. And the next slide, please. So now we're going to get into the supervisory review and evaluation process and talk a bit about the results and the key findings. And the next one. And let me just spend a moment just to familiarize you, if you haven't been familiar with it before, about the supervisor review and evaluation process. It's the assessment that we do annually of all of the banks under our direct supervision. And we assess the risks that the bank face, and we're checking to make sure that those banks are equipped with resilience and sustainability in their governance structures, their business models, the risks to their capital, the risks to their liquidity. It's really a comprehensive assessment that we look at. And we do it in a consistent way across all of the institutions. And we make sure that we take decisions about not only the capital and the liquidity levels, but also about the necessary qualitative supervisory measures to be taken, where we see a need for the banks to conduct summer mediation related to their business model related to internal governance related to risks to capital and liquidity, where we would have them remediate things in order to have an early intervention, and to strengthen that institution before problems come about. So that component of the SREP is also extremely important. And the next slide please. So in 2021, we had a marginal increase in the SREP requirements and guidance. But the overall picture is that we see a broadly stable picture to the situation that existed pre pandemic in 2019. The last time that we did a comprehensive SREP process. And remember what I was saying about the pandemic, we chose to do a pragmatic strip during 2020. That means that we were really looking to understand what were what were the risks that the banks were facing related to COVID-19 related to the pandemic, related to their ability to continue to deliver banking services, and lending to households and firms across the euro area related to being resilient in the face of the largest financial crisis that we have had. In terms of things, measures that you can look at drop in GDP, things like this. So it's, you know, this is positive news to be able to say that the banks are in a broadly stable situation in terms of their overall scores. And so that's something that is, you know, we're pleased to say that the banks we supervise are resilient overall, they would be able to cope with further adverse economic developments in this picture. Our decisions this year followed a new methodology for the pillar two requirements. And here we wanted to strengthen a link between what we were seeing in the SREP exercise and what we see in a stress scenario. And so for the first time, we're publishing those results so that we can increase the transparency of our supervision. And on average, the downside risks identified by a stress test led to a marginal increase in the pillar two guidance from 1.4% in 2020 to 1.6% in 2021. And the overall capital requirement across the banks, the overall capital requirement and the guidance across the banks increased by only 20 basis points. In 2021, it reached 15.1% on average, which is up from 14.9% in 2020. And that's largely because the action stemming from our SREP decisions were partially offset by a decrease in the average counter cyclical capital buffer. And if we go to the next slide, please. So here, I'd like to talk a little bit about what is happening with credit risk. And it's an area that we're highlighting as an area for need for our institutions to strengthen and to implement remediation and to be wary about risks that are on the horizon as well. And so in our SREP cycle, what we are picking up is that because of the key role of the public support and the supervisor relief measures, which of course, cushion the economy, which of course, were tremendously effective and tremendously needed. We're also paying attention to what's happening with the institutions as those public support measures are exited. And we want to understand that as the lending has continued throughout the pandemic, what is happening with that those borrow types? Will there be any deterioration in some parts of the overall economy? Will there be certain sectors that are more impacted than other sectors? And so we're seeing some dynamics here. We're seeing aggregate lending continuing to grow throughout 2021, not uniformly across borrow types. And after a significant acceleration in lending in 2020, we're seeing a beginning of a corporate lending slowdown in 2021. By contrast, if you look at what's happening with the mortgage lending growth on the right side of your screens, you will see that the lending to households continue to grow, driven by record high increases in residential mortgage lending. And these dynamics are spurring some level of house price inflation, which has prompted the ECB to flag the buildup of vulnerabilities in its financial stability review in certain countries. And in this context, we are keeping a very close eye on credit risk controls. And I'll say a bit more about that in a few minutes. Next page, please. So on an overall basis, the credits continue to flow to the economy. And as yet, even though the public support measures are beginning to be withdrawn or have been withdrawn in a number of instances, we're not seeing a clear indication of asset quality deterioration. And we had concerns about that concerns about cliff edge effects. If we go back a year ago. So this is again, a more positive picture than then initially forecast. So the non performing loan ratio, the MPL ratio of the significant banks, it continued to fall throughout the pandemic, market stability and investor search for yields enabled high MPL banks to make substantial progress with reducing their MPL portfolios and moving ahead with their MPL resolution strategies. And that's good news, because that means that we have some stronger balance sheets across the euro area in the face of that. But most importantly, you know, we need to recognize that the far reaching government support measures for households and corporates have temporarily preserved borrowers capacity to repay their loans. And this is something we have a very close eye on. Next page. And so here, we do see that the signs of credit deterioration have not really disappeared for certain sectors or for loans that have benefited from the COVID 19 support measures. And these positive developments are important to keep in mind. It's a very strong backdrop. And the continued improvement of the macroeconomic forecasts have prompted the banks to reduce their overall cost of risk. That's a measure of their provisioning. But as a as part of SREP, we're also assessing the banks ability to have the appropriate credit risk controls in place. And we set out in a letter, a dear, so called dear CEO letter, our expectations, we asked them to look very carefully at what the credit risk controls were that they had, and we highlighted certain deficiencies that we we assessed and as part of the SREP process and overall, including in our onsite inspections, and we imposed on the institutions a number of qualitative measures, where we're asking the banks to make remedial remedial points. And it's really about understanding how they are assessing the overall credit risk of the borrowers in their portfolio. Are they able to do look through credit risk analysis? Can they are they appropriately staging those borrowers through the different stages, according to IFRS nine so that they have early and clear recognition where there might be a deterioration in asset quality. And this is the most important thing, because if the institutions are prepared, and they have a clear view of potential for deterioration, they can manage and mitigate that risk ahead of a problem occurring. We're seeing especially no noticeable vulnerability in the accommodation and the food services sectors, as well as the air transport and the travel related sectors, and those loans which benefit or have benefited that are in those sectors appear to have a riskier profile than the aggregate loan book as a as a broad statement. And in some while, credit quality looks benign on the whole. We're not seeing broad asset class deterioration. There are certain segments of the balance sheet that may still deteriorate that deserve continued very continued close attention. And to the next slide please. And here, we'll just talk a little bit about how we're following up on these issues. And here I've I've gone ahead and talked about the dear CEO letter that we set out. So you can see that here on the right side. And so the next page please. So here just to talk for a moment about the profitability. And, you know, here we use the term structurally structural pressures on the profitability. And these are pressures that preceded really preceded the pandemic. The structural issues are at the core of a challenge for the European banks that since the financial and the sovereign debt crises, most of the European banks have not been able to earn the cost of equity. And while return on equity rebounded quite strongly in 2021. This improvement was largely cyclical and was driven by the release of provisions as I mentioned a few minutes ago. We've seen trading business and fee and commission generating activities playing a supporting role to their improvements, confirming that income diversification is essential for strong banks. But from a supervisory perspective, we will be working to ensure that income growth and non interest income growth in particular is not pursued outside properly defined risk appetite and risk frameworks that this this needs to be very much focused on that in the context of any aggressive search for yield strategies such as some that we've seen occurring during the pandemic that these are these are controlled that they occur within risk management frameworks. And next slide please. So while the structural business model vulnerabilities exist, there are areas where the institutions can address efficiencies and those may pay off in the longer term. It's really the case that the only realistic way for banks to address the profitability is for them to take decisive action to improve their cost efficiency and to refocus their business models towards longer term value creation opportunities. And it's precisely in relation to sustainability, the capacity to steadily generate medium to long term profitability that we issued the majority 63% of our qualitative recommendations in the 2021s rep assessment of the business models. So in recent years, we've seen banks make some successful cost reduction and some structural transformation efforts. But we've learned and they have learned as well that in implementing the changes to adapt the business model, there's a cost in terms of time it takes a while to it takes it takes spending in order to implement those changes. And then there's an onboarding time period that usually takes place. So that's something that we really are are encouraging our institutions to pay close attention to only a handful of the banks under our supervision saw an improvement in their business model strep score in 2021, while for the majority this score remained unchanged. And the next slide please. And here just to talk about how the banks can foster efficiency, if there's one lesson learned from the pandemic, we saw an entire economy go digital in lightning speed is something I think that was a surprise to many. And it's the case that no bank can afford to overlook the potential for efficiency improvements that are afforded by digital technologies. The pandemic has significantly accelerated the shift to services being provided digitally. And the banking area has been at the forefront of this. And most people are now very well acquainted with online and mobile banking. So this change environment creates opportunities. It allows the banks to boost their revenues, they can increase their customer base without the need for a physical presence. And new digital products and services can be offered at a very low marginal cost. So this pricing can be improved and they can improve their overall profitability. Meanwhile, some of these digital strategies also bring risks. And there are new answers to fundamental and pressing questions and ability to compete. But there are also new challenges, not only for the banks also for the the supervisors. IT and cyber risk is increasingly becoming a key area of focus for ECB banking supervision. We expect the banks to act to mitigate IT and cyber risks and where security vulnerabilities exist. We ask banks to draft and implement remediation plans. And this is not new. It's over the last several years that we've been really ramping up the expectations in this area. And so it's it's something that I think we're going to see more of and that we have actually named as one of our risk priorities in in in the next three years that we are going to have as a as as an overall focus for our institutions. We expect the cyber risks really to further increase. And we I can say that after a firm increase in 2020, cyber incidents reported to ECB banking supervision have stabilized in 2021 at an elevated level comparatively speaking to the pre pandemic days. So you can expect to hear more about this cyber risk area from us as well. And the next slide please. And here I turn to the other area that we had a number of findings in this year and that is the overall governance arena. So at the heart of every institution is the strength of its governance framework and its ability to help identify manage and mitigate risks. And so it won't surprise you to know that governance is a key area that we we spend a lot of time reviewing and analyzing. And I'm not happy to report that it's the area that attracted the highest proportion of our supervisory recommendations this year. And we find that a number of these recommendations in our institutions for strengthening the collective suitability and the diversity in the management bodies are outstanding for a longer and longer periods of time. Now some of that has to do with it takes time for succession planning, especially in the management body and moving moving to a collective suitability. And here I'm thinking about the ongoing development of the digital strategies and the emerging risks that are coming up and having skill sets, including the climate risk and transition risk associated with that. Having a broad array of skill sets around that management body table is going to help position the institution to have the appropriate strategic oversight and risk and compliance control processes. So this is an area that we found that the bulk of the findings were in the function of the management bodies. The supervisory functions were proving to be ineffective and challenging management. And there's often an inadequate staffing of the second line of defense. That's the risk management and compliance area. And so we're not seeing the right quantity of resourcing quality of data and escalation of data, especially and the status of open items. So we want to see senior management devoting more attention to the work of the risk management and the compliance functions and have them following up more strenuously on the findings that are in that area. Another area was insufficient attention paid to the potential conflicts of interests of the members of the management body. And so here, you know, these findings are often going hand in hand with insufficient policies to promote diversity across the organization, starting with the management body. And all of this damages the bank's resilience research has shown that diversity at the management body table makes for a more resilient institution. So it's it's been it's been long recognized as crucial for effective governance. We have a legal framework in place across the Euro area requiring our banks to have plans in place to establish how they're going to have their policies spanning several dimensions, age, gender, geographical provenance, educational and professional background. And we have to have succession policies in place to increase the representation of women in the management body. And we should have remuneration policies that are gender neutral. So there are a number of findings that we have delivered to our institutions. The speed of progress is is disappointing in this area and we're expecting and we'll be driving better progress in this area in the year ahead. And the next slide, please. And so here, just to talk for a moment about vulnerabilities and what we see as we look a bit ahead, we're seeing vulnerabilities growing in the leverage finance segment. And this is happening both in terms of the absolute size of the investment and the exposures in this area as well as what's happening with respect to the kinds of covenants that the institutions are agreeing to much lighter covenants that are being put in place that are allowing the institutions to have much lighter defense risk defense against problem loans. So these have been the leverage limits have been lifted, investor protection covenants have been progressively lowered or disregarded. And this is running totally counter to our publicly disclosed supervisory expectations. So this is an area where we may well consider quantitative requirements in the 2022 cycle, if the banks fail to respond to our overall expectations. And the next slide. And so here, just to talk for a moment about the the non bank financial institution segment, and there's been an enormous growth in that segment, where higher risk taking and lagging transparency has been observed vis a vis what's happening in the banking sector. Many would call this the shadow banking area would call it to to be quite a bit less regulated. And so as the overall indebtedness of the private sector increased during the pandemic, the banking sector increased its indirect exposure to leverage through the non bank financial institutions area, such as private equity owned credit funds or family offices as a means of exploring more profitable alternatives to traditional banking. This is that aggressive search for yields that I talked about a few minutes ago. And so diverse risk management practices for counterparty credit risk, weak client management principles and insufficiency, transparency clearly emerged as areas of global concern in this area and the vulnerability stemming from the interplay between credit, market and counterparty risk. I call this the convergence of risk showed their negative potential in the archaic case and will attract enhanced focus, supervisory of focus and attention in the year ahead. And next slide. And here just to turn to a very important and clearly emerging risk that is that is on our table in attracting our attention and that is in the area of climate related and environmental risk. It demands decisive and immediate action from the banks. Physical and transition risks are already materializing and having a direct impact on the banks. Extreme weather events can harm borrower's ability to repay their debts and depreciate the value of the assets used as collateral against bank loans. Legislation and policies aimed at driving the transition to a low carbon economy, such as carbon pricing or the banning of carbon intensive activities together with the shifting consumer preferences for its goods and services that are more sustainable will have a significant impact on the climate sensitive economic sectors and the broader economy and particularly in the case of a very abrupt transition. And this can go directly to the credit risk that the institutions have in place. And they are they now taking into account in an appropriate way how these will have an impact on the bank. So last year, we did a benchmarking of bank self assessments in relation to the supervisory expectations that we have for them that we set out in the ECB guide on climate related and environmental risks. And all the banks acknowledge that there's still a long way can see that on the right side with all of the red from meeting the supervisory expectations that we laid out for them. I think it was the case that, yeah, in an overwhelming majority of cases, the banks acknowledged the materiality of the climate and environment risks they faced did so for both transition and physical risks. And they acknowledged that these risks are material in both the short and the long term. And despite the broad acknowledgement of the risk and the materiality of the risk, 90 percent of the banks reported that their practices are only partially or not at all in line with the ECB supervisory expectations. So when we say that the banks are telling us they have a long way to go, that's just to give you a sense of the number of the banks, percentage of the banks that are reporting in that way. So we are also this year running the first thematic assessment of the progress the banks have made in strengthening their ability to identify, measure and manage climate and environmental risks. And we're also going to run our first climate stress test exercise. And we're going to take the results of these supervisory assessments and include them in qualitative measures and recommendations. Quantitative impact can be indirect on the pillar two requirements, but that's not the objective of this year. This is a year of learning and moving the industry in the right direction through the recommendations. But in the future, we will certainly see climate related risks treated quantitatively just like any other risk, meaning they'll be reflected in all of the relevant supervisory requirements. And the next slide please. And so just to give you a quick look ahead. So we in December, we went through a process of, of, of analyzing emerging risks and and vulnerabilities and setting forth our expectations about what we would be doing over the next three years and in the context of what our supervisory priorities are. And so the most immediate challenge and I'll be ending here where I began is to make sure that the banks emerge from the pandemic healthy. That's been our, overarching viewpoint is that we need healthy banks to support households and corporates across the Eora area and to support the economy. We need to make sure that the banks have take advantage of the unprecedented opportunity they have in front of them to decisively tackle the structural weaknesses that have adversely affected their profitability. I talked a lot about profitability in the last few minutes and also on their market valuation. So they have this, this moment to take that, take that into account and address those structural weaknesses. Concrete steps towards completing the banking union in the coming months will create some momentum for that and allowing them to achieve some of the necessary structural adjustments, but the banks have to do also their part by reviewing their business models, conducting transformations, digital transformations, positioning themselves in the market across the banking union. And our supervisory processes are being structured to accompany this transition. And we will really be looking carefully at the digital transformation of banking, the climate transition and the excessive leverage in our economy. And these are risks that are being fueled by new and less regulated players outside the banking sector. And so we really have our eye also on that. So with that, I will hopefully entertain some questions from you all and I'll do my best to answer. Thank you very much, Elizabeth, for this insightful presentation. As a young woman working in the financial industry, I found it particularly interesting to see that when there is more diversity in management boards, there is actually more resilience and more effectiveness of their decision. So really congratulations on all your efforts on that front to advocate for more diversity and inclusion in the banking industry. And it's very much appreciated by all women in the industry. Thank you. Thank you. So yeah, very close to my heart. And I don't think I said it in the beginning, but I am the executive sponsor for diversity inclusion and inclusion at the ECB. And it's a really important issue for me. Thank you for making that remark. Now it's time to invite our participants to join the discussion. If you have any thoughts about Elizabeth's presentation, or maybe about ECB's banking supervision more generally, or if you would like to ask your questions directly to Elizabeth, now is the time to do so. If you want to speak, first please raise your electronic hand. Once we mention your name, you're going to be moved to the panel, and then you'll be able to speak. We encourage you to turn on your camera. Please know that your microphone will be automatically unmuted and also to briefly introduce yourself. Again, if you have any technical problems, just send a message in the chat to all panelists. So I see that we already have some raised hands. And first we are going to start with Urin Tuyya, but I can't. I hope I'm pronouncing your name correctly and sorry if I'm not doing so. So please, the floor is yours. My colleagues are going to move you to the panel. We see you now. Reader presentation. Hello. Yes, we hear you. You can hear me. Okay. Thank you very much for your presentation. Urin Tuyya and I'm economist here. It's positive money here. I have a question concerning the NPLs. Just setting your presentation contrary to kind of the expectations going into the pandemic. The Eur area has not seen the elevated levels of NPLs. That was the case following the crisis in the Eurus zone and you showed the graphs. However, as guarantees run out and moratorium leased and given that we're not out of the woods yet, if there is indeed a rise in NPLs and that's a possibility, what can the ECB do to prevent all kind of private sector driven resolution of it? I think kind of dominantly after the euro crisis and how can it best ensure that businesses and households are not burdened by that, but instead can participate fully in the recovery and the resolution process. Thank you. Thank you for your question. You are right. I would say if we go back to the earliest days, Urin Tuyya, of the financial crisis, of the pandemic financial crisis, it was a very scary time. We were facing an entire economy completely shutting down and so we became extremely focused because of the lessons of history on the credit quality on the books of the banks and the ability of the banks to understand that credit quality. And so you saw us take steps also to retain the dividends on the balance sheets of the banks. You saw us take steps to make sure that the banks had the ability to tip into their buffers so they could continue to lend to households and to firms. And I would say we were really focused on a risk of a cliff edge when public support measures would be withdrawn. What would happen to the underlying credit quality? Would it be the case that because of the cushioning that occurred for firms and households, completely appropriate cushioning that occurred as we emerge from those support measures would we suddenly see a tsunami I think is a word that we used back then of non-performing loans beginning to emerge. Now it's the case that we do not see that. There's been a gradual, more gradual relieving of the public support measures. The institutions went into this pandemic thanks to the regulatory reforms that created the banking union even with strong liquidity and strong capital and necessary balance sheet protections that they had to help manage the overall picture. The lessons of the past are that allowing a build up of non-performing loans on the balance sheets of banks provides an overall drag on the whole economy. It means that the cost of borrowing will go up. It means that less credit will be available. And it means that households and firms will suffer. And so we need to be extremely focused on early identification of any deterioration and early management of it. And I can say that that message, the message has been very clearly delivered to the banking industry. And we've seen very strong responses to making remediation and to putting in place those components that need to be put in place. We also have told our banks that if they are not making the overall reductions or they don't have strong enough provisioning for the credit quality of their portfolio, that we're going to add to their capital requirements. And so we've seen banks also act in the name of that. So those are things that we are doing extremely, strenuously, I might say. As for the second part of your question, how we can protect the households and the firms from resolution issues, I mean I think this is, you know, I think we really need to have a couple of things in place. We need to have very strong supervision and accurate supervision and high quality supervision in place. And I, you know, the joint supervisory teams, they are terrific. And they are doing a great job. And I can tell you that ECB banking supervision is doing a fantastic job in this area. We also need other elements of the banking union to be completed to have the strongest banking sector that we can. And so I'm hopeful that we'll move forward on some of the impediments to strengthening that banking sector that would allow for stronger profitability and stronger balance sheets like the deposit insurance scheme. Thank you for your question. I hope I answered it. Thank you, Elisabeth. Now we have a couple of other questions. I don't know if Orintuya would like to complement with something or everything is fine. Okay. So then we are going to move to the next question. And it is from Adu Adal Acosta. My colleagues are going to move you now to the panel. And you should be able to speak in a bit. We see you now. Hi. Hi. Good afternoon. I'm Adu Adal Acosta from City of Mani, Europe. First of all, I'm organizing this. I have a question concerning banks and integration of climate and environmental risks. Indeed, a few months ago ECB executive board member Frank Ellerson pointed out that most banks are not complying with the integration of climate-related risks and environmental risks, as you have also mentioned in your presentation. So my question would be what can ECB do as a supervisor beyond just sending letters to take action? And basically, if there is any concrete enforcement measures that ECB has at its disposal at the moment. Thanks. Thank you for your question. I should have said this before. And I think I can have, I'm in a particular particular point of view from both sides of the pond, if you will. But just to say that the ECB is leading, very much leading in this in this effort globally. We're really the first ones to have a stress test and you can see from other markets, questions are occurring about why or not the central bankers and the supervisors in those other markets following suit to have a really clear picture of what the risk is that's coming from climate and environmental and what the banks are doing about it. So we're running this exercise this year. It's not a past fail type of an exercise. It's really intended to be a learning exercise. And it's the right way to start this because we need the institutions to build the frameworks to help them manage the transition risk and the physical risks that they face. And to do that, they first have to gather data. They have to understand what those risks are and they have to incorporate them. And you asked an important question, how will the ECB then follow up on these things? This year, there won't be a direct impact on capital, for example. But I expect that we will make a number of qualitative recommendations requests to the banks to implement remediation where they're falling short of our expectations, where they're not appropriately identifying the transition risk and the physical risk. And the really, I think, important thing that we're doing through these exercises that we're running, the thematic checking on their self assessments and the stress testing and also the benchmarking exercise that we've done. What we're really doing is we are moving this activity to the the right place in the institutions to the risk management functions. It's no longer enough to say, oh, we have a corporate sustainability program and we care about the earth. We really need to make sure that the banks are managing these risks, their credit risks in their credit risk portfolios, transition risks, physical risks to both their borrowers and also to their own facilities and gaining that deep understanding through very classic banking and supervisory functions on the risk management side is going to be quite, quite key. I fully expect, as I said before, that down the road where there needs to be quantitative impacts put in place that we will be prepared to do that as well. And thank you for your question, Adela. Thank you, Elizabeth, for elaborating a bit more on the topic of climate change. It is indeed a very important topic for DCP and a lot of things are being done on the banking supervision front, as you already outlined. Now it's time to move to our next question and it's from Mark Beckman. Mark, you should be connected to the panel now. Hello. Yeah, thank you. My name is Mike Beckman and I'm also from Positive Money Europe. Thanks a lot for organizing this event. My question is on housing affordability and I'm wondering what tools you have available as a supervisor to maintain access to credit to ensure housing affordability and to prevent credit distress, especially for low and middle income households. Thanks. Thank you. It's an issue I care a lot about. As a banking superintendent, I took a number of steps. Also, not just on access and affordability, but also on appropriateness and to avoid predatory lending and things like that. But interestingly, you know, I think what we have to say is there's two things in place here in Europe that are a little bit different than the remit that I had when I was in the New York seat. And that is we've got to divide between the consumer compliance issues that are really the remit of the national competent authorities and you would also have a legal framework in place for that to be the primary remit and primary mandate. So household affordability and access is in some way would belong in a compliance manner to those authorities. Having said that, having said that, I think it's, you know, everything that I've talked about in the last, you know, 40 minutes has been really quite focused on making sure that access to credit remains at the heart of our policies and our initiatives. You know, the pandemic brought that home in such an incredible way that we need the banks to continue to lend to households and to businesses across the euro area so that we can have a viable economy. And again, I will say, you know, the early days where we're quite concerning when one looked at how would we operate? How would we be able to move through? And so it's there's not one component of the answer to your question mark. It wouldn't just be easy, be we need put we need it and we still will need. As we continue to move through these uncertain times, some public support measures to be gradually withdrawn, we need to make sure that the banks have the balance sheets behind strong balance sheets and strong capital liquidity positions so that they are enabled to lend the monetary policies that have been pursued that have allowed for asset purchases so that there is room in the balance sheet for lending. I mean, it's it's a multifaceted answer to your question. I agree with the sentiment of it. I hope I'm answering you. It's not not a one one responsibility component. We need many working together. And I need to also say, you know, I'm amazed by the power of the Banking Union in this pandemic and how it has been able to protect citizens and businesses. And that that's been through a coordination of not only the countries, the NCA is sitting at that as part of the as part of the SSM, but also coordination across to the fiscal and the monetary authorities. An unbelievable coordinated effort has made for a very positive picture that we're able to talk about in this trip. So thank you. So I think we have time for one more question for today. And next online is Martin Schmarz Reed. Martin, we are connecting you now. Yes, can you hear me? Can you see me? Yes, we do. So I'm Martin Schmarz Reed from Covese Families Europe, a European NGO looking after the interests of families and consumers in general. I had a two fold question about the the state of the banks and some vulnerabilities. With regards to inflation, how would that kind of impact the results of the banks and their stability? For instance, if the ECB decides to raise the interest rates, some companies, especially I'm talking about zombie corporations, for instance, which can just go by because they can roll over their debt at a cheaper rate, how would that affect them, for instance, in terms of viability and NPLs and all that stuff? And secondly, do you have any insight into the geopolitical tensions on our eastern border and see how that might affect the banking sector and stability? Thanks a lot. Thank you. Thank you. Like all of the questions today, very, very insightful and important ones. Inflation is interesting and you focused in on the zombie banks that have been able to roll over their debt at low rates. And that's the zombie corporates that have been able to continue to be in business because they've been able to continue to access low rates and what happens to their business models as we move into a higher interest rate environment. You know, I think I would have concerns about about those institutions and that would have an impact on balance sheets and that would be part of the credit risk analytics that we're asking our institutions to do. Rising interest rates. There's not a single pathway in terms of an overall effect on an economy that rising interest rates has. So also interestingly, if you talk with risk managers or the risk the risk management people inside of the banking institutions, on an overall basis, having some higher interest rates allows for additional margin and allows for increased lending and might not be so obvious that that's the case, but it can help boost the business model of the institutions. You will have heard that the low interest rate environments where there is no net interest margin that is available to the banks has been a cause for some what of a cause for their low profitability. And then you've heard me talk about this aggressive search for yields that the institutions have undertaken because they're looking for higher interest rates in order to support their net interest margins. So there can be also a positive effect on balance sheets of the banks in rising interest rate environments. Having said that, you know, and I have no crystal ball, nor do I have any comment to make about whether there will be inflation or not. But I would say that it's it's not it's not obvious how the overall picture will be impacted. I think abruptly changing interest rate environments can cause market turbulence. And there's always concerns that we have about the impact of market turbulence on various aspects of the portfolios of the banks. As for the Eastern Europe geopolitical questions. So first of all, I say personally that I very much hope that we still somehow avoid avoid conflict. I say that as a person as a human being. But then second, as a banking supervisor, you know, we've been looking carefully at the exposures. We don't see a lot of direct Russian exposure there. We have asked our banks to focus in on how their activities would be impact in the in the event of sanctions and whether or not they understand the ownership structures in their portfolios or of their counterparties in case certain sanctions are put in place so that they're able to enforce those appropriately without disruption. And so we've asked our banks and we are asking our banks to make sure to be prepared for that. Obviously, the should there be sanctions and conflict, you know, there will be concerns about the market turbulence to link it back to your first question and what the impact would be on an overall basis. So we need strong risk management and strong governance in place for our banks to help manage through those kinds of vulnerabilities. Thank you very much, Elizabeth. Thanks indeed for joining us today and then being our special guest. I think it's time to close the seminar for now. We've been over one hour already. I think, as I said, thanks to you and also thanks to everyone who joined the discussion today and who also contributed to the discussion with their interventions. As usual, we really value your feedback and we would like to ask you a few short questions, which will help us tremendously in shaping our future engagement activities with your organizations. In a moment, you're going to see some questions appearing on your screen and I would like to ask you to take your time to answer them. First of all, we would like to ask you how you found today's seminar. Do you have the feeling that you're leaving this event with much better knowledge and understanding about ECB's banking supervision? Then we would like to check with you what other ECB related topics you would like to see covered in our future seminars. And last but not least, we are very curious to know how you would prefer us to engage with your organizations in the future. What formats would work best for you? While you're answering those questions, I would like to mention that we'll keep you updated about any opportunities for dialogue with ECB. Also, we look very much forward to seeing you in our future seminars. In the meantime, if you have any questions or queries, don't hesitate to contact us. You can send us an email to the email address that you see on your screens. CivilSociety.ecb.eu. And with that, I'm closing today's seminar. Thank you very much for joining us and see you soon. Goodbye.