Kaj, dovolj, Francesco, for the kind introduction and for the, and to you and Tuomas for inviting me to chair this distinguished panel. For me of course it's nice to be here. I consider the SRB a bit as our home also because as it said there, it's the European system of financial supervision, the SRB with the ISAs. And we have gone through quite difficult years since we started our work in 2011. And the commissioner yesterday mentioned some vice president, Don Brozke's mission, mentioned yesterday some adjustments to our structure. So we have always been moving in the same direction. Since the SRB and the EBA have been established, I think that the focus on banking as being on, let's say, more on short-term emergencies is then on future long-term challenges. So I take the heading of this panel and the focus on future challenges as a signal that we are to some extent moving away from the hot emergencies of the crisis to look a little bit to the future challenges and to longer-term structural issues. And that's, I think, a good thing. However, let's say, the discussion should probably start from the legacy. I mean, we are in a transition from a system which has been deeply shocked by a crisis, by a very difficult crisis, and is now moving ahead. And so the first thing is how far have we gone in addressing the legacy issues? Are we going in the right directions to overcome all the problems that we still have in the European banking sector? And then maybe trying to look ahead to the more challenging issues of what will be the competitive environment, how to regain efficiency, what will be the interaction between banks and new players, how technology can reshape the future of banking in Europe and worldwide. So with a view to quickly set the stage, I would say that when you talk about legacy, of course the mind of everybody goes to asset quality problems, which are still lingering on the European banking sector. Here, let's say, you know that we as UBA have been very vocal on the need to aggressively address the issue of non-performing loans. And we have been complaining until recently of the relatively low speed in the adjustment. I mean, a graph that I used to always refer to is a comparison of the speed of adjustment in terms of NPLs, of the cycle of NPLs from the start of the crisis to the end of the crisis. So how long does the NPL ratio take to go back to the pre-crisis level? And let's say, in a sense, there is this interesting graph that shows that in the US the peak has been reached very fast in two years after the crisis, and then there has been a relatively fast reduction. So in another three years, four years, let's say the pre-crisis level has been reached. At the other end of the spectrum, you have Japan, which took almost nine years to reach the peak. So there was a problem or identification that had been lingering in the system for a long while. But then once the problem was identified and dealt with, there was a rather steep adjustment. And Europe a little bit in between with four years to reach the peak and then a very slow, let's say, reduction that was really projecting a very long period of time to go back to pre-crisis level. Now, the good news is that if you look at the data more recently, the adjustment has taken more speed. We need to understand, of course, how much this is due to some idiosyncratic deals or how much is taking, let's say, more widespread grip in the system. So how far we are going into addressing the problem. But this is good news and we should take stock of it and discuss the direction. And, of course, the key question here is, will we manage to complete the adjustment process while still we have ample liquidity in the market and low interest rates, which is, of course, an important condition to support the adjustment. NPLs have been one of the greatest breaks on the profitability of banks, not the only one, of course, low interest rates and other issues have also plagued, high cost, have also plagued profitability. Also, in the area of profitability, we see positive signals. The second quarter results have been more positive. But, again, the issue here is how structural this recovery profitability is and has enough restructuring being made to achieve longer term viability and the return on equity, which goes above the cost of equity, which has not been the case for a long while. The issue of low profitability, I mean, for instance, if you look at the recent data, what you see is that one of the main driver of the increase in profitability has been the reduction in provisioning, which is, of course, good news, reflecting also the improvement in asset quality. But, let's say, in terms of revenues and in terms of costs, let's say, on average at the European level, you don't see much, much change. So the issue is how we will move that. And what you see, and these links to the other topics, is that the banks which have achieved better results are those which have been more effective in cutting costs and in embracing new technologies to change the way in which their products are distributed. So how much, let's say, also the technology challenge and effectively addressing it can help banks restoring their long term profitability. This is linked also to a lot of work that the SRB itself has done with a very interesting paper that has been published a couple of years ago, if I remember well, by the advisory scientific committee of the SRB on overbanking. So do we still have an issue of overbanking in European banks and if so, what can be done to address it? And the issue of overbanking is linked with another topic which I suppose also for our bankers around the table is very topical, which is fragmentation in the European banking market. So how far have we been successful in providing our banks with an integrated domestic market in the European Union, an integrated single market in the European Union which could be their domestic base for also, let's say, global expansion? I mean, sometimes I hear complaints, more than sometimes I must say, from bankers saying that we have not done enough to remove the segmentations which have been introduced during the crisis to, you know, to reinforce local systems and we still have a lot of impediments to a flow of liquidity and capital within the European Union. When we talk about higher debates on the future of the European Union, of the Euro area, of the Economic and Monetary Union, we hear, for instance, President Macron talking about, you know, the moving really to a setting in which the Union is a single jurisdiction. How much are we a single jurisdiction in banking today? The banking union and the colleagues here at ECB, Penti in the board of the ECB, in the supervisory board of ECB is doing a lot in this respect, but how far have we gone in this direction? Finally, the issue of technologies which I've been already alluding to. I mean, we know that, I mean, sometimes the introduction of new technologies, this FinTech vibe is used as sort of, you know, imminent threat on the banks, like a challenge from outside that could derange the adjustments in the European banking sector. But of course, let's say, if you look at what is happening in the markets, you see a lot of collaboration between banks and new startups in the technology area. And it's more difficult to understand what is the interaction. But definitely, new technologies, let's say, impose to banks to reflect on their own business model and on the way in which they distribute their products, but also the way in which they relate to their customers, because we will have, for instance, if I think to PSD2, which is a directive in which we have been working quite a lot recently. I mean, there will be a number of new players that will be able to directly access the bank accounts of bank customers to provide a number of services, access to a lot of information on these customers. So how much the informational franchise that the banks have been constructing there, let's say, long-term relationship with customers will be, let's say, challenged in these three. So there are three on the table, a number of issues. We have a very distinguished panel here. We have, to my left, Thorsten Beck, professor of banking and finance at Cass Business School. Then we have Pentia Karainen, a member of the supervisory board of the ECB and former member of the board of the Bank of Finland. And then we have two prominent bankers, two group CFOs, respectively Haike Hilka from Nordea group to the extreme right there and Jose Antonio Garcia Cantera from Santander. So let's start with short presentations, I will say around 10 minutes, and then let's have an interactive discussion here and then open up to the public. So I would give the floor to Thorsten first. Please, as you like. Okay, well, thank you very much. Thank you for inviting me to this conference. I'm very happy to be here. I have only a few slides. There are actually quite a lot of pictures in there, so don't get too much worried. What I would like to do, and I guess that comes with being an academic, I would first like to kind of take a step back and talk about financial systems in the most generic way and first try to kind of give us a reason why we are actually standing here or sitting here, talking about finance and banking, in the sense that although there is a large literature showing that finance matters for growth more in the middle than in high-income countries, there are certain nonlinearities, it is still important. It is important for the intermediation function, especially for SMEs. It is important for long-term investment, R&D, and ultimately translating into higher growth. So that's something also including for high-income countries. Of course, it also helps growing faster out of the crisis. Now, what also has been shown, and that's actually also very relevant in the context of our discussion, is that especially within currency unions, an integrated financial system can be good for dampening volatility, for enhancing growth. Integration, it comes with more competition, and there hasn't been evidence, of course, on the country level, for example, within the European Union, but another area, another region to look at is, of course, the United States, which is also currency union, which used to have a very fragmented financial system and has moved to a more integrated financial system. And there is, of course, with all the fragility risks and so on, there is quite a lot of evidence that this has been good for the economy. Now, maybe you have noticed that I haven't really used the word banks or bankers yet. Why? Because when academic, especially academic theorists, which I'm not, start talking about financial intermediation. They start in the most generic form that you can imagine, intermediation between savers and investors, and then try to compare their theoretical concepts with what they can observe in reality. And, of course, in reality, we don't just observe banks, we observe, or we have observed, over history lots of different forms. Now, we happen to have in Europe a bank financial system, which is heavily focused on banks. But just to make the case, and, of course, I don't at the risk of insulting some people in the room, including two people on the panel, which without any intention, as academic economists or as economists in general, we don't really care that much about bankers. We care about them because they are in the banks and they are the financial system. Primarily, we care about financial service provision. And it could be, of course, from banks, as it is today, or it could be from alternative financing forms at the topic, which I will come back to at the very end. Now, this has been already mentioned. And, of course, I wanted to say that being here at an ESRB conference, it's more than appropriate to quote some ESRB research. And they already referred to it. We've seen this rapid growth in banking, especially in the years leading up to the crisis, driven by the largest banks. And I think what's also important to point out is the kind of the regulatory and political approach behind that. That's very important. And, of course, this all ended in blood and tears in 2008 when the European banks or global banks were basically turned national in their failure. Now, a lot of things have happened in between over the past nine years, much more than actually some of us would have expected in 2008. There has been a move towards a currency union level regulatory framework. And, of course, the question is, how successful has this been? And, of course, it is still early days, so it's really far too early to make a final judgment. But I think there are a couple of cases, even before the introduction of the banking union, that kind of can tell us how we can think about what has been done so far. And I just want to point to four cases. In 2014, it shows on the one hand the limitation of national supervision, well, maybe not just national, but in general supervision, which missed basically the deterioration in the holding group. But the bail-in worked actually reasonably well and I've done some research, actually also there's somebody at the EBA, someone, Roger Lopez, and one of my PhD students where we show basically the overall credit supply, the aggregate credit supply effects that are negligible. There have been some real sector effects, but overall it can be described as a very successful bank resolution. And, again, it wasn't before the BRD, and it's also in the spirit, but not in the letter of the BRD, in the sense that there wasn't a bail-in of 16%, and there was also taxpayer support, and there was also support from other banks. And the taxpayer support actually came in a form of still outstanding credit line from the IMF. But Greece 2015 tell us about the Eurozone banking system. Well, it shows us that the link between sovereign and banks is still there, and, of course, you can always argue that Greece is a special case, although you could also argue that, for example, you see similliard or not as heavy problems in Italy, for example. Banco popular, I think there's very little not to like about it. I think there was really almost like a textbook bank resolution. I call it therefore 1-0 for the banking union. Very well done, very swiftly, no taxpayer support. As in academic, of course, I can't just let it go like this. I have to make one observation, and that is purely national solution. It's an observation, it's not a criticism, but I'm going to come back to this in a moment. Finally, Veneto manca, banca popolare di videnza. Well, that, of course, has been heavily criticized, and rightly so, because the bail-in did not go all the way up to the 16% to avoid taxpayer support, which had to be brought in, which basically didn't go around the letter, but around the spirit of the BRD. And, of course, also tells us, and that's actually the first thing I want to point out, that the legacy problems, and Andrea mentioned these already, are still there. The legacy problem of overhang of non-performing loans and of underperforming banks. So it's not just about the NPLs, it's also about the banks. Now, of course, this kind of matches or mirrors an approach that has been seen, has been a problem in the eurozone from the very beginning, not just on the banking level, but also the fiscal level, this kind of asymmetry between creditors being made whole and debtors having to pay no matter what. We've also seen, and of course, side-process is again the most prominent example, to a certain extent, Spain, that a pure solution on the national level has not always been possible, but then has also led, for example, these two Italian banks I just mentioned, to a delay, a protection in the resolution, which, of course, has made things worse. And, of course, Andrea already mentioned the Japan crisis, which is kind of the textbook example of how to prevent addressing, how to not address pranking problems in time. Now, this has led to calls, and I think I'll leave this for the next session, to kind of address this in a more systematic way, as actually several economists have kind of pointed to that, to create some kind of asset management company, which have existed already on the national level, but also might be good for on the eurozone level, including the EBA has picked up on that. The only point I want to make is, it's not just about the NPL, it's also about the bank restructuring. Ultimately, where we want to get to is from national banking systems, where a Spanish bank is resolved with the help of another Spanish bank, or an Italian bank is resolved with the help of another Italian bank, to a eurozone banking system, where one eurozone bank maybe will be resolved with the help of another eurozone bank, not necessarily from the same country. Or when we are finally at a point, where Deutsche, Societät General or we credit are not considered anymore German, French, Italian, but eurozone banks, I think that's where we are really at a European banking system. So, enormous regulatory process, progress, I would say, but I think this is just the underpinning for what we ultimately want in form of real banking union back to the single banking market, or not back to, but create a single banking market in the eurozone. Now, a lot has been said about the banking union missing a part and I would actually say yes, that is true. There is the funding mechanism is missing, which of course comes also with this kind of illusion that people, especially politicians, have appealed to that there will be no more bailouts under no circumstances. We all know that this is not true and maybe it's also not healthy to kind of create this illusion. But ultimately, if you want to get to a eurozone level banking system, I think we do need also the final pillar in there, which is some kind of funding mechanism, which I know is being built up. The question is, is it sufficient? The question is the funding, the public backstop, which is somewhat there or it's actually sufficient or not. And of course, the ultimate question is, is it really feasible to move to a new regulatory framework without cleaning up the legacy problem first? And I think the Italian case has shown that this is not possible, because as long as you don't know where it's bailable, that actually sits. You can't really move to a system where you can easily bail them in. My last slide, and I'm coming now back to kind of a theme that I started out with when I talked about finance. Yes, we should look beyond banks and of course the capital market union agenda has been, or the idea of a capital market union has been on the agenda for quite some time. Unlike the banking union, it's actually not relying necessarily on having all the components in the place at the same time. They can come in at different points in time. And of course it's a much longer term process because it especially applies also moving towards one jurisdiction, as Andrea just pointed out, and it's also politically, of course, a very difficult part. But it's not just about public capital markets, it's also about other forms of private intermediary, such as equity funds, venture capital, funds which are also underdeveloped in Europe compared, for example, to the other side of the Atlantic. And of course in this context, FinTech is important. My take on FinTech is very easy. The proof is in the pudding, literally, as long as FinTech hasn't gone through the whole cycle until the very sweet or bitter end. I think it's too early to make a statement on that. But having said this, more competition in this context I would say is better, but of course that implies, which I think is an important lesson for regulators, a certain flexibility in terms of how to define the regulatory perimeter. And we've seen this, a lot has been written about the US, for example, money market funds which were outside in 2008 had to be brought in overnight, basically. Which, of course, something we want to avoid in this context. Thank you. Thank you very much, Thorsten. I will now give the floor to Pente. Thank you, Andrea. First, let me thank the organizers for inviting me in this panel. And I share some thoughts with you. I took up two areas. One is that the legacy problem in PLs, and the other is bank profitability. Could I have a remote controller? What I say now is proudly in line with the paper I wrote and that is in the website at your disposal and I'm not reading the paper line by line just the main points there. And you know, I learned this morning and will learn this morning what is like being between hard place and rock or rock and hard place. That is because I have prominent bankers here so I should be very careful what I say about bank profitability. Let me start with NPLs. It is very true that we ended up with high piles of non-performing exposers with banks and there when looking into this slide you may notice that the problem is spread unevenly. Very unevenly. It is not something which is affecting all markets. The weighted average of non-performing exposers is around 6%. However there are banks or countries even with non-performing ratio assets to assets about 40%. And in too many countries that is about 10%. So what does this tell you? Or tell me. First is that there are banks who have been able to manage this issue quite well and either they have been very good in managing their loan portfolios in the run up to their crisis or alternatively they have been good in cleaning up this mess. Also in troubled economies we can see that there are banks who have managed quite well. So it is not something which can blame only external factors. What is crucial to note that we are here with this problem now and we need to go forward and it is exactly what Chair said there is slow progress in this respect solving the problem and partly that is because our low incentives in the environment and low interest rate environment it is easy to keep bad assets in balance sheets or take various arrangements and there is perhaps less incentives than 20 years ago. This is a big economical concern and that is not only in general where major NPL stock is hindering good banking business prudent banking business using capacity to finance real economy but it is also on a micro level when it is banks profitability and it is also what is important and my own experience was from late 90s in central bank that time we saw that it may distract managers time from something which is more important and solutions where you create bad bank and good bank and then very clear distinction have shown that it has importance what I am saying also is that it is very important reminder that this problem is something banks own the banking industry of course it is very important that we find ways how to facilitate the problem solving and yesterday the ECB president took it up by saying that the government should be playing a role in perhaps true better insolvenci procedures and various ways to this problem solving when thinking how to solve it what is also important is perhaps to look what is the root of the current situation and I already referred to that with this diversity of problem in various countries and in various banks there are studies made, good research made that it was unavoidable in some countries I am now referring to Chingales and some other researchers and they have good arguments that it was perhaps more macroeconomic slowdown rather than irresponsible credit boom created by banks and they may say that that is not banks fault they are right to some extent personally that is not my reading having been a bank myself banking is with risks and you need to manage those and then prudent way of running banking is of course and should we then accept that public intervention will take care of cleaning the mess we will have from long term incentives and that problem easily arise I don't want to be too aggressive here I am for all those solutions initiatives which have been problem I see there is that supposing that the bank knows that having this problem with bad assets there is public authority of governments providing solution I will wait and this may slow down solving this problem and based on experience we had in Nordic countries and very severe banking crisis was that time is of essence you need to do actions swiftly it was perhaps survival of the fittest it was not the very beautiful situation early 90s but banks had to act well let me go to the profitability I know that NPLs are dealt in the next panel in detail and it simply for example will take care of complimenting what I said now relating to banks profitability it is so that that is not only NPLs but also revenue side in the normal cost of business banks need to find ways to cut costs and increase revenues I recognize that recently it has been tough situation with very tight net interest rate margin and it is leading to poor profitability in many cases now it looks improvement in terms of return on equity can be forecast it was 4.4 2 years ago last year it was 3.2 on the average on big financial institutions in euro area and they forecast that it could go up to 7.4 that is good there is a modest increase and not perhaps meeting the required return on equity but anyway good direction it will continue it is not new to be problem for banks anyway how to generate more profits and one way is in this kind of environment where you have quite tight core source of income to find some other revenues like commission and fee income then you need to cut costs and here from a bank I take up a cost income ratio which is widely used and it is revealing where we have inefficences running the bank but that is not perhaps without flaws there are three flaws in cost income ratio for bankers practicing the business one is that it doesn't take into account risk the second is that it may mistreat or treat not properly correctly investments in the future like marketing development and those issues which create cost and third is that it doesn't take into account what is the income like here we see and one German banker told me that you see the E that is Germany and the one German banker said that should I be able to transfer my business into Italy it would be twice as profitable as it is today and it is not exactly what you can see here but you can perhaps make a conclusion that in Italy net interest rate margin is bigger ok, all this said there are a lot of opportunities for bankers to improve cost efficiency and the new technology will give new tools and it is very very different compared to what we saw in 90s now for example IT systems are in use based on volumes that time it was huge investments in hardware and all that staff fixed costs now you can run a bank starting it with no investments in IT so to conclude banks must be pulled in in solving the bad asset problem and pulled in investing in the future thank you thank you plenty, hajki please my angle to this is probably actually starting to look at the challenging in cross border banking operations in Europe as you probably all have heard we have recently decided to change the domicile of Nordea from Sweden to Finland and the background for that is actually that Nordea's home market is Nordic countries Nordic looking as a whole is actually the 10th largest economy in the world Nordics however consists of four different countries which are Finland Sweden, Norway and Denmark to us this is however so if we consider Nordics as one market as there are historical and cultural reasons for understanding that actually the market environment the business climate is pretty similar in all these four Nordic countries Nordea the name actually stands for Nordic ideas and the current Nordea was actually established in 2001 when we combined all these four Nordic countries so Nordea as a bank is actually a teenager right now we have been there since 2001 and we are a bit unique in the Nordic space in that sense that we are truly pan Nordic player so we operate in one single Nordic market the historical reasons for Nordics being a one single market is actually that if you go back a few centuries actually almost all the Nordic countries in some day and age have been part of actually Sweden then there have been changes over the years and there have been sort of wars fought between the countries in Nordic spaces but all Nordic countries actually share the same culture the same values and to large extent also the same legal environment as well on a high level and that provides then sort of a stable operating environment to operate in the Nordic space but then when we look a bit deeper in the environment we actually notice that out of these four Nordic countries three out of those countries are part of European Union one out of those four countries is part of the eurozone and thereby also part of the banking union but all four Nordic countries they are actually part of the European single market and if we start with this sort of basic ideas of the European single market and understanding that all the four Nordic countries are part of the European single market it should actually not make any difference that where do we place our headquarters among these four Nordic countries that is the sort of the idealistic view where we should actually be but then actually looking at the realities of life where we actually operate we actually deal with four different Nordic countries having differing rules even among the three Nordic countries which are part of the European Union so we share the same European Union legislation but as there are also exemptions in place then in real life situations we see diverging rules affecting us in the Nordic space which we consider to be one single Nordic market the downside of that is naturally then that ok as different Nordic countries impose different type of rules to operations even in this same single market space then we expose these rules also to our operation across the borders we changed our legal structure actually in the beginning of this year to one bank structure where we have parent company in Sweden and we operate through branches in other Nordic countries we actually now aligned our legal structure with our operating model which has been in place since the establishment of Nordia in 2001 so since the beginning of Nordia we have always operated as one bank but we still had sort of differences in terms of what our legal structure was and now we have then aligned our legal structure with our operating model operating in one single market and then we actually emerge many of these issues when we noticed or actually sort of increased the problems with diverging set of rules in these different Nordic countries to us it's important that we can operate as one bank we can operate in a stable and predictable environment and we can play with the same set of rules that provide us level playing field so that we can compete against our peers in a sort of orderly fashion it's actually the end question about if you look at different rules I would actually not focus that much on what exactly are the rules I've always said that when you look at different rules that you can have lengthy debates about what should the rules look like and what is better rules and should you change something or something like that but to me the rules are like in a card game when you are playing cards it actually doesn't matter that much what are the rules you can figure out whatever rules you agree about the rules before you start to hand out the cards and each and every player understands the rules in a similar manner and each and every player plays with the same set of rules then you will have a great card game if not it will be a mess and that is actually the point that it's not that important to look at that what are actually the rules as long as all play with the same set of rules and you can, through the entire card game then expect that the rules are maintained the same if there are changes then there has to be an order process as well for that but that's not what we have seen and that then naturally led to a situation where we were forced to review that where do we place our domains and once again I repeat that that's not something that you should be forced to do when you're operating in European single market sort of the basic freedom of establishment and the single European market should allow you to sort of establish your headquarters wherever and it would not make any difference but in our case that made a difference and that was the reason why we then made the decision that we want to play with the same set of rules from our perspective let's say in the wider media it was a question about sort of selecting between Finland or Denmark as we said that when we will be moving our headquarters we will still stay within the Nordic countries naturally as that is our home market we excluded Norway due to the fact that it was not a member of the European Union so we had then Finland and Denmark left but it was actually not a decision or choice between Finland or Denmark it was actually a choice between being part of banking union or not and that made it almost like an old brainer then in the end when we are reviewing different alternatives and that's why we decided that we will change the domicile and move our headquarters to Finland what happened during the process is actually then then both the Danish and Swedish government actually also started to discuss about the potential of joining banking union as well I personally think that that is the only way to go and I would expect that actually all Nordic countries which are part of the European Union are also part of the banking union and that should be the only way to go to ensure that we have level playing field among all the Nordic countries then looking at otherwise the things that are happening in the sort of banking space otherwise probably FinTech is the word almost sort of buzz word or hype word which is commonly used which is a key part of banking in the future but to us actually looking at FinTech we get a lot of questions that are you afraid of FinTechs will FinTechs take over your business will it be a disaster for incumbent banks and all that to me it sounds like a discussion that we would have 20 years go that someone would have asked that's right now but occasionally the discussion about FinTechs sort of has similarities to that to us and me personally FinTech is not question about companies I would not talk about FinTech companies it's question about the technology FinTech financial technology and I would argue that that is part of each and every successful banks business right now as of today if not then you don't have a viable business model going for the future but it's actually question about also joining forces I would not see FinTechs FinTech companies as a threat to incumbent banks at least to us we consider FinTechs to be valuable partners to us we must find ways to join forces we are all the time exploring new technologies we are benefiting from a cooperation with several different FinTech companies there are a lot of interesting technologies lot of interesting ideas which will sooner or later be actually part of the everyday business of each and every bank on a longer term so I just embraced in FinTechs right now the challenge there as well is naturally also that a lot of FinTech companies actually now operating outside the regulated business and then again if we have a market where we have different players playing with different set of rules we end up in trouble once again and that is probably the issue I would like to address that if irrespective what is the legacy of different players in the market or what is the ownership structure or the exact business model but if we are competing in the same market with the same services we should also play with the same set of rules as well thank you Thank you very much Thank you very much Thank you for the invitation to participate in the conference I have a short presentation the drawback of speaking the last is that some of the topics have already been covered so I will go quick and focus on a few key ideas Well clearly banks in Europe are not making their cost of equity cost of equity is being relatively flat at 10% in the last 7-8 years and it's not coming down and this may be puzzling the regulators and the supervisors but the reality is that despite the banks being more capitalized and having TLAC and M-rail etc etc cost of equity is at 10% and it's not coming down and on average banks are not reaching the level I would differentiate though between larger institutions and smaller institutions smaller banks will have it increasingly difficult to compete just the issue in complying with complying with M-rail for instance a very small bank may pay up to 5 times but we have to pay for a tier 2 or obviously more than double we have to pay for an 81 so the financial cost associated with complying with regulatory requirements are going to be significantly more demanding for smaller institutions or in terms of investments just meeting all this technology or embracing of these new technologies will make it very dear for them just to give you an idea in new technologies the amount which is more than the equity of 95% of European banks every year so for a small bank to reach the amount of investment that we are making is just outright impossible one also key two key ideas here structurally we have to comply with significantly increased regulatory costs and it will take time before these requirements pass on to clients so regulators have to get used to banks not making the cost of capital for a while and I will talk about this later second I put weak credit demand factor where we are not sure the key element why banks are not making their cost of equity is very very weak credit demand and we don't know if this is structural or cyclical we just wish it cyclical and eventually we will see more credit demand but the fact is that credit demand today is very weak and we need policies that work on both the supply and the demand side of credit demand of credit sorry fintechs totally agree with what has been said so far fintechs have focused on payments, data analytics and lending obviously this forcing us to enhance customer experience cost efficiency etc very limited impact on revenues and they face three main challenges one is scalability lending has always been free anyone can start lending with no regulatory requirements but obviously if you want to grow your lending you need funding for that and in order to make it stable you need deposits and that's regulated and second the question of maturity transformation who is going to do maturity transformation key here is as heki said we all need to have the same regulatory requirements we need a level playing field to compete so that if taking the policies regulated it should be regulated for everybody and I agree completely that the way to work forward is by collaborating with these companies not competing with them for instance in our case we are investing over 2 billion euros in technology every year new technology every year consolidation in order to have a consolidated or a more integrated banking system we need consolidation in Europe these are the trends and if we judge how successful it has been it's been not very successful you see here in terms of number of transactions and in terms of the value of these transactions and the CCCB numbers how cross border M&A has been in Europe so if we judge by these it's been not very successful and it's actually getting worse why is that? Well the European banking system is very fragmented and we've talked about that and I think everybody has covered that and I totally agree that banking union is not complete and I think there is a great opportunity to advance in the integration of banking in Europe to have really a single banking market for example data like MPLs we are not really comparing apples and oranges we are comparing a country which is the US a country which is Japan and many different countries which is Europe we are not comparing a country with a country so for many many reasons advance moving forward banking systems in Europe we just heard are rinfanced and unless we break that for that we need lots of new and I move forward here we need some of the things that I say here we need to advance in integrating legally many different laws and also the banking union, capital markets union et cetera and another factor that is making it very difficult to integrate banks in Europe is ownership structure you can see here the ownership structure of European banks 40% of European banks are non privately owned they are either cooperative banks or public sector banks in terms of assets in France 55% of assets are cooperative banks or public sector banks or 50% in the Netherlands more than 50% so when we talk about integrating are we talking about two big banks merging or are we really talking about integrating banking systems also having these very significant differences in ownership structures puts additional pressure on profitability do cooperative or public banks have the same incentives as private banks to make their cost of equity I mean we've seen very low profitability in Germany, Germany has 1600 banks and many, most of them are publicly owned do they have the same incentives to reach cost of equity as the private li owned banks do so these are questions that I think are important to reflect upon regulatory uncertainty well when we talk about TILAC for instance we've had of many many different figures in terms of the amount of MRAIL TILAC instruments that are still to be issued if we look at the entire banking system in Europe we've seen figures as high as 1 trillion euros of 81 here to and senior non-preferred or holding senior debt to be issued this is a huge amount of money and the big banks will be able to meet our requirements we are another European banks are accessing the market very easily but will all banks be able to meet these requirements and at what cost well finally just some conclusions again how policies to stimulate credit growth are absolutely key we need to move forward in the banking union we need to finalize the banking union and enhance the single root book I would recommend that we continuously assess the unintended consequences of all the regulatory requirements that have been implemented in the last few years and we need a level playing field with the new entrance to preserve financial stability and protect customer needs thank you very much ok, thank you very much I think we had quite a number of issues thrown on the table let me try to maybe first have a round of discussions in the panel before opening to the floor to maybe put some questions some additional questions the first team that I perceive we have is one that Thorstein first raised but which relates to many things that emerged also in discussion which is this point of differences in the setting for exit from the market so the international life national death and the like here I am always a bit I mean this famous sentence from Mervin King although I think originally it was Tom Werthas who made it has captured a lot of attention but actually in Europe we had a lot of European funds which have been deployed via the ESM in dealing with banking crisis in Ireland for instance in Spain in Portugal this and the like nonetheless let's say we have the impression that the way in which this has been done has not been creating a common safety net and we are still there and when I hear for instance the chairman of the single resolution board Elke Kenik saying that the resolution is for the few not for the many and noting in the fact that liquidation remains basically national to our extent I wonder whether we are in a place where we still have a framework for exit from the market that is let's say the right one for a truly unified market because again in these links very much to the issue of cross-border banking because whenever you talk amongst authorities about barriers to cross-border banking the key concern of host authorities is if things go wrong the bill will be will be on my account will be my taxpayers will have to put the bill my deposit guarantee scheme will have to put the bill so how can we let's say really move to a more integrated framework for crisis management here I would like to refer to a couple of papers which I always found very interesting by Daniel Gross who showed how let's say the crisis in Canada and Puerto Rico in the U.S. have been addressed and now they've been addressed in Ireland and Greece noticing that there were a lot of similarities in the type of issue in one case more a sovereign problem Puerto Rico contaminating the banks and in another case more a banking issue that they affect in the finances of the state there is similar size but in both cases having the FDIC entering into the banks during the weekend taking control of the banks working them out selling them to banks coming from other states taking up the assets and without basically the customers noticing how can we move maybe to that setting is I think a key point and how much cross border obstacles to cross border banking should be addressed also through this channel and the point which I think was emerging which was interesting in my view is the is this issue of let's say the or maybe let me say staying on the cross border banking issue I hear and sympathize with this request from bankers to really deliver a truly homogeneous let's say set of rules really integrated framework for regulatory and supervisory framework in the union and the like here however we need to be realistic we started with for instance negotiating all the packages of legislation that we have now in place implementing the G20 reform in a pre banking union setting and we will not be we still have a number of areas in which we have different in national implementations locally there are areas which are not even banking regulations which are insolvency laws and the like so here it would be important for me to understand whether you can give us a little bit more ideas of priorities, I mean which are the areas where let's say having greater homogeneity rules would really help cross border banking, help the integration the integration of the market and finally I would say there is this large small banks point that Jose especially raised here I think we have a tension between two attitudes so on the one hand you have the point that is more and more raised in the debate that on the one hand regulatory reforms have generated a very complex environment which for smaller banks is close to unmanageable in terms of compliance costs in particular and therefore there is a strong push to move towards setting like in the US sort of 2 tier system which differentiate the requirements for large cross border banks and small local players so the proportionality debate which is very very high on the other hand let's say looking also at your discussion of ownership structures is sometimes the impression that very entrenched positions of local players non contestable in terms of ownership structures and the like generates a problem in terms of entry across borders competition and real integration in the system so which direction should we go should we crystallize these differences in regulation or should we try to move away from these differences these I think also is an interesting question let me close on the fintech point I mean the vibe that comes out from the first round of discussion is always very positive that fintech is an opportunity there are it will be a steep challenge for new entrance let's say to scale up activities to the level of banks and let's say banks can cooperate with these entities so that there is a cooperation rather than competition mode that could be maybe more important still let's say let's say what are really the challenges there will be winners and losers whenever you have a technological change there are winners and losers and so the losers here and how can we try to prepare on the possible problems that the losers will face if they don't move fast enough another point which we have not raised is the cost for instance think of cyber risk cyber risk is coming up in the list of priorities for a lot of banks many of you are starting to see in this area this will mean that cost will also come up to some extent but banks deal with information to large extent so how can we do we have an environment should we do more in this area also as policy makers to try to follow this path and to try to understand and push banks to prepare enough for the new challenges in this area so let me open the floor to those of you who want to take up some of these themes or others as you like Penti, please Thank you From Jose Antonio I will take two issues very important to distinguish what is cyclical and what is structural of analyzing bank profitability and it gives then perhaps base for draw conclusions how to go forward but that is very very important all we expect and hope that there will be a positive macro economic development but even in that case structural inefficences do not disappear and that is very good point one point which relates to fintech and perhaps also what is the role of small banks and this regulation and we had a seminar and there a young engineer gave a speech and with Bonnie Dale very new startup guy saying that I'm just wondering why bankers are complaining regulation I'm an engineer, I don't know what is banking that much but I made this startup which was bought by a Spanish bank but he made it and they were difficult criteria to met when I met all those criteria I got the entire global market for me I was treated as incumbent banks and it was like an IT platform which gives global access he was speaking for regulation perhaps along the lines when you know what the rules are then you can play cards another point which Torsden and the chair took up what is the exit from the market and how to do it and how to do it in orderly manner then we are in between two fires we need to move swiftly and then perhaps take risks and then it could cause distortions one issue what I think is that do we expect too much from authorities think that they can really manage banking business in a way they can take care of taking businesses out of the market and I think that we need to compare what is taking place in the US and what is taking place in Europe in US there is a special professional people group of those who are taking care of that as a consultant and doing it for FDIC and based on assignment so there is just the idea that whether we should leave that more in the hands of private markets that the market forces to play those two issues just as remark thanks Thank you Haike, I think I am Thorsten and then Jose Thorsten Thank you very much just a few points to follow up on the FinTech I very much like, I forgot who it actually was who mentioned that Jose Antonio Haike you have to distinguish between FinTech as a technology and FinTech as a business segment I think that is a very valid point now I also take the point that it is about collaboration not necessarily competition but I guess that you can say about everything in the financial system I mean so this whole debate on whether market or bank based systems I think we have moved beyond that we need both and they work together quite a lot I mean a banking system cannot work more the question that through the disruption of FinTech yes there will be winners and losers I don't know who they will be otherwise I probably would make a lot of money with that but winners could be one bank or maybe some other institution I mean just comparing it to a setting that I know a little bit in developing country Kenya where a telephone company actually will have FinTech revolution by offering mobile money services and I guess the other question is so there will be winners and losers it's too early to say who it is it could be one bank it could be new entrance and of course the other question is also who will be regulated to which extents will stay inside or outside the regulatory parameters on the point in regulatory requirements I guess there is always this tradeoff between having simple average ratio for example and having more complicated rules and complicated systems that kind of try to regulate according to risk and there is a tradeoff and of course many economists have pointed out that maybe it's just better to go for higher capital requirements rather than to complicate the regulatory system further and further 2000 of pages now I want to make the link in Jose Antonio's last two slides because in last slide you said requirements are burden on the penultimate slide you said well we need more merchant acquisition I think there might be a link here actually by forcing certain mergers through this process of regulatory reform on the third one the exit options that's a very good question whether there should be purely market driven or there should be actually more of an activist approach by the supervisors in terms of bank restructuring I mean that's partly the idea behind this kind of AMC the asset management company that some of us have been proposing to kind of more actively drive this bank restructuring process that we need that also can help reduce the over banking very final point I want to make is one thing is mergers, yes the other thing is in complete kind of assimilation of banking systems but I'm not sure whether we really want to go there I mean it has been in the banking literature now more and more points on diversity can also be good because if everybody is diversified exactly the same way we have a problem in the crisis because everybody is exposed to exactly the same risk so having a certain degree of diversity I think can be very helpful and I don't think it's necessarily a contradiction thanks just a few very quick comments on the fact that the popular resolution process was purely local what I would say is the process is the same for everybody the fact that Santander ended up buying popular doesn't mean that the resolution process was domestic but the process was open for everybody obviously in these processes where you intervene and in order to avoid volatility et cetera you need to react very quickly domestic institutions have an edge but the framework was common and was open for all banks not just domestic banks but it is nothing to do with the way the framework was set up in this case this is very interesting and the point which I found interesting for instance maybe Federico Signorini can confirm it is that for instance also in the Italian case what I understand is that there have been also foreign banks checking the books of the banks then eventually it was in Italian bank buying the portfolio but it was open also to foreign institutions so I also wonder whether the fact that you have more domestic consolidation is maybe natural in the first phase of the adjustment in a setting in which you have excess capacity so basically it is convenient for banks which have overlapping distribution networks maybe to buy so maybe you go through a first wave of consolidation which is mainly domestic which reduces excess capacity in the second stage which maybe you could have more cross-border as we've seen the number of cross-border M&A transactions in the last few years has been almost nil and it's interesting if you read the research that was published yesterday around the potential interest of only credit to enter into talks with commerce bank it's interesting because the reasons that we think that is possible is all the reasons that we have stated make it impossible in other words that's what the analysts say but only credits, Germany subsidiary has a 20% capital adequacy they have not been able to repatriate the capital back to Italy so one way of using that capital is to put it to work locally second one if you don't missile or having more activities in Germany relative to being perceived as an Italian bank will mean a significant drop in financial cost so the reasons that analysts seem possible trying to find the reasons around going trying to solve for these impediments that we are talking about so the fact that in resolution you find mostly domestic banks participating is because of these same problems if I buy a bank in if I am a German bank or a French bank and I buy a bank in Spain I will still have to have headquarters and everything there I am not if I have different activities in different regions in Spain I have one headquarters which are very, very small that's the way it should work in Europe that's the way it works in the US that's not the way it works today in Europe MPLs our experience we bought popular on the 7th of June and on the 7th of August exactly two months later we disposed of 30 billion of non-performing loans in the largest non-performing loan sale in Europe this is not to say that popular couldn't have done it but it is very difficult for banks which are in stress which have limited capital to dispose of these assets very quickly for us it was almost immediate for weaker banks getting rid of non-performing loans takes time takes more time finTechs but again if we end up competing in the same regulatory framework we feel fine we don't feel threatened by competitors working under the same working with the same rules so again we invest a lot we embrace new technologies we now use blockchain for many different purposes in the customer experience when they send money from Spain to Mexico for instance now after the earthquake in Mexico the fact that we had this blockchain technology is allowing donations in Spain to fly to Mexico immediately well before it would have taken a few days it would have cost much more money so clearly we are enhancing customer experience embracing these new technologies at the same time so clearly we are embracing these technologies now in terms of competitors if we all compete with the same rules we feel fine we will have to do things better they will force us to do things better competition is good and we embrace competition we like competition finally there are very you ask about things that we would recommend that we try to put as priorities everything related to banking union, single deposit insurance et cetera is das key is absolutely key there are many other different regulations mortgage laws bankruptcy laws employment laws if we are going to manage our people in Europe as we manage our people in Spain or as we manage our people in Brazil we need exactly the same rules labor rules et cetera so it is very complex but let's not put let's not put two ambitious goals in the near time for us the key is to continue working on the banking union and the three four pieces of the banking union thank you Haki before we open I agree with majority of the comments already presented but I would also raise another angle in a way that what is similar and what is not and as I said that I think that the rules should be the same irrespective of bank or country that we play with the same set of rules but at the same time we have to accept that there are also differences in terms of market environment and banks and to me if we look at the systemic issues I would say that the first line of defence for having stability in the financial system is that you have profitable banks and that is naturally not the case in a way that we have sort of evenly spread profitability across the Europe right now and then sort of there is probably worth taking a look at that what are the historical reasons or sort of cultural or whatever reasons differences in the sort of local legal frameworks and all those leading to a situation where we have such differing profitability among different banks then looking at another angle that okazely here sort of complains that why are for example the risk weights among different European banks so different and why do the Nordic banks have so low risk weight as an example but if we look at the statistics for MPLs, law losses and all that so we can see that there are huge differences so we should accept that we should have same set of rules we should have risk based metrics for capital rules for example but then accepting that there are differences in between different markets and looking at that angle as an example the discussion around Basel voice somehow sort of a bit weird in a way as we say that we have to have rules which are risk sensitive we have to have capital rules which are risk sensitive and at the same time we are saying that we want to have output clause so if and when we hopefully can trust the robust system for example reviewing the internal models through trim exercises and all these so why would we then need output clause it's sort of saying that as we don't trust that the system works then we have to have some other measures so I would advocate that we have level playing field same set of rules but we also understand that there are differences and then work with those ok thank you very much so I see already hands raising in the floor