Good afternoon, I'm Sylvia Maro, correspondent at CNBC, and I would like to welcome you to this panel on the future of European banking. We will be discussing next steps to further integration, and in order to do that, I'm very pleased to say that I have with me four very special guests. They are Jean-Pierre Moustier, operating partner and sponsor at Pegasus Europe, David Livingstone, CEO for Europe, Middle East and Africa at Citi, Jose Manuel Campe, Chair of the European Banking Authority, and John Berrigan, Director General for Financial Services, Financial Stability and Capital Markets Union at the European Commission. Thank you all for joining us today. Now I would like to start our conversation by looking at one of the most controversial subjects in the banking union, and that is a European deposit insurance scheme, or it is. We're actually running a poll on this subject, and I will be focusing on that in a moment. But for now, I would like to start with you, John, and asking you if you think that now would be a good moment to revisit the proposal that the Commission made back in 2015 for a European deposit insurance scheme? Yes, now would be a good moment. I think there have been many good moments in the past, so this is just the latest good moment to look at this, because as I think we have made clear up on the Commission side that we see this as a missing part of the banking union architecture, an important missing part, which influences the effectiveness of the other two parts. So we're very happy to have this SSM in place, we're very happy to have the SRM in place, but without this last part, we don't think the banking union is going to function efficiently. Why do I say that? Well, I think it's for two reasons, one, there's a sort of principle reason that if you are presenting the banking union as a single jurisdiction, then all depositors should be equally protected across that jurisdiction, and the way you do that is through having a European deposit insurance scheme. The second is one of more efficiency, it's about aligning incentives within the system. We have collectivized the way in which decisions are made at supervisory level and in the need at resolution level, but we have not yet collectivized how we manage the costs of those decisions, and that can create certain, how do I say, intentions within the incentive structures of the banking union as a whole. So I think it is a good moment to do it. When you say revisit, I guess you're asking me whether I think the same proposal should be put on the table again. Well, we liked our proposal, we still like our proposal, we still think that the full loss sharing model is the one that should be in place, but we recognize that there are other views around the table and that there is more consensus around the liquidity based model as at least a fourth step. So in 2017, which is about two years after we launched the first proposal, we pretty much accepted that we might move towards this hybrid model of a liquidity first followed later by a loss sharing model. For us, it will be suboptimal, but okay, if this is the way the consensus is, we are more than happy to push that route. But we do need to make some progress here on the deposit insurance scheme, because as I said, it is the missing piece. And it sort of completes the architecture and makes sure that all parts of the architecture work optimally. So in short, yes, this is a very good moment to revisit it. And actually when we compared 2015 with Europe now, one of the big changes is, of course, the next generation EU funds. And when this decision was made back in 2020, it was described as a historic step for the block. So I would like to ask you, Jose, whether do you think that big decision that the block took in 2020 and these funds are a sign that the block, in particular the Euro area, is ready to have new talks on a European deposit insurance scheme? Well, good afternoon, first of all, to everybody. Thank you for inviting me. I think that the next generation EU is clearly a sign that Europe is ready to make bold steps to move towards the European project. That's why I very much share Sean's view. And now it's a very good time to revise this opportunity to do this as part of that European project going forward. Now, I think that one of the key components to allocate European funds across the European market is to have efficient European level financial sector intermediaries, both banks and markets. And the banking is one of the key components on that because it facilitates cross-border integration of European financials through banks. And as Sean said, I think it's important to keep in mind that until we've finished edits, we can't really say that the other two pillars are working to their potential. And it's important that we continue to have the full conclusion of the banking union so that we can really have a full implementation of the possibility, and particularly the degree of cross-border banking within the Union, particularly within the Eurozone, remains lower. I think that we all anticipate it will be in 2013 when the Union, when the banking union got started. And I think it's important that we reflect on that fact ages later and we continue to push to finance the money so we can have more private re-sharing. Right, you mentioned there how important the next generation EU funds. But back in 2020, the difference there was the fact that there was political willingness to take that, as you described, bold step. Do you think, Jose, that right now there is a similar level of political urgency to also address the fact that the banking union is not completed? Well, we'll see. I mean, it's clearly we're in a moment in which it's transitory in a number of countries. We have an entering government in Germany. We have elections coming up in France. Those are two very big countries in this process. But at the same time, we have a commitment from the president of the Eurogroup to try to continue to pursue this agenda. So I think it's important that he wants to pursue the agenda. He may not be immediate, but at least we should make sure that we keep it at the top of the list so that when the consensus or as you said, the momentum and the political momentum is there, it takes place and it's implemented as soon as possible. Right, let me turn to you, David. And given your background at Citi, I was just wondering whether do you think a European deposit insurance scheme could actually help the work of non-European banks in the euro area? I think it, of course, can. I mean, primarily, Edith is directed at retail banking and within the union and for European banks competing from outside the euro zone or outside the union in retail banking is difficult, particularly across border. So I think it is primarily the benefit of Edith will be for European competitive institutions. But I do want to pick up on just a couple of points that Sean and Jose have made. One being your question around the model and whether the model of Edith should be a full-loss or liquidity-based model. It's worth remembering that the US Federal Deposit Insurance scheme took 50 years and 150 different proposals before it was successful. So I don't think we need to be too negative about the need to have a debate and some time to reach the conclusion. But I also think that Jose made an important point, which is that for the financial sector broadly, the combination of banking reform and markets reform and further integration is really those happening together will be really the test of whether there'll be full delivery of further integration within financial services in Europe and particularly in the euro zone. Right. And I would like to hear from you as well, Jean-Pierre, on this one, because obviously with Pegasus Europe being the biggest spike in the continent focused on financial services, how do you see a European deposit insurance scheme? Do you think there is any sort of merit in the idea also for your business? The short answer is no. Let me take a slightly provocative approach here. I fully understand and agree with John's argument to say it would be good to have a deposit scheme which could be the same for all European citizens. That's a point. Would that help in terms of cross-border integration on the banking side? I don't think so. I think the political cost of having a European deposit insurance scheme is going to be high. It might take still many, many years. And if we want to look at what could be helping in terms of cross-border integration, that should not be the first point to deal with. So nice to have probably a very unlikely to happen in the short term. So we can look at other actions that the ECB has taken in order to support more integration, which can bring a European banking sector which will look like European. And I think one of the very important points and the difference between Europe and the US is that when you speak to investors, they look at Europe as the sum of countries. An investor will speak to you and will tell you I'm investing in US banks, but he will not tell you I'm investing in European banks. He will tell you I'm investing in a German bank, a French bank, an Italian bank. And so we need probably to have more regulation, and the ECB is here for that, to have a more uniform banking sector. So that investors when they invest in bank know what they invest about, and they can see that a bank in a country is looking exactly at the same in another country. It is good help, but there are many other things to do in order to have a true European banking sector. I'm glad you raised the differences there between the United States and the Euro area. And I'll focus on that in a moment. But for now, let me just share some thoughts from our audience on a European deposit insurance scheme. We have been asking the participants to answer the following poll. We ask them, is it is a reality within five years? The possible answers were yes, no, and if there is another financial crisis in Europe. So let's have a look at the results. And I have to say that 42% of our participants said, no, that it is will not be a reality within five years. And that is really the majority of the answers. And then very close to that, 30% of participants said that there will be a needless if there is another financial crisis. David, what do you make of these results? Are you surprised that not many people are expecting a European deposit insurance scheme in the near future? Frankly, no. I mean, if we think about some of the expectations and pace of some of the reforms, generally around the banking union and also capital markets union, I think your audience is being probably realistic. That doesn't fundamentally change, though, whether it's a positive step for overall banking integration. So I'm not surprised by that. On the second bit on the financial crisis, it depends. We sometimes look in the rear view mirror at the last financial crisis rather than the headlights of what could cause the next. And no one really anticipated the pandemic would cause a health crisis leading to an economic crisis that didn't create a financial crisis in part because of the steps taken after the financial crisis in 2008 in the banking system, supported by new supervision and regulation is certainly sounder than it was then. So, but I don't really see myself that a financial crisis is needed to trigger progress on EDIs. What about you, Jean-Pierre? What do you make of these results? And indeed, perhaps if there's another financial crisis, we will see a European deposit insurance scheme. Well, I think that we have to look at what happened during the COVID crisis, which has been a catastrophe from a health point of view, but has been extremely well-handled on one side by the regulator, on the other side by the government specifically. And the combination of having a stronger banking sector thanks to the actions taken by the ECB in the previous years, specific actions were taken which way, not creating unanimity to set the list within banks in terms of postponement of dividends, which was as much a political issue than a proper regulatory issue in terms of capital. Action of the ECB to provide temporary relief on some of the regulatory constraints and the government actions for the guaranteed loans to support the economy were absolutely tremendous and something we would not have been able to expect. So I think when you look at this answer to the crisis and you put against that EDIs, you can see that EDIs would not by itself have been able to solve the COVID crisis. And that the government and the ECB have been super proactive and extremely brilliant about dealing with that. This is why I think the focus should move from EDIs towards more regulations so that European banks are much more similar in terms of the way they are dealt with, so which means more ECB and maybe less domestic central banks and to have as well a way to encourage a little bit more cross-border integration. The ECB has been doing that as well in a certain number of instances in terms of recognition of bad will in terms of temporary relief on models, et cetera, which are probably more important for us to move forward. Right, and often we talk about the risks of not completing the banking union to financial stability. But what we witnessed in the wake of the coronavirus was actually the system worked pretty well. So do you think, John, that perhaps there's a scenario where the euro area, the financial services in the euro area can actually flourish even though the banking union is not completed? Well, I think it's important to distinguish between two types of crisis. I mean, the COVID crisis and the financial crisis that proceeded in 10 years were very different things. I mean, the COVID crisis was a symmetrical shock to the economy, which did not involve the financial sector directly. And in fact, the story of that crisis was that the financial sector and the banking sector, in particular, were part of the solution this time and not part of the problem. So that's the story we tell. But let's go back to the previous crisis, 10 years earlier, which was a crisis which emanated from within the financial sector. And that's what banking union is about. It's about preventing and managing that kind of crisis more effectively. So I would not draw too many lessons from what we just had in COVID for what might be a future financial-centric crisis coming forward. Just to remove any doubt, I do not believe that EDIS is the silver bullet to a cross-border banking system in the EU. EDIS is part of a much broader series of steps which we have to work on. And Jean-Pierre raises some of those. But what I will say to Jean-Pierre is that if he wants to make progress on these other areas, we will have to make progress on EDIS as well. This is just the reality. The poll is interesting for me because it's a difficult moment. We're in a sort of bad equilibrium at the moment where everybody's stuck around the banking union and everybody is focusing on the costs of moving forward and not at all on the costs of not moving forward. Now, if you focus on the costs of not moving forward, then the second answer to your question, the one that says we have to wait for a crisis. Why will we always have to wait for a crisis to make steps forward? Why is every step forward in institutional architecture only at the expense of huge damage to the actual banking system itself? So it seems to me this idea that Europe can only step forward and we must wait for the next crisis and before we make steps forward in institutional arrangements is pretty wrong-headed in fact. Because if you think of what the banking union, we got part of the banking union because of the crisis, but actually we lost the integrated banking system in that crisis. So now we have the architectural for an integrated banking system, but we don't have the integrated system itself. So this idea that we should just sit here and do nothing while we wait for the crisis and then when the crisis comes, we'll make great steps forward. It's a little bit inefficient for me as a way to make progress. So I think we need to focus much more in advance on the costs of not moving forward. And the cost of not moving forward is that we will not manage the next crisis as efficiently and effectively as we should. Right, but let me challenge you on that point for a little bit because history does suggest that the European Union tends to take bold actions in times of crisis. You mentioned of course the costs of not moving forward on this front, but do you think that the heads of state and finance ministers recognize the urgency in moving in this space? I think the reality probably is at this stage, no. I think that that is why we're having, as I said, a debate which focuses much more on the costs of moving forward and not enough on the cost of not moving forward. I suppose it's the job of people like myself and Jose Manuel and I'm indeed Jean-Pierre and David to make the case the other way around so that people do in fact understand that getting these institutional changes in place ahead of the crisis is in fact the logical and efficient way to go forward and not to wait till the sort of the horse has bolted before you put in place the defense mechanisms. Right, on that point, let's focus now on the current landscape in the banking system because we did see quite a lot of action in the wake of the virus from regulators, from central banks and so on to of course mitigate the shock. But do you think Jose, how essentially has COVID impacted integration? Do you think that the pandemic has perhaps delayed that process? Well, it's important as Jean just saying, I think it's important to highlight that over the last eight years we have built the institutional infrastructure for a banking union, while at the same time we have observed that the banking sector remains more fragmented than it was at the beginning of this process. And that's a challenge for us. I think the COVID crisis has helped in the restructuring of the sector in some ways. Banks continue to enhance their operations to reduce their cost base with some consolidation at the same time. But that consolidation again continues to be primarily around domestic lines in the specific countries and there's relatively little, not just cross-border consolidation, but in increments on cross-border activity. And that's an area of concern for us as we go forward. I think that the crisis itself has not really helped the banks deal with any of their long-term structural challenges that they were confronting. And particularly in Europe I will highlight too, this means mainly relatively low profitability, the return on equity of the banks in Europe has been low, particularly what compared to the US counterparts, which was highlighted before as well. And the second aspect is the need to do a significant technological transformation due to changes in technology. At the end, banks is an intermediation industry and intermediates in the financial sector. And like most intermediation industries in other sectors of the economy is being very affected by technology. And the banks need to invest in that technology, they need to transform themselves, be ready to compete with new competitors that may be bringing that technology into the banking sector. And that's a challenge that they need to confront. In that part, I think actually COVID has accelerated the pressure to do that on the banks, and the central part has increased the bank's plans to move in that direction, which is a good step forward. So just to clarify, would you say that the pandemic has actually boosted the argument for more integration? Oh, I think for sure that the pandemic has boosted the argument for enhanced adjustment of the production of banks, particularly the area of the technological transformation. And that usually applies more integration because it requires big investments, big economies of scale and size. There is an important component. So I think that has accelerated the part of the integration. But unfortunately, as I said, what we have seen so far has been primarily at the domestic level.  Do you think that cross-border institutions have the ability to transfer sufficient resources in times of crisis like this one? It can depend on structure, of course, and particularly subsidization versus a branch network. And I think, but I think the ECB and EBA have been very clear about the encouragement for European institutions to use that ability to have a branch network throughout member states and to move to that, recognizing that that's not easy if you're in a different structure today. So that does allow for greater flexibility of liquidity movement and so on. But I think it's worth reminding that it's not just on the basis of liquidity that banks either compete or respond to a stress period. So just going back to what Jose was saying, that if you think about what banks are dealing with in Europe, even pre-the crisis, they're dealing with negative interest rates, they're dealing with low valuations in the public equity markets of below book value. They're dealing, as Jose said, with huge digital disruption in their core activities. So those are the issues that they're going to put at the top of the list and say, does cross-border integration help or harm that? And for a number of reasons, you could say that from an execution risk point of view, that's not what I want to do right now if you're running a bank and say, actually, I want to focus on these other things. And in an environment where, certainly coronavirus, the pandemic, led to massive liquidity increases in banks. And indeed, that's one of the challenges, the challenges on the asset side of balance sheets at the moment and finding growth. And that ultimately comes back to the investability of a bank. So yes, integration and going cross-border to compete might be helpful. It might be good integration from a cost-saving point of view, but it's not always going to be the case that that cross-border integration is going to solve some of those fundamental problems that the banks are exposed to. Let me just make a side note here to tell our audience that if they have any questions to send them over, because I will be opening the floor to questions a little bit later. But let me go back to that point of low profitability. John, in what ways could the integration help with some of the challenges that the banking system faces at this point in time? Well, like again, I mean, we have to be careful that we don't sort of start looking for silver bullets all over the place here. I mean, there's a lot of work has to be done in very many areas of the banking system, but in integration, we believe, I think Jose Manuel also will say, is part of the solution. It is not the only solution, but it's part of the solution because integration can allow, as Jose Manuel said, a scalability, okay? It gives the banking system scale. It gives us a broader domestic market, a more accessible domestic market, and that allows certain deficiency gains. You know, the standard economies of scale, economies of scope discussion that I've been having since 25 years in the commission. I think in particular today, what we're finding is that in the new credential environment where banks are holding, of course, a lot more capital than they used to hold in the past, the management of that capital and the management of liquidity across border is quite complicated in the European Union. And this is complicated because of a legacy of the crisis itself, which has resulted in this famous home host discussion where we have a problem, let's say, in efficiently organizing capital across groups when they also have to cross jurisdictional boundaries. So if we can get somehow an arrangement whereby capital can be managed more efficiently from the center, liquidity can be managed more efficiently from the center, while at the same time, reassuring those host member states to those banks that in times of difficulty, they will not somehow be left behind, then that will also be another way of developing their efficiency. So I think in these two ways, through sort of kind of operational efficiency and then this economies and scale and scope, this is how integration can help. Is this a magic sort of solution? No, but it would be an important contribution, I think, to making the European banking system more investable, while of course, other structural reforms will also be required. And of course, they will have to address the digitalization challenge, the climate risk challenge. So things which are not necessarily directly linked to integration, but integration I think would be a useful assistance in managing these broader reform challenges. Right, actually I would like to focus now on some of the points that Jean-Pierre essentially highlighted earlier in the session between United States and the Euro area. And so I would kindly ask our technical team to show a chart that our colleagues at the ECB put together for us very kindly of them. And essentially the chart, which I hope you can see on your screen, highlights the total number of assets and credit institutions in the Euro area and in the United States between 2008 and 2020. And it shows very clearly that the US managed to consolidate while also increasing total number of assets. But that was not the case in the Euro area. So Jean-Pierre, are you surprised by that? And essentially, how did the US manage to make consolidation work? I think that the big difference between the US and Europe is that the US is a truly single market while Europe is not. There is a fragmentation, natural fragmentation in Europe is to address a client in Italy or in Germany, retail and corporate. You need to have a very, very specific offer and a very, very specific environment. While in the US, you have the same language, you have almost all the same rules from a tax, a fiscal point of view, accounting point of view, et cetera. So I think that naturally in Europe, the single market could work partly on the trade side but does not work on the banking side per se. Which means that for European banks, it's more difficult to get critical size because the critical size need to be done in market but cannot be done on a cross-border basis with very, very little synergies. And to go back to what was said, I think COVID has been a wake-up call for everybody in terms of our clients are going digital, our branches are closed, they are not coming there. How can we accelerate the transformation? And so European bank have to accelerate their transformation, which means more simplification of process, digitalization, basically automation, but they rely on smaller market, which each have to have a specific solution while the US has a big market where your break-even cost might be much lower. And so I think we are at a structural competitive disadvantage in Europe, not to say that we cannot overcome that, but we have to be mindful of that. And clearly, we need to accelerate the transformation. I can see that moving from the banking sector to being a spark and investing in those companies and looking at a new business model, the transformation of the banking sector is much more important than the integration. When you have a minimal critical size in the country, you need to hurry up massively in order to find efficiencies, better quality of the service of clients and cost efficiencies. All right, so you've highlighted there some of the structural challenges. So David, what other points would you I highlight between the differences of operating in the Euro area vis-à-vis the United States? So your chart is interesting, but it does hide a couple of points. Firstly, that consolidation in itself isn't, as Sean said, it isn't the silver bullet to everything. And the more important dimension there was asset growth. And that's clearly linked to economic growth over that period as well. And the U.S. experienced higher growth in that period. But outside of the banking system, it was also the development in the U.S. and I think it probably even more starkly different of the depth of wholesale and capital markets which went alongside that period of asset growth in the U.S. banking system. So the positive reinforcement of both banking, bank balance sheet assets, as well as the depths of funding markets available to participants in the economy, I think would really be the measure of distinctive strength of the U.S. in that period relative to the EU. And that's why going back to an earlier comment, that as we progress on further integration, banking union and so on in the EU is not to forget the benefit that will come to the EU and the Eurozone from continuing the reform in capital markets. So today, three quarters of funding of debt lending is on bank balance sheets. And that's a structural over-reliance on bank balance sheets. The other point about the U.S. is worth remembering. In retail banking, the U.S. remains a very fragmented and locally based. There are national banks, of course, but there are, as your chart shows, hundreds of thousands of local well-supported operating banks. So integrated European banks don't have to come at the expense, maybe, of continued member state banks. But it really sets the objectives, it seems to be that both of those would continue in a future construct within Europe. So what would be your advice, David, to European authorities? What should they do? Well, I think they're doing what they're doing, but recognizing that, as I said, that they could continue to reform in both elements of the wholesale and the banking markets will really be of benefit to be positive reinforcement together and don't let one go behind. But also, and I think Sean hinted a little bit at this as well, which is that don't lose sight of domestic reforms within member states that can also facilitate ultimate European integration and keeping making progress on those points of harmonization. And the private markets will take the opportunities as they arrive against those frameworks, which are undoubtedly more positive and encouraging over time. Jose, what do you make of this advice? No, I think, first of all, I take it very seriously and I concur with most of what has been said. You know, I think that the chart is very informative in highlighting also that the banking sector in Europe was bigger than in the U.S. in 2008 and it remains bigger today, which indicates, as David was saying, that there is much more reliance on banks as a form of intermediation in Europe and that's becoming relatively smaller than it was the difference in 2020 that was in 2008. Part of that was intended consequences from the crisis, from the crisis, you know, part of the reforms that were put after 2008 were actually to decrease some of the large balance sheets on some activities that the banks had that proven not to be prudent. But as we go forward, I think we need to work on building that re-establishment of the two pillars and I'm not talking about banking union, well, three pillars of banking union, talking about the pillar of the banking union and the pillar of the capital markets union and make sure that we're able to develop really fully functional financial markets that can complement each other. You know, and I think that chart to me shows on the U.S. part of you, the growth of capital markets and active capital markets are clearly complementary and do not come at the cost of growth of banking activity. On the contrary, they support each other and that's very important as we go forward. So I think that's one part of the agenda that goes beyond banks, but it's important to continue and I know the commission is working hard on this and we need to continue to pursue that part. On the banks, I would say that the second thing that the chart highlights clearly is that the trend towards consolidation or less number of banks is common. It's not European-specific. It's really driven by more drivers that are prevalent both in the U.S. and in Europe. I think, again, here technology plays a major role. And I just would like to highlight that one point that David said, which I think is important. You know, further consolidation on husband does not necessarily mean that it should not be a large presence of different banks and different business models within the European Union. That's really who exists. It just means that at least at what top level we need to make sure there's adequate private resharing and the ability to transfer funds across the Union effectively so as to seek investment opportunities in any part of the banking union that arise regardless of what the savings are taking place. There's like a room for that. That needs to be further developed. Right, so John, perhaps you could highlight a little bit the focus of your work at the moment and whether the commission has these structural challenges in mind when preparing new proposals. Well, let me start with this issue of the Capital Markets Union. I mean, I think I agree with what David and Jose Manuel said and what Jean-Pierre said. I mean, they are complements. We've always presented them as complements. I think they've not always been seen as complements in some of the member states. Some see this as a sort of zero-sum game. We do not. And the US is a good example of where a very vibrant banking system and a very vibrant Capital Market can coexist. So we need to get this point across more clearly and we are trying to do that. In terms of the challenges we are addressing in banking, we have just completed the last part of the Basel reforms, which is the last part of the kind of post great financial crisis reforms. And I think that brings to an end this particular chapter, which is the sort of recovery from the global financial crisis. Looking forward now, we're gonna have to start focusing on some of these. And I think to be fair, analysts in the market have already moved on to focusing on some of these broader and bigger challenges to the banking system, coming from externally, from issues like climate risk, but also the digitalization challenge, but also internally where regulation can help, but it's not the main driver in terms of operational efficiency, cost structures, et cetera, of banks, which I think are a reform agenda, which the banks themselves have to undertake. But in these other areas on the outside, like climate and digitalization, in the legislation we are putting forward, and these don't only apply to banks, of course. These are these are better challenges to the system as a whole and to the economy as a whole. We are trying as far as possible in our legislation to prepare the banking system for the climate risks. So on our side, we are trying to in-build into our legislation ESG factors, allowing the supervisors to ensure that the banks take those factors equally into account. On the digital side, anything we do always takes account of how the banks will interact with digital challenges. But I don't think in terms, and I want to be clear here that there are some challenges inside the banking system, which I think only the banking system itself can address, and that relates to the operational structures, the cost structures, et cetera, where the banks themselves will have to take charge. And we will do what we can in legislation to facilitate a vibrant functioning banking system going forward, but I don't want to give the impression that the solution to all the problems in the banks are going to be delivered to the regulatory or supervisory field. Of course, but it does have an impact. And actually one of the main obstacles that people mentioned when looking at the banking sector in Europe is the fact that it is difficult to see cross-border mergers. What do you think can be done on that front, John? How can the commission essentially support more cross-border mergers if banks decide to go down that path? From the commission's point of view, I mean, this would have to be done through the legislation, we propose. And of course we are trying to reflect the banking union in our legislation. So we have tried in the past to address this home host issue, as I mentioned before, by somehow recognizing the banking union, albeit incomplete, but recognizing in the legislation by allowing, to some extent, the centralization of capital management and the centralization of liquidity management at the parent of a group, of cross-border groups, helping, therefore, making it more attractive, therefore, for banks to become cross-border. I have to say those efforts have not been always being successful. The member states in the final decision have decided not to take those offers, those suggestions on board. We will continue to try to reflect the banking union as far as possible in the proposals that we put forward, try to reflect the banking union as a single jurisdiction in the legislation we put forward. But I have to be honest, this ultimately is a decision to be taken by the co-legislators. And at the moment, these suggestions we're making are not being taken up. And I think that is an issue. And I think legislation does need to be made more cross-border banking-friendly. Let me turn to you, Jose, on that point. And what do you think the ECB, as a supervisor, can actually do to support more consolidation in the block? Well, I think that the ECB has to work with the greater environment that we have, right? And Sean just clearly indicated to us that the difficulties in making that as friendly as it could be to facilitate the consolidation of capital and free movement of liquidity. But the ECB itself can try to encourage groups to work within the regulation to do that. And there's been significant moves that have been put forward this year. Earlier on, they put us some guidance on how they view MNAs, projects going forward, particularly cross-border ones. Andrea has also made some important statements about how he saw the banks could engage more cross-border by either having contractual arrangements within the subsidiary framework to try to provide sufficient confidence to host regulators of the subsidiary that support would be there from the parent if needed or when needed. Also, he also highlighted the possibility that the branch network, and David made a reference to this earlier on, also has for facilitating the central management of capital and liquidity within the union, those are steps that come before forward. I think as the SSM becomes more and more established as the single regulator for the larger banks and that's really respected, accepted by now in the financial sector, it'll become more and more obvious that they will have the ability to fully assess a group, how they operate within the banking union, and that will facilitate that cross-border activity. So I think of the day-to-day implementation of their supervisor practices, it's important that they need to signal that cross-border activity will at least not be penalized, but on the contrary, if it makes sense from the sustainability and from the business model point of view of the bank, it should be pursued and encouraged. Right, I would like to focus now on some of the challenges that will essentially pave the way for the future of the banking sector in Europe. But before I get to that, I just want to share one question that we've received so far from our audience and please send more over if you have questions to our panelists. This one is from Jesper Berg and he asks, isn't the probability very low that a deposit guarantee fund will ever have to make a payment given the depositor preference in the BRRD? Jose, perhaps you want to take that one. Sure, I have to do that. I fully share Jesper's point of view. It's probably likely that the deposit guarantee fund will not be used in nothing else. So we also have built this second pillar on resolution, right? One of the key features of that pillar on resolution is that for the large systemic banks, particularly will be resolution and no tax budget money will be involved in this being built up of additional capital requirements. So it is true that the likelihood of usage may become lower over time of the deposit guarantee funds, but at the same time, it's not a question I think, and here Shion can help as well, but it's not a question of how likely is it going to be used, but how palatable is for national authorities to accept that there could be some mutualization of that potential use if it were to be taken going forward. So I think it's the fear of that mutualization that is deterring more active movement in progressing towards a single deposit insurance. Actually, I do have a question on that as well because the problem with a European deposit insurance scheme is this difference of opinion within the block. We have this North-South divide essentially. So how can the European Union square those differences, John? Well, I think they can square them by pointing out that they're not there. In fact, the European deposit insurance scheme is not designed for one part of the European Union. It is designed to cover all depositors in all parts of the banking union. So that's the main thing is to simply deny that this difference exists. Okay, this is not, no one is creating a European deposit insurance scheme to help one part of the banking union. It is there for all of the banking union. And of course, we all know how deposit insurance works. Deposit insurance work, it doesn't work that it covers the entire deposit base. It covers the marginal depository. It is there to instill confidence in the system. You hope you never do have to use it. You hope that the system is so confident, that so confidence building that you don't actually have to use it. But the fact that it's there is what, this is the paradox, the fact that you have it is what makes it never necessary to use it, which you must have it there. And as for the deposit or hierarchy, of course, in resolution we have depositors very much the top of the hierarchy and in liquidation it's also there, but that doesn't mean you don't pay out. So the deposit insurance doesn't take losses, but the deposit insurance has to pay out after so many days. The insolvency can take months, can take years. So you still need liquidity in the system. So what I think Jesper is saying is that the deposit system will never take losses. I agree. I think it's very unlikely the deposit will ever take losses. But we have a requirement under the law to pay out within seven days. It's rare and insolvency is completed in seven days, I can tell you. So that payout is still needed. And of course, if you want to use it for non-payout functions in some parts of the union, that also has to be there. So the depositor hierarchy protects the depositor insurance scheme from losses, but does not protect it from the need to pay out the liquidity part. And that's one of the reasons why from the commission point of view, we are willing to say, okay, we will split this idea into a liquidity plus a loss sharing because we know that the most important function of a deposit insurance is that liquidity phase. And therefore that has to be in place. So I think my answer to your question is there is no difference. It's there for all depositors, but it needs to be there to give confidence to all depositors north and south. Thanks. All right, so let's switch gears now and focus essentially on some of the consumer trends that we have witnessed in the wake of the coronavirus because they have supported indeed the rise of digital finance. And so this is definitely going to be one of the main themes for banks in the block as well as we move forward. And so I would like to ask you, Jean-Pierre, whether do you think that as digital finance develops even further, these talks on further integration will ultimately become obsolete? I think that for banks in Europe, the priority if you have a decent critical size in your reference market is not to integrate further but to transform and think David mentioned that as well. So the transformation of banks is something which is extremely complex. When you start from your legacy system because you have to review your process, you have to simplify them, then you have to automatize and then digitalize. So digital finance is something where the banks are going to compete against a certain number of alternative proposal coming from FinTech. But banks can actually partner with FinTech and in the development and our search for business combination, we have seen an extremely interesting business model where actually banks can use on a white label basis a certain number of FinTechs which can offer very good services on the wealth tech side, on the insure tech side, on the payment side, which give them immediately a product for an API which can be offered to their client which is extremely easy to connect to their system. We'll allow them to have a much better consumer experience a much lower cost and an ability to transform much more quickly. So I think we need to look at alternative way to accelerate this transformation which can be a collaboration between a certain number of partners. And we can have as well more collaboration with banks on something which is linked for instance to the regulatory side on KYC, AML where banks can pull together their resources in order to deal with a problem which requires critical size and a sharing of expertise. So that's the priority. We need to be a bit innovative about the way we apply this new business model. Right, David, do you think that banks are ready to be innovative and the joint forces with FinTech to develop their digital finance offerings? So I firstly absolutely agree with what Jean-Pierre said in terms of how the landscape continues to evolve that banks are not just standing still waiting for the next FinTech to say here's where we're going to disrupt your business model and that's been the case for a long period. Some of the best innovations in payments and cross-border payments now have come from the banking system but there's no doubt that competition from FinTech is there and it's good but it has moved more towards the partnership model where particularly at the boundaries of the regulated and unregulated system that banks have the benefit of knowing how to operate and navigate and have a positive business model inside the regulated system. And Jean-Pierre mentioned AML and KYC which is an area where there is still today sort of perhaps differential treatment between the regulated and unregulated system and we must remind ourselves that ultimately good AML and KYC procedures are for the benefit of the entire system but the burden does at the moment fall more on the regulated system to keep that in place. So I think that overall banks are ready and capable of transforming but as Jean-Pierre said it is fundamental work based on upgrading of legacy systems and getting processes to match the client experience. But the great thing about the outcome of the response of the pandemic is that clients retail and wholesale are now very used to digital system, digital delivery and all of that. If there was reticence that has dropped and so banks can be confident that their customers will want and respond to these digital capability and system being presented to them. Right, we have received another question from our audience so let me share that when we view as well. This one is from Isabella Bufaci I hope I'm pronouncing that correctly. And the question is given that many European firms are global players, what can EU regulators and legislators do to help Europe's biggest banks become truly global players so that EU banks can globally compete with US giant investment banks and prepare for the arrival of Chinese giants in Europe. Jean-Pierre. That a level playing field will be important. So banks have looked at for instance at a new regulation which could be seen as impacting more negatively European banks versus US bank for instance or level playing field making sure that when non-European banks come to Europe they don't benefit from a new advantage and if they reach a proper critical size it will be regulated in the same way. But for a large extent the regulator should do nothing. It's for the banks to act and for the banks to move. I think the ECB has done tremendously when during the crisis is helping bank in a very pragmatic way. So it's for the bank to get their business model and define where they want to compete. Would the European bank compete against US banks or Asian banks in their own turf in the US and in Asia which kind of competitive advantage do they have? Very little except maybe to bring this client in US and Asia into Europe. So I think European banks need to find their battles basically need to move and need to use their competitive advantage and need to develop and the regulator from my point of view has done what is needed. Basically it's we need more regulation but that's for me very, very clear and less directive to have a more uniform system and to help the banks move forward. What about you, Jose? What do you think could be done in this space? Well, I very much agree with what Jean-Pierre just said and from our perspective I think keeping to global standards in regulation. You know, globally green turn assist standards and Shah mentioned before the implementation of Basel 3 you know, we're supportive obviously of the commission's proposal and we think that's going the right direction precisely because this is one of the key features that allows level playing field in regulation across the world so that then banks can find their own strategies in their own ways to compete in the different markets. So for us, you know, continue to maintain that homogeneity in the application of regulations across the world that apply for large banks particularly is fundamental and this in the context of pressure regulation as the Basel agreements in the context of the new areas in which we're going forward we need to work on that area whether it will be on the ESG front on trying to identify regulation taxonomy there or whether it's in some of the new technologies coming into place that are coming into the financial sector you know, like crypto assets and the MECA proposal that's been put forward by the commission. I think there is important that we continue to keep clarity that a level playing field for regulation but in implementation of global standards and for us to work with the other regulatory agencies of the major financial countries around the world you know, to maintain and upgrade those global standards but maintaining the level playing field is the key role we can play. What about you, John, from the commission side what do you think can be done to make European banks truly global players? Well, I think you have to remember what we're doing here I mean we are providing a framework this is not an exercise and sort of industrial policy on our part so I think what we can do is structure the regulatory framework in such a way and this is repeating what many have said before in order to reduce fragmentation and give scale in the domestic market so to create the European Union ultimately and the European area within the banking union context as the domestic market because what is different I think from some of our players and from US players and Chinese players is that they come with this big domestic market behind them and ours don't. However, is this, here I agree with Jean-Pierre is this what makes big players? No, this is a framework this allows big players to emerge if they wish to emerge, if they can emerge so it's not my job it's not Jose Manuel's job I think to create global players our job is to create a framework which as Jean-Pierre said ensures a level playing field ensures a less fragmented domestic market and then we let the banking system the banking system participants find their way and that's our job done. Right, I actually would like to focus on another theme for the future of European banks this is for the future of every sector really but when it comes to equality I would like to come to you David on this one what do you think could be done to make sure that there's a more equal representation in the banking sector and how could that help integration in the Euro area? I suppose from talking a little as city here I suppose we as a bank operating in over 100 markets around the world with physical presence feel as though on various measures of diversity for example that there's we reflect that and I think with that is also the case within Europe that most people look at diversity as contributing to diversity of thought cognitive diversity amongst other measures and it's certainly been suggested that having broad perspectives avoids a single way of thinking and therefore in times of whether it's whether it's risk-taking whether it's in periods of stress whether it's in just assessing next steps that having a broad representation of people operating within banks is a good thing for achieving that and so I think it comes brought to individual institutions to make sure that they're reflective of the societies and the markets in which they compete that they match the expectation of their customers and clients and indeed their increasingly their regulators with regard to the people they employ but then also the culture that they develop inside their institutions and ultimately employees make their decisions about who they want to work with based on those dimensions so I think it's a it's it's constant work but I would say that for banks tend to be very open and vibrant places with very good careers and jobs and therefore they are positive for attracting time. What do you think on this one Jean-Pierre? Do you think that enough is being made to support a more equal representation across the sector? I think clearly not enough is being made and when you look at the split in terms of gender within the bank of the working population it might appear superficially as more or less balanced but if you go to the upper echelon of a bank I mean the diversity is not sufficient so we need to do more I think banks are very focused on that in terms of ESG you know that in terms of governance but also we have seen actions taken on environment and social responsibility side so banks have to lead by example and I think you know they understand that it is important it's a people's business for a large part so as such it's of critical importance to attract new employees and to retain current employees that they move on this field. What about you John from a legislative point of view how can we fight this inequality in this sector? I think the first point to make is that the banking sector is not unique in this particular challenge I mean this is a challenge which extends beyond banks to the financial sector and beyond the financial sector to the wider economy so you can't just say that this can be something handled uniquely in financial regulation and independently of everything else however whatever is being decided more generally has to be reflected in the financial regulation and what has been mentioned by John Pierre about ESG is very interesting in this regard because this S letter we have always viewed as a certain you know if we think back to the past S meant certain things did not really include equality did not really include diversity I think S going forward so as we start to build social taxonomies and other things the issue of diversity in particular and not just gender diversity but ethnic diversity and the wider concept of diversity I think will become more important and will I think begin to be reflected more in the legislation and if you listen to the conversation in the United States around regulation particularly around market regulation this idea of human capital these ideas around the structure and the quality and variation in human capital is becoming you know and quantitative targets in this context are being discussed so I think there will be a role for regulation but it will not be you know uniquely an issue for financial regulation it will be for regulation across the piece right as we are approaching the end of our session I would like to look at the legacy of the pandemic to the banking sector and we know how big of a landmark the 2008 crisis was and what that meant for regulation in the European Union so Jose when you look at the current crisis at the pandemic what do you expect will be the legacy for the sector from a European perspective well that's a big question for concluding but let me try to be brief if I may you know first on one direction the area of regulation we said that we already can say that the crisis has shown us that a big part of the regulatory framework that was built since 2008 until 2021 COVID started has helped us to manage the crisis from 2020 until today so in that sense you know we can feel comfortable and happy that the work that had been done of the last 10 years was worthwhile to some degree at least because this certainly has proven useful institutional infrastructure that was created in Europe where the EVA is part of the infrastructure that started in 2011 to the regulatory framework that was put for banks so that has been one good aspect the second aspect maybe just to be a little bit more cautious is that we don't know yet what the legacy will be to banks from the damage that the crisis has caused to the economy or the damage that the crisis is causing to the economy if I may because we're still now we're talking about a new wave in many parts of Europe obviously of the COVID so it's still ongoing but even if we were not to continue on going we know that the last year and a half it's been significant disruptions to the productive sector to the economy to many firms as a result of that we also know that the actions taken by monetary and fiscal policies have been very helpful in covering some of that damage but some of the damage will continue to exist so we are constantly calling on banks to remain cautious in assessing what the credit quality of the counterparties are particularly as we go forward as we expect and it should happen the exceptional measures both on the fiscal to the public guarantees and the monetary part put forward by the authorities will start to be removed so I would say you know we need to continue to be cautious on that to try to assess what the impacts will be there What about you Jean-Pierre what do you think will be the big legacy from the pandemic and are you worried that we will see a wave of non-performing loans in the European Union? But I think first of all there are different impacts first an acceleration of the client behavior so that's something which is irreversible and I think banks have made in a year much more progress than in the past five years before the pandemic so that's something which is key the second thing is the unbelievable answer of both the regulator and the government in order to tackle the crisis and the coordination between the regulator and the government was absolutely extraordinary when you look at it and that's probably a lesson for the future and the third is the banks would not have been in such a strong position if we didn't have all the work as I mentioned which had been done after the great financial crisis so we were to a certain extent lucky and I'm not sure it's the right word to use to have been going for the financial crisis to have a very strong banking sector but what is still a bit strange that we have not seen yet the wave of defaults that everybody was expecting the consequence of the actions taken and probably despite the fact that it's an extremely grave medical and social problem I mean the bank balance sheets will be in better shape than what we were expecting thanks to the government support What about you David? Tell us what do you think will be the legacy from the pandemic and I would also like to get your thoughts on the non-performing loans whether do you think this will be an issue for the Euro area in the coming years I'll do the second one first which is that of course banks need to keep a focus on the NPLs but as Jean-Pierre said the levels would not as they were certainly anticipated in the early stage of the crisis in part because of very significant government intervention in economies we'll have to see how the economic recovery plays out inflation is on the agenda that it wasn't in a way even two or three months ago supply chain disruption all those things can lead to a different assessment of credit quality and so on so I think that that movie's not over I think we just need to keep watching that but it's certainly at a position which is was better than anticipated a year ago to me the great legacies will be two one that's already mentioned which is that the operation of the banking system positively as a transmission mechanism for government and supervisory intervention what I think has worked fantastically well in Europe and that is that is a legacy of confidence and operation that should be taken forward and the second is I think it's associated to that which goes to trust so I think whether it's the regulators whether the policy makers or indeed the clients and customers the banking system I think operated well and that trust dividend if you like can be taken forward to the next stage what about you John I know that the European Commission was very happy with the next generation EU funds but do you think that the legacy from the pandemic will be just limited to that big step well I think if we make a success of the NGU then perhaps not but the we must not get ahead of ourselves first things first we must make a success of the NGU so if down the line we see that this money has been used in a way that promotes reform promotes productivity promotes economic growth then you can have that discussion about what's next but let's not jump ahead let's get the job done first in terms of NPLs I think it's right to say there's no tsunami so the tsunami did not appear we now need to watch that there's not however a sort of gradual surge over the years to come as does the measures are gradually withdrawn so maybe not a tsunami but let's be careful and just to be a little bit different I mean of course I agree with all the other speakers on the legacy that we can draw but I think one lesson we do need to draw is that the nature of the crisis we first experienced as I said earlier was different to the one that we experienced in 2008-09 and while we are very happy that the measures we have taken so far did in fact leave the banking system in a much better shape this was not a crisis centered on the financial system and we shouldn't draw too much confidence from this that if the next crisis is one that's centered on the financial system not having the banking union completed not having all these reforms in place could still leave us vulnerable so I'm very happy with the way the banking system performed I'm very happy that the work that the banks and the regulators did in advance contributed to that but just not draw the wrong lesson from it that somehow everything's fine now and we can stop worrying about challenges facing the banking system this would be a mistake I think right and on that note on that key warning I would like to thank all our panelists for joining us today and of course a big thank you as well to our audience for taking part for sending questions we hope you enjoyed the discussion and of course the whole of the ECB forum over the last two days and I'll see you soon


Okay, so let us continue with this kinematic discussion. So what we are talking about here is that there are certain forces acting on a fluid particle which we are still not bothered to discuss. But as a result of those forces what happens to the fluid particle is that it translates from one location to the other, it undergoes some sort of a rotation and it also undergoes a deformation which normally we will split as a volumetric deformation and a shear deformation. So let us try to look at each of these in a more detail. So the standard way of describing this situation is you show a fluid particle at a certain location at a certain time and for the sake of keeping everything manageable I am showing a two dimensional fluid particle which has a dimension delta x by delta y. So again here is a fluid particle in the sense that we are essentially talking about the same fluid material enclosed within this volume under the action of forces sorry, under the action of forces all these things are going to happen simultaneously, the translation rotation and the two types of deformations and a time equal to delta t later what you will typically find is that the fluid particle has basically become something like this okay. So in particular you can say that this horizontal line AB gets not only translated but also rotated through an angle of delta alpha, similarly the vertical line AC not only gets translated but also gets rotated through an angle delta beta. So why is this happening? Because basically there are velocity gradients that exist in the flow. So in order to show those velocity gradients what I am showing here is that point A let us say is our reference point and at this reference point let the velocities in the x direction be u and v and again using the first order Taylor expansion what we are showing here is the u and v velocities at point B and point C. You can see that at point B it is simply u plus u dx that is partial now times delta x because it is a two dimensional situation now and u is going to be a function of x y t etc. Here the v velocity again likewise is going to be v plus partial derivative with respect to x of v times delta x and so on. So under this situation what is going to happen is that this fluid particle then goes to a later location and also gets deformed in the manner that is shown and in general this angle of rotation delta alpha is not equal to delta beta. So what we do for the purpose of derivation is that we essentially assume that in the positive x direction velocities increase positive y direction velocities increase in reality it could be happening whichever way but for the purpose of coming up with a consistent set of results we assume that. So as I wrote here it is a cumulative effect of all these four things or three things happening simultaneously. What is normally done is an exercise called the decomposition of motion in which each of these effects is separately quantified in some sense. So let us look at that out of which the translation is the most obvious one that it is physically going from one location to the next so that is that point. Let us look at the linear strains and correspondingly then there will be linear strain rates. So if you look at the two segments AB and AC which are essentially marking our fluid particle what is going to happen to AC if I can show this is if this is AC you can say from your side this is where the u velocity is acting this is where the u plus du dx delta f is acting obviously these two are different as this fellow moves translation wise it is also going to get stretched differently in the sense that this end will be stretched differently this end will be stretched meaning pushed differently. In that sense it is undergoing eventually a linear strain. So what is causing this linear strain it is basically these x direction velocity those are causing the linear strain similarly if you look at the vertical segment AC the linear strains for that segment are caused by the vertical velocities v at point A and v plus d dy partial of v delta f. So now let us see what happens. So I am using the standard symbol in some sense epsilon suffix two x's and we will come to this double x double y x y notation little later right now we will go with it. That is basically the change in the length of that segment AB divided by its original length AB that is the standard form of strain expression. So now you see as I was saying that point B will be stretched by an amount u plus du dx delta x times whole thing times delta t in the time period delta t this fellow will be actually pushed by an amount u times delta t that is precisely what I have written the difference between those two will give me the differential stretching for the line element and divided by the original length which is delta x and if you simply go ahead and simplify this you will end up with a du dx partial times delta t. And therefore since this is a linear strain I divide by that delta t altogether take the limit as delta t tends to 0 and I will get a linear strain rate which is what we are interested in in fluid mechanics which will be denoted by e suffix two x's and with a dot which is simply telling me the time derivative and that is after you divide by delta t throughout it will be simply partial derivative of u with respect to x. So this is for the horizontal segment AB exactly the same thing you can talk about for the vertical segment AC and in that case it will simply come out as the y derivative of the y component of the velocity. So for the horizontal segment AB it came out as x derivative of the x component for the y it will come out as y derivative of the y component and if you want to simply generalize it without really thinking much it is going to be simply the z derivative of the z velocity. So these are all individual linear strain rates if you want. Now we normally talk about a volumetric strain rate which is what volumetric strain rate is basically forget about the delta 1 over delta d for now the volumetric strain on a per unit time basis what is volumetric strain change in the volume of the particle divided by its original volume and then you take the 1 over delta t with delta t tending to 0 as simple as that. So the way it is written is basically we are following this fluid particle now okay it goes from location 1 to location 2 and does all sorts of things. So inherently we are talking about a Lagrangian rate here the reason is because we are following a fluid particle. So this delta of delta v obviously the volume element of the fluid particle divided by the time interval with the time interval tending to 0 will give you the limit as the substantial rate of change of the volume element itself. So this volume element here that is dividing the change in the volume element is written outside here the time interval delta t has been taken and inside and then the limit has been taken to write this substantial derivative of the volume element itself that is the idea. So now this is as far as the mathematical notation goes what we are talking about is there is a fluid particle which undergoes linear strain rates thereby its volume changes and we are interested in knowing the new volume you subtract the old volume divide by the old volume and find out that that is the volumetric strain and then divide that by the delta t you get the volumetric strain rate fine. So now the new volume is simply the original length will be a b plus the change in that length times original length a c plus the change in that this will give me the new volume because each a b and a c have been stretched minus this l of a b times l of a c is the old volume and divide that again by the old volume which is l a b times l a c and of course this one delta t is missing which I should which I should write what I have written out here is only the expression for the volumetric strain okay is the new volume minus old volume divided by the old volume that is the strain so I need to have a 1 over delta t here with the understanding that the delta t tends to 0 fine. This is a bit of algebra in the sense that we have actually expressions for all these guys so what is l a b it is it is delta x fine delta of l a b was worked out here this numerator here okay which is simply du dx delta x delta t same thing for the length of a c and the change in the length of a c which were delta y and correspondingly you can work out the change in the length a c. If you actually put together all these and carry out the product what we are interested in is after then subtracting this delta x times delta y divided by delta x delta y etc you simplify all this and eventually you will realize that there will be some terms left which will be multiplied by delta x times delta y type situation so as we want to shrink this fluid element to a small size the terms which will have delta x times delta y multiplying will be considered to be small compared to the terms which do not have that. So this is the algebra which I want you to work out and what you should realize at the end of it is by appropriate simplification of throwing out the so called second order terms as we say we essentially obtain the expression that the volumetric strain rate now is simply d dx partial of u plus d dy partial of for this two dimensional element. So this particular algebra where you substitute all these expressions carry out the product subtract all the previous volumes and such and realize that there are some terms which are second order nature this is something that I want really to you to work out and eventually you should get d u dx plus d v dy and if you want to then generalize to a 3d I will simply add to this the z derivative of the z velocity and if you realize the addition here is simply in the vector form given as the divergence of the velocity field. So it is not the v dot del it is actually the del dot v so you knowing that expression for the del operator or the gradient operator there you can make sure that del dot v really comes out to be d u dx plus d v dy plus d w d z. So that is essentially the volumetric strain rate and if it turns out that the volumetric strain rate is equal to 0 we call that situation as incompressible flow. So the condition that we will look for incompressible flow is this del dot v or the divergence of velocity in Cartesian given by d u dx plus d v dy plus d w d z 3 dimensions is equal to 0 which essentially means that the fluid particle is not really undergoing any volumetric strain rate changes as it moves. So please I will request that this algebra you please work out if you have any problems let me know I will try to help out with that alright. So that is all about the linear strain rates and the corresponding volumetric strain rates. Now we said that the particle can be thought of having undergone a rotational motion also. So there are a couple of different ways of explaining this rotation let me just go back to that picture. So what we have here is that this a prime b prime which you can say is the stretched element having translated now is rotating that is the way you can think about it. Same thing for this a prime c prime which is ac translated and stretched and now it is rotating. So ab has essentially undergone a counter clockwise rotation of delta alpha where ac has gone clockwise rotation of delta beta with delta alpha not necessarily equal to delta beta. So one way of looking at this entire situation is the following you just say that let the angular displacement for ab which is positive delta alpha why because it has undergone a counter clockwise rotation be written as one half of delta alpha minus delta beta plus one half of delta alpha plus delta beta. So if you see it is the same thing as delta it just split in a certain manner is that fine same thing you look for the angular displacement of the segment ac. Here because it has undergone a clockwise rotation of delta beta angular displacement that minus delta beta is written as one half of delta alpha minus delta beta plus and again in some roundabout way I am writing this on purpose minus one half of delta alpha plus delta beta that the reason this perhaps is slightly appealing this way of writing is because just look at the two blue boxes they are the same expressions. So what I am arguing here is that this appears as if both ab and ac which are this way they seem to have undergone a counter clockwise rotation of whatever is the amount enclosed in the blue box because right now we are putting signs also along with everything. So both ab and ac can be thought of having undergone an anticlockwise rotation of the magnitude given by one half of delta alpha minus delta beta and further a shear displacement each of magnitude shown by whatever is enclosed in the red box. Now why am I talking about magnitude one is positive and one is negative as you can see. So which one is positive the ab is positive meaning that you can think about ab as having undergone a rotational motion of half delta alpha minus delta beta and further shear displacement of one half delta alpha plus delta beta and thereby it lands in a position of delta alpha exactly the same thing you can think about for the segment ac where the segment ac can be thought of having undergone a counter clockwise rotation of delta alpha minus delta beta over 2 followed by a counter clockwise shear displacement because there is a minus sign but of the same magnitude as what is in here. This perhaps is little physically appealing you know many times you will see that in most of the books will simply say that the rotation is going to be given by the average of the angular velocity of these two guys and so on. In this way why I can say then that there is a some sort of rigid body rotation and then there is a shear deformation involved is if you see the blue boxes. The blue boxes say that both segments have essentially undergone the same angular displacement both of magnitude as well as sense which means that it is as if it is like a rigid body rotation of the amount one half of delta alpha minus delta beta. On the other hand if you see the other two one definitely is a counter clockwise rotation the first one the other one is a same magnitude but a clockwise one. So this is the way I like to present it just because it gives me a sense of decomposing this rotational motion into a pure rigid body like rotation and then followed by a shear rotation. I hope it is somewhat clear. So if that is the case then we simply say that then the rigid body like angular displacement is simply given by the blue box which is one half of delta alpha minus delta beta and now this is the angular displacement if I divide by the delta t I will get the angular velocity of the fluid particle this is a rigid body like angular velocity and since it is a 2D particle that I am talking about in the xy plane I am essentially talking about rotation about the z axis right. Now what is involved is the expressions for delta alpha and delta beta those need to be found out. If you go back to the geometry this is slightly methodical you have to see delta alpha I will basically say is for small time period delta t it is simply this length B prime B double prime divided by A prime B double prime which is hopefully what I have written here B prime B double prime A prime B double prime and each of those you can work out in complete detail again work out the algebra and you will see that some terms will have left some second order term cancel those and you will get delta alpha equal to dv dx times delta t. This is actually more or less worked out here you just said after this term you have to do the simplification which you can do exactly the same manner I want that delta beta which I am saying it is this length C prime C double prime divided by A prime C double prime is what I have written here correspondingly the expressions you get to find it is dv dy times delta t. So I have the expression for delta alpha I have the expression for delta beta I just put it in here and I realize that the angular velocity then of the fluid particle for the rotation about z axis is simply coming out as half dv dx minus dv dy. So this expression is the correct expression whichever way you look at it whether it is simply looked at as a average of the two angular velocities of the two segments but the way this delta alpha and delta beta are split it gives you a clear idea that there is a rigid body rotation involved followed by the shear deformation. So this is something that you normally may not find in the books the only book which talks about it in this fashion in some sense not completely is by Fox and Mcdonald the latest edition the seventh edition is what I found that it talks about like this but there is a typographical mistake in that chapter on this. So I hope you can find that out but anyway this is the idea behind decomposition of the motion. So this is what I have for the angular velocity about z axis I can now generalize because I know the expressions for the z angular velocity in terms of dv dx and du dy so simply looking at this expression I can go ahead and I form what is called as an angular velocity vector which will have the three components omega x omega z this should be y sorry this is omega z which we just worked out. So the omega x and omega y this should be y omega y is something that I have written out here make sure that those are correct and then you can put it together in a compact vector form where you introduce this so called curl of the velocity del cross v so if you remember from your vector analysis the curl is evaluated as the determinant where the first row is ijk unit vector the second one in this case will be the components of this del operator d dx d dy dz partial and then uvw and you just use your standard determinant rule to obtain the cross product if you put it together you will see that the z component is this here x component is this and y component is this and popularly if you see the books they will call this curl of velocity as the vorticity so you will see that many times this relation is quoted often that the angular velocity is one half of the vorticity or the vorticity is twice of the angular velocity either way whether you are talking about vorticity or whether you are talking about angular velocity what we are talking about is the spinning of the fluid particle about its own axis please keep that in mind the fluid particle may be actually traveling along a straight flat stream line but it can still be spinning about it axis not that it is traveling along necessarily a curved stream line and if either of these guys that is either the angular velocity or the vorticity is 0 then we simply have what is called as irrotational flow which is a special case many times if you are dealing with inviscid flows you will automatically invoke this irrotational assumption as well along with the inviscid flow and then you can deal with what is called as a potential flow which we are not going to get into but this is something that you can note down the key idea though is this and you split it in this fashion and in that sense you can say that it is undergoing what you can say from my side this is the case is undergoing a rigid body rotation by the same amount and then it is doing this is that fine so this that is the idea why half and half is the question that one has to one can split it with your wing I can do a 3 4th and a 1 4th 3 4th and a 1 4th that is something for you to think but I hope that the physical idea is clear this is something that you again as I said normally you may not find it in this fashion in the book but if you just recall this picture always in your mind this and then this. Now I do not want to use that average actually that is precisely what I am saying you can always interpret it that way that it is the average of the two angular velocities that is another way of looking at it there is little more it is little more involved if you see that Kunduz book you will get some clue to it actually what happens is that half if you utilize you can show that this the way this is written is essentially independent of how initially those two lines are oriented as long as they are perpendicular to each other whichever way they are oriented they will always bring about that half but that is fine do not worry about it too much. So that is basically your angular velocity component of that decomposition of motion so let us just quickly go back what we had was translation which we never even talked about because it is pretty easy to visualize rotation and shear deformation is what essentially is linked in some sense so rotation is what we have talked about shear deformation we will now look at and the volumetric deformation is coming through those linear strain rates which we first talked about these are the linear strain rate then the volumetric strain rate now the angular velocity and now finally the shear deformation. So for the shear deformation these two magnitudes remember our picture again it goes through like this rigid body and then it is going like this so the final magnitudes of those two shear deformations are same as one half of delta alpha plus delta beta the sign here simply says it is a clockwise rotation but these two are simply then added as a total shear deformation in the x y plane and that is what is called or that is what is denoted by epsilon suffix x y with delta alpha and delta beta added if you want to compute the rate of shear deformation then you simply divide this by delta t take the limit as delta t tending to 0 call that e dot x y we already have the expressions for delta alpha and delta beta this was for delta beta this was for delta alpha we just plug in those and you will see that the rate of shear deformation in the x y plane simply comes in as dv dx partial plus du dy partial so that half is gone and it is simply a flux and likewise then you can easily generalize the two other shear deformation rates in the other two planes e dot x z and e dot y z just by looking at the expression for the rate of shear deformation in the x y plane that is that is pretty straightforward. You can repeat it formally if you want you can repeat the same exercise by drawing the picture in the x z plane if you want and coming out with complete analysis but once you know the expression here for the x y you can just looking at it analogously you can write down the expressions for the remaining two planes that is more or less what is involved as kinematics part that typically we include in our undergraduate class as I said pretty decent discussion of this is available in the Fox's book unfortunately Gupta and Gupta do not have a good detailed discussion on the kinematics part in Potter's book also there is a reasonable discussion but the best part for this is really the Fox's book but the latest edition the seventh edition as is available today in the Indian market that really has very nicely written explanations for how to get these various rates of deformation there is a little bit of difference in the way they work out the analysis but one way or the other is not very different as long as you are following the logic I think it should be fine any question on this this is the only thing that I really want you to work out is this algebra to make sure that by discarding certain higher order terms second order terms you actually bring about this d u d x plus d v d y that is the only thing that is worthwhile as an algebra to work out and I think apart from one error that I had done here which I will correct yeah here there should have been a 1 over delta t because we are talking about the strain rate whereas what I have written is simply the expression for the strain other than that actually all details I have put on these slides so if you just want to work out the algebra and make sure that you are indeed getting these I think that is plenty so do you know the question is do you always do this in the fluid mechanics class or some people do looks like this is worthwhile doing because most of these things you are later on going to use when it comes to the differential analysis of fluid motion where you connect the stresses to the strain rates you need all these expressions so that is the reason we do it in a reasonable detail right I think that is more or less what I have for the kinematics part okay let's just quickly look at I am not even going to work out the examples because once you know these formulas in some sense is just a plug in given some velocity field and so let's just quickly look at some of these things so I have the first problem here where the temperature is given as a function of y and time and certain functionalities provided with a velocity u velocity as a function of y so this is the only velocity that apparently is present in the flow and the temperature is a function of y and time fine so what is asked is determine the rate of change of temperature of a fluid particle located at y equal to 0 at t equal to 20 so just tell me what is asked to be found out that is good enough rate of change of the temperature let me say experience by a fluid particle correct so it's everything is correct so what is asked is the substantial derivative of temperature so let me write that for one time so what is actually asked is capital D T of temperature is asked and this I will simply write as partial derivative with respect to time plus in general. Now in this case what you have is let me go back to the screen right so now you just tell me from the expression partial derivative of t with temperature with respect to time it will exist because the functionality has time in it that's fine u times dT dx was the next term what about that no because t is not a function of x at all correct same thing for v times dT dy because there is no v velocity given only u is there and there is nothing to talk about w so going back then yep exactly only first term is left this is gone this is gone only this fellow is left and all this was required to be evaluated at y equal to 0 and t equal to 20 so you just have to evaluate this derivative with respect to time of that functionality that is given and substitute these two guys there so whenever you see words like acceleration of the fluid particle it necessarily is implying that we are talking about the substantial acceleration or the material acceleration so wherever that fluid particle word show up we have to think that this is a substantial rate of change fine so that's that in the second example some velocity field is given so this 2x minus 4 is basically your u c times y is your v and 5 times t is the w first part says that determine the value of c if the flow is to be incompressible so if the flow is to be incompressible this thing has to be satisfied so that is it you have all u v w just work out that expression and you can find out whatever that c must be in order for the del dot v to be equal to 0 here the acceleration that a fluid particle experiences while passing the point 3 comma 2 so what is getting asked here again substantial acceleration if you want you can directly write it as a vector expression or you actually split it as an x direction acceleration and a y direction acceleration if you want so let me just point out what I mean by that so if you want you can write this as d e capital D t of u equal to same thing here same thing for v and w and then simply work out whatever these expressions are based on the velocity field that is given to be evaluated at whatever point 3 comma 2 that is that is that okay here some velocity field is given again so u is equal to x and v is equal to minus y so here the first part is equation of the path line for the particle situated at x y equal to 1 comma 2 at time equal to 0 let us just look at this and the second part is equation of the stream line through the same point so u is equal to x v is equal to minus y fine equation of the path line if you recall what we had written was you write d x over d t equal to u d y over d t equal to v and you integrate these with the initial condition that in this case x0 equal to 1 is given at time equal to 0 and y0 equal to 2 at same time t equal to 0 so that is it as simple as that so here then d x over d t equal to x so d x over x equal to d t so then x then will be e raise to t plus some constant let us say if you want for x write it as c e raise to the constant what will happen to the y minus y y then minus t what is c you want to put okay put the initial condition at the initial good for the stream line we had d x over u equal to d y over v that was our in 2d that this is how it will be so it will be d x over x equal to d y over minus y so this will be then this if you bring it to the left hand side etc ln x y equal to let us say ln of some constant if I want to write it that fine so x y equal to constant is the equation how do I evaluate the constant just plug in the coordinates of the point through which this is passing so the point of interest was given as 1, 2 so c is simply equal to 2 so x y equal to 2 is the equation of the stream line before we proceed that equation of the path line is there any way to bring the equation of the stream line from this so what will happen if you let us say you put the initial conditions in t equal to 0 here so e raise to d 1 this is c 1 equal to 1 correct x equal to e raise to t what about y y equal to 2 e raise to minus t can you do something here is there a way to eliminate e raise to t you can if you do that yeah x y equal to 2 same thing if you eliminate t from here you basically get x y equal to 2 which is same as your equation of the stream line what is that exactly that is the point of the example that if you are dealing with a steady flow situation you will actually see that the path line and the stream line will actually come out to be exactly the same and so is the streak line however we have not talked about the equation of the streak line from a mathematical point of view it is slightly more involved than these two guys but this is a point which I did not want to explain earlier I just wanted to show it through some sort of an example so here I hope you understand what was going on all that I have done here is that eliminated then the time dependence from these two guys to get the same exact same expression so this is one more point that normally people will point out in the books that if you are dealing with a steady flow situation the stream lines and the path lines will actually be and then the one final example which is simply plugging in the expressions which I do not want to do now it is again some velocity is given so this 20 y squared is the u minus 20 x y is the v determine the angular velocity, odicity vector and all rates of strain at the point such and such all that you have to do really is that you just use whatever these expressions are and plug those with the appropriate derivatives using this u and v so this is very straight forward so the problems if you see in this kinematics are not really that difficult very straight forward most of the times it is utilizing the expression that we have worked out for the rates of strain or the rotation rates and the deformation rates the idea of how to get those rates is little more important which hopefully they have followed I think that is about it for the kinematics part so all that we need to now do for the differential equations is already with us so before we get into that let us just look at where you can find this information as I said already the better of the lot as far as the kinematic discussion is concerned is by Fox and McDonald in chapters 2 and 5 so most of the material that you saw here is in 5 some of it is in chapter 2 not much honestly in the Gupta's book but it is never discussion again in the Potter's book chapter 3.


Ready? Hey everyone, David Simeo here at Mountain View Dodge in Olds, Alberta. We've got a 2015 Journey Crossroads, all-wheel drive, 92,000 km, power seat, big 8-4-inch touchscreen, David Simeo, Mountain View Dodge.


Today's squatting variation that I want to discuss is squat holds or squat isometrics. So isometric just means that the length of the muscle is not changing, therefore I'm holding the position. So what does it look like? As I squat down I can hold it right here just for as long as I can. Okay? And this teaches me how to breathe in this position and maintain a position that is or forced me into a squatting position that's a little bit more restful for my body. It encourages me not to hold my breath because I'm doing it for so long that I cannot do that and it encourages good respiratory function. Right? It encourages my rib cage to move, my pelvic floor to move, and to accommodate all of those respiratory changes. So this exercise is really good. It doesn't require any space. If you don't have any load and like I have my phone here, but that's probably not heavy enough for me, right? So I can come down and I can do a squat hold. I can just hold it for as long as I can. I train my endurance a little bit more. It's not quite a strength exercise, but it still gives me a good training effect. So that's using the squat hold as an exercise. It's pretty simple, right? It doesn't require any equipment and you can just drop down, get your ankle on, right? What I want to talk about now is using this hold as a cue for your squat. So I got this from my buddy Jay Chung over that I worked with at IFAST and he had this post on IFAST University called Freeze. What he would do is whenever somebody was out of position, he would say Freeze, okay? And that would allow them the time to be cognizant of the mistakes that they were making and it would allow him the time to change it. It gives them the the ability to mess around with it a little bit. So if somebody's squatting and they stick their butt way out like this, this is too extended of a back position for most people, right? I generally want people more here, okay? I can feel my heels in the ground better. I can feel my hamstrings better when I do that.  But a lot of times that just doesn't make sense to people and it doesn't fix anything. So what I can then do and what I can then try instead is come on down, go really slowly on the way down and I can say Freeze, okay? I want you to hold right there. I'm going to walk over. I just want you to exhale, reach your hands forward, change your hip position. That's much better. Now you can bring your hands back. Do you feel where your heels are in the ground more and they'll say yes or maybe they'll say no and if they say no, it doesn't really matter. If they say yes, I know they're getting it a little bit more and I can say, okay, I want you to hang on to that position while you come back up and I want you to get there again as you come back down.  If somebody is, you might say, put your foot down, come on down and freeze. Okay, do you see how your knee is coming in? You're shifting your weight over a lot into your knee. What I want is for you to shift your knee out just a little bit. Okay, now hold on to that. Okay, that's just another example of what you can do. So consider using the isometric squat as not only a training tool, but also as a cue for you to fix your squat, increase your mobility and tweak your form better off.