Goodmorning everybody, welcome to this press.conference on banking supervision. Let me.introduce our main speakers who you know,.of course. This is the Chair.of the Supervisory Board Danièle Nouy, and.to her right the Vice-Chair Sabine Lautenschläger..They would both make brief introductory remarks..We are holding this press conference today.on the occasion of the release of the annual.report on supervisory activities which covers.our first four years of operations. As you.know the report was presented yesterday to.the European Parliament by Ms Nouy who was.in Brussels for that occasion. She will say.a few words on behalf of all of us on the.events that happened there yesterday before.we go into the introductory statements. Danièle,.please. Thank you, Connie. Goodmorning everybody..Let me take this opportunity to express our.deeper simpathy to the victims and their families.of the tragic events yesterday morning in.Brussels. I speak on behalf of all of us when.I say that we feel great sorrow and also great.solidarity with the people of Brussels and.Belgium. Such events remind us how important.it is to stand together in Europe, also with.the victims and their families. With that.let me return to my preparatory, preliminary.statement. And welcome you to our press conference.on the ECB’s Annual Report on supervisory.activities for 2015. Having already presented.the report at the European Parliament in Brussels.yesterday, I would like to take the opportunity.today to look beyond the Annual Report and.beyond 2015..Early this year, the banking sector took centre.stage when volatility increased and bank share.prices dropped. In that light, I find it reassuring.that European banks have become much more.resilient over the past few years by significantly.increasing their capital ratios. Since 2012,.the CET1 ratio, for instance, has moved up.from 9% to 13%..Still, the recent episode of volatility revealed.uncertainty on the part of investors – not.necessarily with regard to bank resilience,.but rather to bank profitability. Against.the backdrop of a continuing period of low.interest rates, a weakening global economy,.ailing emerging markets and plunging oil prices,.many investors worry about the ability of.banks to adjust their business models and.sustain their profitability..We, too, see the adjustment of business models.as the biggest challenge for the European.banking sector. Other challenges include credit.risk and heightened levels of non-performing.loans, a reversal of the search for yield,.conduct and governance risk, sovereign risk,.geopolitical risk, growing vulnerabilities.in emerging economies, as well as IT and cybercrime.risk..Based on these risks, we have defined five.priorities that will guide our supervisory.work in 2016:.First, we will look at banks’ business models.and profitability..Second, we will look at credit risk, particularly.with regard to non-performing loans. In that.connection, we established a dedicated working.group last year, which has been tasked with.supporting a reduction in the stocks of non-performing.loans..Third, we will look at capital adequacy – for.instance with regard to bail-in capital..Fourth, we will look at risk management and.governance. Given the current environment.of very low interest rates and abundant liquidity,.it is increasingly important that banks manage.their risks appropriately..And fifth, we will look at liquidity..That said, I am certain that banks would add.another challenge, namely the need to cope.with many changes in the regulatory framework..Yes, there have been a number of changes,.and yes, efforts are required in adapting.to them. We understand that, and we strive.for regulatory certainty in order to enable.banks to plan accordingly and address risks.appropriately..Nevertheless, we should not forget where we.have come from: a fragmented banking sector.in Europe and a global financial crisis. Against.that backdrop, regulatory reform was necessary.– what has been done had to be done..The new capital and liquidity requirements.have increased the resilience of individual.banks and of the entire banking system. Systemically,.we are in a much stronger position than we.were before the last crisis. Wherever the.next storm blows in from, banks will be more.resilient. And if a bank does fail, the new.bail-in rules will protect taxpayers. That.in turn realigns incentives for investors..The increase in spreads for certain capital.instruments is a sign that markets are adjusting.to these new rules..Moreover, Basel III, the centrepiece of regulatory.reform, is about to be finalised in 2016..There will be no significant further increases.in capital requirements, and we are not discussing.Basel IV. The regulatory reform is coming.to an end. It has paved the way towards a.more stable banking system. Granted, it has.been a long journey, and not an easy one..The crisis has undermined confidence and it.will take time and effort to fully restore.it – the recent outburst of volatility was.a case in point..We as supervisors contribute, together with.regulators, to restoring confidence in the.banking system. But the banks themselves need.to make sure that they have sustainable business.models. The banks themselves have to manage.their risks prudently. Acknowledging this,.and acting accordingly, is another necessary.step towards the objective of a stable banking.system that serves the real economy..Thank you for your attention..Ladies and gentlemen,.I also welcome you to our first press conference..Danièle Nouy has just pointed at the regulatory.reforms as a source of change for the banking.system. Nevertheless, there has been another.reform that brought about major change. I.am, of course, talking about European banking.supervision..Bringing banking supervision to the European.level was just as necessary as regulatory.reform; and like regulatory reform, it will.help to restore confidence in the banking.system. What are the actual benefits of European.banking supervision?.First, European banking supervision does not.stop at national borders but takes a European.perspective. It can therefore compare and.benchmark banks across borders in order to.identify problems early on..Second, European banking supervision combines.the experience and expertise of 19 national.supervisors and the ECB. It can therefore.draw on a huge pool of analytical power..Third, European banking supervision can act.when action is called for. Ultimately, European.banking supervision ensures that banks across.the entire euro area are being supervised.according to the same high standards – within.the scope of national legislation..In 2015, we took important steps in that direction,.for instance with regard to the main instrument.of banking supervision, the Supervisory Review.and Evaluation Process, or SREP for short..Capital requirements – based on a risk-based.and forward-looking analysis and embedded.in the SREP – are essential in safeguarding.the stability of the financial system..In 2015, the SREP was, for the first time.ever, conducted according to a harmonised.methodology. Banks across the euro area were.measured against a common yardstick. Consequently,.we now observe a stronger correlation between.the risk profile of institutions and the relevant.supervisory capital requirements..In 2016, we will further refine the SREP..In that context, we asked for clarification.regarding the legal underpinnings of SREP.and received the European Commission’s internal.discussion paper for comments. We welcome.the Commission’s objective of creating regulatory.certainty, as this is crucial for both banks.and markets..In 2016, the SREP will be supplemented by.two stress tests: an EU-wide stress test conducted.by the European Banking Authority, the EBA,.and a euro area-wide stress test conducted.by the ECB. The SSM will hence be able to.assess all significant institutions in the.euro area from a forward-looking perspective..For both stress tests, the provisions of the.EBA’s methodology will be relevant. The.insights gained from the EBA and the ECB’s.stress tests will feed into the 2016 SREP;.it is therefore not a pass-or-fail exercise..Moreover, any data quality and quality assurance.issues that come to light during the exercise.will also be incorporated in the 2016 SREP.for the institutions concerned..European regulation offers a large number.of provisions which give supervisors some.leeway in deciding on their concrete implementation..When we agreed on exercising these options.and discretions in a harmonised manner across.the entire euro area in 2015, we took another.step towards harmonising banking supervision..The relevant regulation and a guide will enter.into force in October 2016..To sum up: during the first full year of European.banking supervision, we have accomplished.much towards the harmonisation of banking.supervision across the euro area. But there.is still work ahead..We are, for instance, preparing a targeted.review of banks’ internal models, or TRIM.for short. The background to our review is.that many significant institutions use internal.models to determine regulatory capital requirements..Our review seeks to reduce the non-risk-based.variability in model-based capital requirements..Ladies and gentlemen, in our statements today.we have so far focused on the significant.institutions, those banks that are directly.supervised by the ECB. However, we must not.forget the around 3,200 less significant institutions.or LSIs. In many countries, those small and.medium-sized banks are highly important for.the regional and national economy. And, as.a group, they can also be relevant for national.financial stability..Those banks are directly supervised by the.national competent authorities and it is not.our ambition to change that and to directly.supervise them. Rather, the SSM exercises.oversight over the overall functioning of.the system. Together with the national supervisors,.we are developing common supervisory standards,.which take into account regional aspects as.well as the size, business activities and.risk profiles of individual institutions..Accordingly, we have agreed with the national.supervisors on, for instance, a Joint Standard.on supervisory planning for LSIs. This Standard.enables the national supervisors to define.supervisory priorities for “their” LSIs.according to a common methodology. In the.same vein, we have recently agreed on a Joint.Supervisory Standard on recovery planning.for LSIs..And we are also looking into institutional.protection schemes, which are particularly.relevant for less significant institutions..Under European law, banks may be granted certain.privileges .if they belong to a protection scheme. Given.our objective of harmonisation, there is much.to be said for granting these privileges in.accordance with uniform criteria. We have.now defined the relevant criteria and are.currently conducting a public consultation.that will run until mid-April..In brief, while regulatory reform is coming.to an end, we are still refining the methods.and processes of supervision. Ultimately,.we will have created a strong supervisory.framework, which contributes to the safety.and soundness of the banking system, with.full regard and duty of care for the unity.and integrity of the internal market. Thank you for your attention..There's been a lot of criticism from some.of the banks that you supervise of negative.interest rates, with quite a few senior bankers.saying it's forcing them to take on too much.risk. Now, Ms Nouy, you mentioned in your.opening statement that it's very important.that banks can manage their risks appropriately..Does this mean that you agree with banks'.concerns that your colleagues on the Governing.Council are pushing banks to take on too much.risk? And it may be good for you to talk a.little bit about whether some of the new measures.such as TLTROs address some of those risks.that you see to bank profitability..I'd also like to ask about sovereign risk.weights. Now, you've criticised in the past.the zero risk rates on sovereign assets. Now.the Basel Committee is reviewing this, what.are you doing to ensure that this committee.comes out with what you believe is the right.outcome on this issue?.Thank you very much for the questions. Indeed,.profitability of the banks is a challenge.nowadays, but there are two main reasons for.that: the level of interest rates, for sure,.but also the level of non-performing exposures..Such challenging times are also good opportunities.for banks to review their business model and.reassess the sustainability of their business.models. And I believe they have room for manoeuvre..If we look, for example, at cost to income.ratios of European banks, they are pretty.high, so they could go down and the banks.could be more efficient, and many are already.working on this..Also, digitalisation is a new possibility.for banks. There are many customers that would.like to receive banking services through digitalisation,.and this is also helping them to be more efficient.and to have lower cost to income ratios. So.challenges, but also opportunities. Do you.want to add something, Sabine, on this?.Well, I think banks need to cope with the.macroeconomic environment they find. We had.several times in the last 50 years an interest.rate environment where the real interest rate.was negative, and I do believe that, yes,.there is a challenge with regard to the low.interest rate environment; do not forget on.the other side – and you mentioned that.already with the TLTRO – that there are.some gains with regard to the funding cost.too..So it is a challenging environment, but it.was a challenging environment already before,.because – and here I totally agree with.Danièle – we need to have viable business.models in banks which can cope not only with.the macroeconomic environment when there is.a low interest rate, but can cope with competition.from the advent of digitalisation. With competition.from the shadow banking market, with regard.to the regulatory reforms which put a burden.on banks. So there are many, many issues on.the table which call for amending business.models in some of the banks we supervise,.so I wouldn’t pick out the low interest.rate environment in particular..Regarding sovereign risk, let me say that.I am happy that this issue is now being addressed..It is addressed at an international level.within the Basel Committee, and it is also.addressed at the European level. Progress.is good. There is also now a hybrid approach.which is discussed, where the risk-weighted.assets could be dependent on the concentration.and on the quality of the sovereigns. I think.good work is being done, so something reasonable.will come out of these welcome discussions..You mentioned the flexibility, in terms of.interpreting some of the regulations coming.from Brussels. At the end of his last news.conference, Mr Draghi referenced an internal.Commission document on how to interpret some.of the capital requirements. I guess the question.is, is there any difference between the SSM.and Mr Draghi on how to interpret the Pillar.2 requirements for banks?.My second question is, in terms of the Greek.banking sector, what are your priorities there?.Are there any particular changes that you're.trying to see implemented in the coming year?.I doubt very much that there are differences.between the President and the SSM, although.I have had no chance with discuss it with.the President yet, because it came late, recently,.this clarification from the [European] Commission..Let me say first that we asked for this clarification.from the Commission. Clarification, certainty,.harmonisation, are very important concepts.for us. In order to harmonise supervision.in the SSM and in Europe, we need to have.harmonised regulation, and the regulation.is unclear, so we asked for the clarification..We have received recently this clarification,.which is welcome, and we are working on this.document to see how best to use this clarification.that has come from the Commission..I know the word “flexibility” to implement.the regulation was employed in the report.of the ECON Committee on Banking Union. It's.not that easy for supervisors to be flexible.with law. I would not recommend supervisors.to be flexible with law. We just want to implement.the law, so I am very happy that the clarification,.the flexibility, is coming from the persons.in charge of interpreting the law, namely.the Commission..On the Greek banking sector, I do have a problem.to give orders to banks based on their country..We have a European perspective here, so we.are, as a banking supervisor, looking at banks.in a very institution-specific way, and each.bank has its peculiarities and needs to be.supervised individually and aligned with its.risk profile, its business model. So for me,.to say there are the German banks, or there.are the Dutch ones, or there are the Greek.ones, I have a problem with this concept..When you talk about the overall status with.regard to Greece I think it is very important.that the banks come out at the right time.– when the conditions are fulfilled – out.of their capital control measures, that the.banks revert to business as usual again, with.regard to the capital control measures when.they are lifted. We did, I think, a great.job with regard to the comprehensive assessment,.ensuring that the banks have enough capital.for the upcoming years in order to cope even.with an adverse scenario, an adverse development..And I believe with the rest it is just very,.very important that the macroeconomic environment.in Greece aligns, that the capital control.measures are lifted when they are ready, and.then we will see what happens with individual.banks. Would you like to complement?.I fully agree. The Greek banks were hit by.something that had nothing to do with their.own situation. It was a very violent stress,.more violent and brutal than the supervisors'.adverse scenario, they went through. Now they.are recovering from this episode, and I am.pretty certain, like Sabine said, that when.they are out of exchange controls, thanks.to the progress of the country, they will.be able to do the job of funding the economy.- which is needed in Greece - just like other.SSM banks do..A more general question, maybe, to both of.you, basically. The mandate of the ECB is.very clear: it says maintaining price stability.comes first. So the question is, is it fair.to assume that banking supervision comes second,.for the ECB?.Shall I start, as I'm the master of separation,.being in both areas? We do have clear objectives.on the central bank side with, as you mentioned,.maintaining price stability, and totally separated.from this – so there is no hierarchy – there.is our objective in the SSM to contribute.to a safe and sound banking system, to work.for the customers of the banks, to ensure.that we have a functioning banking system..So there is no first or second, as these are.separate objectives, done by different staff,.prepared with a very protecting rule framework.around it for decision-making, separated with.regard to information flows and for preparing.decisions. So for me, no first and second,.but totally in parallel, and with separate.objectives which we have to fulfil..The Commission document that you referred to makes a very concrete proposal when it comes to.the SREP (Supervisory Review and Evaluation.Process) process. It proposes to split the.capital add-on that is decided in the SREP.into a mandatory requirement and guidance,.as they call it. Is that a distinction or.a split that would make sense in your SREP.methodology? Is that something you could think.of adopting? Or what are your thoughts about.that possibility, which is similar to what.the Bank of England is doing?.And secondly, you were saying, Mme Nouy, that.the rising spreads on some instruments were.showing that investors were waking up to the.new reality – those are my words now – so.are you saying that the developments we saw.on the CoCos (contingent convertibles) market.in the first two months of the year were actually.not a big surprise? Are they the new normal?.Well, there is a link between the two questions,.as a matter of fact. Yes, the paper from the.Commission makes a difference between Pillar.2 requirement and Pillar 2 guidance. It may.be useful, frankly, to address the problems.that arise from the implementation of the.Directive from the CRR: the stacking order.of the different buffers, and also the point.where the maximum distributable amount takes.effect. So yes, we think that it may be useful.and we will consider how to implement it..This is the work in progress that we have.now regarding the SREP..Indeed, I believe that investors are gradually.taking into consideration the new world, the.new post-BRRD (Bank Recovery and Resolution.Directive) directive implementation, full.implementation, of the new bail-in world..And they don't like uncertainty, the investors.and the markets, and if they feel that they.are in a situation with uncertainty, they.hit the banks for that. So that's why we absolutely.need to deliver certainty, clarity, transparency.to the market on Pillar 2 and the way it is.calculated, and on the maximum distributable.amount. On these two we have requested the.clarification from the Commission, and I would.even go further: I think clarity regarding.the maximum distributable amount on top of.the clarification already received should.be in legislation, to provide full clarity.and transparency to the markets..Quite recently there was a case in Latvia, if I'm not mistaken, where the ECB ordered.the closing of a small bank. I'm not quite.sure if this was the first time you took such.an enforcement action, but if it was maybe.you could give a little bit of a flavour as.to how that came about. Did the initiative.come from the ECB itself, or from the national.supervisor? And if it was not the first time,.could you maybe mention the number of similar.cases, if there have been some in the past?.And what is the generic type of action that.you would take in such cases?.We won't comment on single banks; as you know,.we do have confidentiality rules with regard.to the specific cases of single banks, so.we cannot go into the detail of one bank..But I can give you some generic idea. No,.it was not the first time that we have withdrawn.a licence. And this is exactly the process.we have with regard to small banks. The less.significant ones, as I mentioned in my introductory.statements, are directly supervised by the.national competent authorities, but the question.of who gets a licence, and is the licence.withdrawn under certain circumstances, is.something that is answered here [in SSM] and.is done here..When do you do this? You do this, in general,.when the national competent authority asks.you and when it applies for withdrawal of.the licence, because the national competent.authority, being the one in charge for the.less significant ones, tells the ECB whether.the bank in question does not fulfil certain.capital requirements, or there are other issues.which make it necessary to withdraw a licence..And that was the case with the bank you were.mentioning. It was not the first time that.we did this with regard to less significant.banks. We had some Italian cases, for example..So this is a way of dealing with small banks.that either enter into insolvency or where.they go via a bridge bank to a new owner:.there you have always the question of, “What.do you do with the old licence? Do you need.a new licence for the bridge bank?” et cetera..And this is done here, with us..Yesterday the German Finance Minister Dr Schäuble introduced to his audience a kind of regulation.for small banks – he called it “small.banking box”. Can you tell us something.about the details? What is going on in the.European Union? What will such a small banking.box look like?.I'm really sorry, do you know a little bit.more what he meant with the “small banking.box”? Can you give me a little bit more.detail? Then perhaps with other key words.I can....He talked in his speech all about regulation.and the efforts of the new regulation, and.when it comes to the question, “What is.the burden for smaller banks?” he told us.they will come up with the small banking box,.yes?.Okay, now I know what you mean – probably..I mean, I'm not in charge of Mr Schäuble.and interpreting his words. But I can imagine,.I assume that it is the ongoing discussion.which we've had for 20 years now whether there.should be, in regulation, a difference between.the internationally active banks and the small.and medium-sized banks which are only regionally.active and which more or less do not have.interconnectedness, cross-border operations,.which do not have investment banking, et cetera..And it was always discussed in Germany, as.we have so many small banks, whether it is.totally justified to take the same regulation.for the small banks as the big ones..And it comes up always with the Basel Committee,.because the Basel Committee provides standards.for internationally active banks, and there.are many countries which only take these standards.for the big ones: The US, for example, they.ask only the big ones to comply with the Basel.standards, and then they have their own rule.set, their own rule box, for the small ones..And when we are on the Basel Committee, we.are always discussing then, and saying as.a European representative – my French, my.Dutch, my Italian colleagues and myself – we.always ensure that in the Basel Committee,.people acknowledge that what we are talking.about and what we are proposing as rules is.not only valid for the big ones, but that.it has to fit too – with a certain kind.of proportionality, with a certain kind of.justification – to the small ones too..And it might be that Mr Schäuble took this.up again and asked himself whether there should.be a separate, a different rule box for the.small ones..If I may add something, I would like to say.that I think the best way forward is a single.regulation implemented with proportionality,.and proportionality is the magic word, or.magic tool. Proportionality should be always.used. But I doubt personally that to have.two sets of rules, when the two categories.of banks are competing together domestically,.would do any good to the small bank. They.are probably better off being in the same.single European regulatory framework, but.it has to be implemented with proportionality..And I am under tough scrutiny from the European.Parliament on this. I got the question several.times yesterday in the European Parliament:.“Are you demonstrating enough proportionality?”.I think this is where we have to be convincing..I totally join, and I think so too. We discussed.this for 20 years in Germany, and I think.it's very difficult where to put the threshold..When is a bank important enough to justify.different rules? And what kind of competition.questions do you get in a single market, in.a country where the savings banks compete.with the big ones, especially in Germany,.with regard to retail customers, corporate.clients, et cetera? It's a very difficult.question to really do two different sets of.regulation, and yes, proportionality is, at.the end, what we try to do, and I think where.we both succeeded, because we always sat next.to each other in the Basel Committee, for.ten years..France and Germany..France and Germany, exactly. I think where.we really succeeded is that we put enough.wording and phrasing in the Basel standards.that you can apply proportionality and you.can more or less justify differences. It's.a little bit like with the minimum requirements.of risk management in Germany, where you more.or less say stricter standards, much higher.standards need to take into account the big.ones, and the smaller ones are burdened less..But have the framework the same: you know,.the pillars, the key features are the same..Here in Germany there is not only a strong.criticism of the monetary policy stance, but.also there is a strong resistance to a European.guarantee scheme project, which would be the.third pillar of the banking union. So my question.is, how optimistic are you that it is possible.to circumvent this German opposition to the.project? Or is it better to leave it for the.future when other conditions may be fulfilled?.And the second question is, in the press there.are some reports regarding so called cum-ex.dividends schemes, a quite complicated issue.involving a lot of financial actors, among.them possibly banks under your scrutiny. So.I wanted to ask, do you have an eye on this.cum-ex topic, which is quite a German issue,.I guess; and more generally how do you handle.those kinds of legal risks? Is it something.that is in your duty?.I will start with EDIS (European Deposit Insurance.Scheme) and a couple of general sentences.on conduct risk, but I will let Sabine comment.on this cum-ex scheme, that I know less about.than Sabine, obviously. Let me say that we.welcome the European Commission proposal for.a deposit guarantee scheme, because this third.pillar is the missing pillar of the banking.union, and we need to have it coming, gradually..It is important insofar as bank contributions.to deposit insurance funds are risk-based,.compared to all banks in the banking union,.not only to national peers. I know that my.German colleagues are also quite keen on risk.reduction before moving to risk sharing. Personally,.I believe that risk sharing and risk reduction.have to take place in parallel..An appropriate phasing of fully fledged EDIS,.the European deposit guarantee scheme, is.necessary to take into account the different.starting positions of national deposit guarantee.schemes. So such phasing-in will also allow.making further progress to level the playing.field in the banking union, and to further.reduce risk in the banking sector. So again,.risk reduction and risk sharing are mutually.reinforcing elements to strengthen the banking.union, and they should not be a precondition;.they should move together..Regarding the second part of the question,.I understand that this is about conduct risk,.which is obviously a matter of concern for.supervisors, and we are making sure that the.governance in the banks, the internal control.of the bank, including the control of conduct.risk, is appropriate. But I will let Sabine.be more precise in her response..Well, it's a very German response: we are.not in charge of conduct risk. That's BaFin's.work. But: we have to take up the results.of the investigation of the prosecutor, the.results of the findings of BaFin, and have.to ask ourselves what kind of impression and.what kind of assessment do we then have with.regard to governance and risk management..And what kind of impact with regard to capital,.with regard to litigation costs, will come.to the banks out of it. So we are more or.less in what I call the second layer of work..So first we have to see what comes out of.this investigation, and then we will act and.assess these outcomes. So what do we do now?.We observe this closely and comprehensively,.and then we will see what kind of impacts.this has for the banks. But it's not yet our.turn. Perhaps at next year's annual press conference..Mme Nouy, assuming that .the first merger between two Italian banks.will be successful, what is your vision of.the Italian banking system in the next three.or four years, for instance?.Like Sabine, I don't look at banking systems,.frankly. I know about the single banking system.which is the SSM banking system, with different.kinds of banks, different kinds of situations..We believe – and this is the objective we.have received, the two of us, from the Parliament.that has approved our nomination – in the.objective of making sure that banks are safe.and sound, or safer and sounder after the.crisis that they went through. So we know.that a number of developments have to take.place, and for example in countries where.the banking system is not very concentrated.or not enough concentrated, mergers are desirable..This is my understanding of the legal steps.that have been taken by the Italian government.to make this important reform of the Popolari.banks: it's to give them more capacity to.address the challenges of the current times,.and also to be able to have such mergers when.it is helpful. And indeed, Italy is one of.the countries where there is room for mergers.in order to have more profitable banks and.more sustainable business models..So my vision of the SSM banks in the future.– let's say, for example, in two and a half.years, when my mandate will end – is to.deliver for the SSM, and so for the Italian.banking system for sure, safer and sounder.banks thanks to the good work that we are.doing with our Italian colleagues to reach.this objective..May I add, I think it's a very good perspective.to look into the medium and into the long.term. Not only with regard to short-term crisis.management, but to have a kind of vision:.what is needed to have a safe and sound bank?.What is needed to ensure that the wealth of.customers in the SSM, bank customers in the.SSM, that this is safe? And here we need to.have banks with a viable business model, especially.when they are big banks with a sound capital.base, in order to cope with a potential adverse.scenario for a longer time period..Two questions from me. One on Italy, a quick follow-up from the previous question: some.Italian agencies reported yesterday that the.ECB gave its green light to the merger between.the two banks, and some other agencies reported.that the ECB asked only for further clarifications..Could you please give us an idea of the state.of discussions? Where are you satisfied with.what banks announced, and where do you see.still some room for improvement?.And a second question on interest rates. Mr.Praet said last week that the interest rates.of the ECB could still go lower. I would like.to know if you have a better idea now on the.threshold at which it would be unbearable.for banks, even if they adjust their business.models and they work on their business models..Regarding the Italian merger, I will not comment.on a situation regarding individual banks..I will just tell you that mergers are delicate.operations for banks. We all know, I am sure,.mergers that in the past made – in all countries,.not Italian specifically – banks weaker.than they were before they merged. So we want.to make sure for all mergers that the new.entity is strong from the very beginning..In the present case we are talking about a.bank that would be the third Italian bank,.so it's quite important and significant to.make it successful, to have a successful merger..This being said, I understand also through.the Italian newspapers, that are writing a.lot about this operation, that the conditions.that we have put, that would have been exactly.the same for any bank in any country of the.SSM, have been understood by the Italian banks.and authorities, and that they will be complied.with. So it seems that quite fast now there.will be possibly – if I am well informed.through what I read, and I believe I am – things.will move. Let's wait until they really move..On low interest rates, where is the threshold?.Well, you always can go lower. We are here.in the SSM talking about banking supervision,.and not so much about low interest rates and.what kind of monetary policy instruments there.are. They can always go lower, but you have.to balance between the costs and the benefits.of monetary policy measures, whether they.be standard monetary policy measures or non-standard.monetary policy measures. But this is my personal.opinion: one might doubt about the balances.if you were to go lower, but as I said, this.is my personal opinion, and it might not be.the opinion of the Governing Council. So looking.into the cost-benefit analysis, the side effects,.the question of what kind of risks come with.what kind of measures, is a very important.issue..And then for me, very important too is, if.the conditions change, if the macroeconomic.environment changes, when growth is coming.back in a sufficient manner, to go out as.fast as possible when the conditions are met,.is the most important thing. So you can count.on me that I will be the first one asking.for an exit when the conditions are changing..I had two questions on the Commission note.or proposal on the Pillar 2 requirements,.if you use this proposal: what share of the.SREP surcharge or add-on you impose now would.be in the guidance part, and what in the requirements.part? So how would the MDA develop if you.were to follow those proposals? And what value.will the guidance part of a SREP add-on have.if it doesn’t limit banks' ability to pay.dividends or bonuses or CoCo bonds? So isn't.it useless, if banks don't have to fulfil.it to pay any dividends?.It's very easy to respond to you: because.this is work in progress, I have no response.yet. When we have responses, when we have.had a chance to discuss it in the Supervisory.Board, we will inform you..Just to add, this note is a working paper.which was sent to us because we asked for.clarification on the stacking order, et cetera,.as there seem to be different approaches in.the European Union. Not in the SSM. In the.SSM we harmonised over the SREP, but there.are different approaches in the European Union,.so we asked for it. Now we've got a working.paper back, with the request, “Please tell.us where you see still a need for clarification..What is your opinion?” et cetera, and, as.Danièle said, it's work in progress. We do.not have yet a draft answer to this note,.as it came, I think, last week. It came last.week, and we are still making a list of questions.for the Commission. So a little bit too early,.your question, but a very good one..Two questions about the consolidation process.that we hope is going to start. First of all,.as far as we understand, the SSM wants to.receive a business plan when two different.banks are going to merge. Is it possible that.the SSM Supervisory Board could give its preliminary.approval to the merger before, even without.having all the details about the business.plan that is due to arrive, but just knowing.the main details about capital actions or.governance?.Second question is about the capital actions.that apparently you are going to ask of one.of these two banks involved in Italy in this.possible merger. Do you think that these actions.could be considered as a benchmark for the.future, for the next mergers in an SSM framework?.Well, it's interesting, the SSM, because cultural.differences are popping up from time to time..Coming from my former capacity, the very first.thing that banks would put on the table when.discussing a merger would be a business plan.of the new entity - before everything else..But my Italian colleagues have explained to.me that this is not the way it's done in Italy.so far, and that a business plan comes a bit.later. So granted, we took that, the Supervisory.Board asked for a business plan, and still.wants to receive one, but it's not a precondition.for moving forward on the discussions. And.this is what we are doing. So yes, probably.there will be a response before receiving.this business plan..Regarding capital actions that we are asking.from the banks: again, we are asking of those.banks exactly what we would be asking of any.other SSM bank in any other country, provided.it presents the same size and same risk profile..For example, we don't ask the same thing of.a future third bank in the big country that.is Italy that we would require from a merger.creating the fifteenth largest bank in Italy..Obviously the bigger the bank the more important.it is for the SSM and for the Italian banking.system that was mentioned earlier. So it's.a case-by-case-basis outcome of the implementation.of the same criteria..So that's the situation. We compared the possible.future third Italian banking bank with the.Italian banks and SSM banks that are in the.same situation, but mostly Italian banks..What can and should the ECB do to expedite the resolution of non performing exposures.(NPEs)? And Mme Nouy, you mentioned yesterday.that it would take years to get the NPEs to.a reasonable level: could you venture a guess,.how many years are you talking about?.The second question is a somewhat theoretical.question about settlement of euro derivative.trade. Do you think it is appropriate for.such trade to be settled outside the European.Union? Currently it is settled inside the.EU, but should things change, would it be.appropriate for settlement outside the EU?.Regarding non-performing exposures, we have.quite diverse situations in Europe. It's not.a problem in all countries of the SSM, for.example. When we consider the countries that.face this issue, there are different situations.based on the loans themselves: are there loans.to retailers, mortgages, for example, or are.there loans to SMEs or loans to big corporates?.Also differences include what is the situation.of the legal and judicial system in the country?.How long does it take to repossess collateral.when you try to recover the loan? So how long.it takes will depend on these circumstances,.obviously..But at the end of the day it's still always.the same solutions. First of all, when we.have a problem of this magnitude, we need.to use all kinds of tools. All the tools that.are available, and all the good advice or.good support that we could receive. For example,.we work with the IMF on this issue of non-performing.exposures, because there is a lot of expertise.in the IMF regarding this issue. And also.the situation is always the same because it.means to fix objectives at banks to review.their portfolios, to sort out the portfolios.between the loans that can be restructured.and that will become performing again, and.the loans that have already been restructured.or cannot be restructured and transformed.into performing loans, and have to be considered.as defaulted loans..So obviously depending on the magnitude of.the problem, it may take more years for certain.countries. But this being said, let me remind.you that this is precisely why we had this.asset quality review, the comprehensive assessment,.at the beginning of the SSM. We used for the.first time a single definition of non-performing.exposure, which was a big step in a good direction,.and we have identified now the non-performing.exposures in all countries using the same.definition. We have reviewed valuation of.those assets, and we have asked for provisions,.all the possible accounting provisions, and.when the accounting system was not permitting.to have such additional permissions, we have.asked for prudential provisions..So we are in good shape on this ground, having.identified the problem and having a reasonable.level of provision, to take the needed time.to make it a success. Obviously when the problem.is of little magnitude it will be fixed fast,.and when it is bigger it will take a bit more.time. But, as I say quite often, when you.have to undertake a long journey, you have.to start as early as possible – this is.what we have done – and be very committed..And through the working group that we have.established, chaired by an Irish deputy governor,.lady deputy governor of the Irish central.bank – because we use the best supervisory.practices and this country, Ireland has done.a good job with the non-performing exposures.– we are moving in the right direction and.with a lot of momentum. I'm surprised at what.has been achieved since the start of this.journey..On the derivatives, do you want to respond?.Yes. When you are talking about settlement.of derivatives inside or outside of the European.Union, is there a hint on the discussion of.the referendum? Possibly? I thought so. Well,.I mean, we have to see what comes out of the.referendum on 23 June and then we will discuss.what kind of location policy is needed or.not. So this is a question which comes a little.bit too early..Okay, thank you very much for coming, we're closing the press conference here. Thank you, goodbye..