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[Music] good afternoon and welcome to you all to today's online debate organized by the florence school of banking and finance within its new initiative bank board academy on [Music] the topic fit and proper assessment better boards for better banks my name is arena cadletti i'm a professor of finance at bocconi university i am the founding director of the school and i'm also non-executive director of unicredit although today i would not speak in their capacity but just as pure academic i'm delighted to share the debate today and would very much like to start by welcoming and introducing our speakers we have eduardo fernandez polo who is a member of the supervisory board of the ecb with the longest experience in supervision in the french prudential supervisor the managing board of dba the basel committee on banking supervision then we have lara casser that today will speak as non-executive director of aps bank malta she is a lawyer by background with a vast experience in many areas of practice including banking and financial services and institutions more at the larger and she's also the founder of the camilleri castle advocates and finally we have a hans helmut cots that today will also speak in his capacity as the non-executive director at the caxia gerard depositor in lisbon he is also senior fellow at the safe and the center for financial studies in frankfurt and the resident fellow at the harvard center for european studies he also has the vast experience in the area of banking and policy also just to mention one of the rules he had as a former member of the executive board of the deutsche bundeslag thank you to all of you for joining us today we are really grateful for having you with us and contributing to this debate before we start let me just spend one or two minutes on explaining what the florida school of banking and finance is and the new initiative at the bank board academy just because we noticed that today in the audience we have many new participants so maybe not all of them are familiar with our activities as you may know the florida school of banking and finance was founded in 2016 and is a european platform bringing together practitioners and academics from banking and finance sector to foster the development of professional skills through training and policy debates activities and the real distinctive feature of the school we like to believe is the close interaction that the school has with the european public institution simply for the fact that is based at the european university institute also so high level representative from this institution take part in the governance of the school and the senior staff also participate regularly in all our activities both as a trainers and as speakers in our policy debate as for example today within this background the florida school of banking and finance thought of creative launching a new initiative last december called the bank board academy for non-executive directors and the goal of this activity is really to build a community of board members non-executive and independent and help them improve desk is an understanding of their duties and responsibility in an environment which is open and very close to the policy world how do we try to achieve these goals we try to achieve them through two different type of activities and you have seen in the slides when you entered in the seminar room we have online seminar series for example like today mostly on a monthly basis and we will then start in we just have proper training courses and you have seen them again let me just mention the for coming activities on 18 of march we will have the next seminar entitled low interest rate for long the impact on bank profitability and risk appetite webita costanza former vice president wcb julie galbo boardman by tb at nmb and thomas blasopolo sorry blastopolos had a monetary analysis division at the ecb again and for the training activities we will instead start in june for with an activity that is very directed to people being involved in the risk management of the bank or better to non-executive director they probably are closer to the risk side of the bank maybe because they're sitting in the risk committee and we will analyze and discuss emerging risks like climate risk anti-money laundry cyber risk and the like but now let me come to the today's seminar we will start with eduard who will give an initial speech of about eight to ten minutes then the lara and hans helmut will have a five to seven minutes each and then we will open up the floor for q a let me remind you that today's seminar is really meant to be a conversation between the ssm and the non-executive director on the fitter and proper sentiment of remember also in light of the review that the ssm is conducting and the upcoming handbook that the ssma will publish soon and maybe we today you know from eduard when this handbook will come out so i kindly invite all the non-executive directors that are present in the audience and also other bank representatives that we've seen in the audience that are involved with the formation and the function in the managing of boards to share their experiences with us today and with eduardo in particular and the post question to our speakers in the q and a chat box in the bottom part please use the q a chat box and at the end and now please i start speaking edward the floor is yours and thank you again for being with us you are now a friend of our school thank you well thank you elena for this kind words and for the pleasure to be again with you today um i i will just introduce very shortly an issue that is very important for us and let me begin by quoting a former chair who was very close to me uh daniel nui who used to call the fit and proper assessments the fonterrible the terrible child of the banking supervision and let me underline that for good reason from the point of view of ecb because when we are looking at this issue of the appointment of the members of management body or whether it is suitable for directing the bank business be aware that as ecb supervisors we have to complain with uh to comply with 21 different national frameworks and not with a single european rule so that's what i wanted to say at the beginning um we the fit and proper criteria they are laid in the directive that means that each member state has a level of flexibility when transposing cd4 into national legislation just to give an example in eight of the 21 countries the the the assessments are conducted after the appointees taking the position while the we call them exposed assessments while in 13 countries um it's the other way around it's before and we have to work against sometimes very tight deadlines in in conducting uh the assessment so uh and by the way there are other countries where there are no deadlines at all in making the assessment so this is a very diverse and important task that the ecb is doing fit and proper assessment i think since the inception of european banking supervision we have been doing pro each year between two uh two two thousand five hundred to three thousand uh assessment so again we are speaking about the challenge how to get a unified approach by ecb for 3 000 assessments that follow 21 different national frameworks needless to say that ecb will continue to push for fully harmonized fit and proper criteria in uh to be enforced through directly applicable eu legislation uh but today i am speaking with this background and in this background we are not standing still we are trying to enhance our approach because we see that along for the whole of the the eurozone area banks it's uh it's much needed as a tool to improve the bank's coverage again this is very important to underline the the approach to fit and proper the enhanced approach we're trying to define can only be properly understood when we consider it together with a view and role of the mission of the bank's management body it's a way to give the right incentives to for the bank's management body and what do we think about it what's our view on the bank's leaderships first we have to say that the members of a bank management body have different functions we have executive board members and and they make the decisions they are there for the day-to-day running of the bank and we have non-executive board members that have to monitor and oversee those decisions the point i today wanted to stress is that this balance between executive and non-executive is key to the safe and sound management of the bank and this balance requires each member to demonstrate both collective and individual leadership in the world what do we mean by collective leadership we mean that every decision should be based on a wide range of information and available data so this is the first point i want to underline today this is difficult to achieve if all members of the management body have a similar background and a similar expertise so they risk together to overlook issues that fall outside the professional experience one of the message today is really that a broader range of experience of values of abilities of backgrounds could help management bodies to improve their role the risk taking the innovation customer orientation in a world it's their decision making and let me also underline that the new challenges the banks experience require new skills and with for instance with the increased importance of climate change with increased importance of digitalization we think that bank board will clearly benefit from actively adding members with relevant experience and skills in this field so just to re-underline that diversity for us within a management body is crucial it's not a fad it's not just a trend that has gained pace it's something that is very important that it's it's reaching other world because the world has started to fully understand the benefits that it brings and may i say there is still a lot of improvement ahead for the european banks in this area let us look first at gender diversity where action is clearly needed we've seen the recent benchmarking exercise that has been conducted by the european banking authority and that revealed that the i think is eighth 834 institutions and investment firms they were in their in their scope not all uh eurozone it's a european union two-thirds have executive directors of only one gender two-thirds and over 40 percent have not yet adopt a diversity policy at all despite what is a clear provision of crd4 just let me say clearly here this situation is simply not acceptable to us as supervisors 40 of banks do not apply uh uh something that is provided for in the direct let me add also that the data that we have suggests that the lack of gender diversity leads to inefficiency if we follow what the eba has published around 50 5 of banks that have more gender balance selection of executive directors have a return on equity of 6.42 or higher while only 41 of banks when executive directors of just one gender reach this level and globally speaking the return of equity of banks with gender diverse management is around 1.3 percentage points higher than of banks without this diversity so this just serve us background why we supervisors we consider that all of the diversity related aspects are really relevant to enhancing the individual and collective leadership of boards this means of course i've just spoken about gender diversity but producers diversity of experience and of practice and then if we go to the individual skills and the individual leadership it involves knowledge it involves skills it involves experience but let me underline that first and foremost it means the ability to listen and the ability to challenge the executive board members they should be open and sensitive to the views of the other members most they must be able to take decisions that may be unpopular but that will be good definitely for the business of the banks and the non-executive board members they must remain objective they must hear what the executive members say and but also constructively challenge the executive and be resolute when they do so with when they perform the specific role of challenge so all these leadership qualities are essential but it's clear it's also difficult for a supervisor to assess in the fit and proper procedure particularly we have questionnaires with uh interviews in some cases but they are not sufficient sometimes for a supervisor to determine whether really a specific candidate is suitable for the leadership role exactly the role that he wants to take our message here is that the banks are much better place to make this assessment because they carry the recruitment process and have access to a broader set of tools and the supervisor's questionnaire of interview it's the banks that are responsible for finding the right leaders for the right jobs and ensuring that they are suitable to all types we have as european supervisor a second life to our role is to check that there are no prudential grounds to question the bank decision which is the first time and the first responsibility and selection of the bank members so in trying to help the banks to be more effective in the selection process and this is part of a broader thing that we are doing now in supervision we think that it will be very useful to clarify in a public manner or supervisory expectation and how we perform or wrong what's our experience in doing this 3 000 plus uh fnp assessment during all this year and this is why we are working now on an enhanced approach to fit and proper supervision which aim is to make these assets more efficient and better scrutiny the board members and we do hope that this will have a really a positive impact not only on the safety and soundness of individual banks but on the wider banking sectors so we are preparing a package of measure which hangs us provide the right incentive to a bank so that they use it in the selection and we make our second line assessment there the first thing we will be doing is to encourage bank that are subject to an ex-post assessment regime to provide us with the suitability assessments before making appointments why because this will prevent a situation where a board member has taking up his of her role and then needs to be removed because the ecb subsequent assessment was negative clearly this situation is not optimal this exposed removal causes repetition or risk for everybody that can easily be avoided so a message here is that early communication is better for everybody better for an exchange of views on the candidate and how it can contribute to the diversity and skills of the boards and it fits well in our current regular supervisory arrangements in the dialogue with on the visit appointments second when we assess you know second line and says the suitability of appointed or appointed candidates we are going to give more consideration to the supervisory findings related to the previous position of the candidates if any of course and to the link to the specific needs of the banks to be clear today uh up to now the current approach has largely taken essentially into account direct links between the specific roles and responsibilities of a board member and or supervisory funds under the new approach we will be looking more closely at all forms of uh personal involvement in the issue that is linked to a supervisory finding and particularly whether a candidate has a record of appropriately challenge the decisions that were taken here again we want to underline that collective leadership and mutual challenge is vital is an ingredient of well boards and of course then this is for all boats and as regard the specific needs of any given bank we will look carefully at how the apanti will contribute to the diversity policies that we will be asking the bank to have as the crds they have to do uh third point we are going to explain in more detail how we will reassess sport members in the event that we have new material facts that affect the stability after they are appointed and here i have a we have a specific specifically in mind this money laundering risk because we've seen i think altogether that they have been becoming increasingly relevant for prudential supervision so we will try our revised guid that just to answer your question i hope we will have next month published we will try to explain how we take into account these findings related to money laundering in or assessment that are made as prudential authorities not the same authorities but as prudential offerings and of course this will involve close cooperation with the anti-money laundering authorities as it is provided in the european framework we we do have a an mou that we signed last year let me conclude to give way to the conversation we are very aware that there is no unanimous view on what constitute good leadership my personal philosophical background and but also supervisory experience they really leads me to believe that this is an additional argument for diversity we don't think there is a single recipe for success it has to be adapted to the individual situation of each bank it has to be adapted to the challenges of this bank so this is why really one of the key messages that i want to deliver today is we want to provide the right incentives to enhance the ability of the management body to capture all the necessary perspective and the ability for each board member to perform tasks with due diligence and integrity okay nominating board members it's a bank responsibility it's a big responsibility because leadership qualities they cannot be confirmed with diplomas they can only be proven by successful experience that relates in good references and they also need to be tailored to the specific situation of the banks so again my message today is that our forthcoming revised guide to fit and proper assessment is for us a tool it's conceived as a tool to help bank select the right leaders and why because before making appointments banks will have a better idea of what the ecb expects from the nominees and what the outcome of the foremost readability applications could be and clearly it's our stance and to offer today we will maintain a continuous dialogue with the banks on how diversity will help them face the current challenges thank you for your attention thank you very much eduardo you have given us a lot of food for thought for a debate let me just remind the the participant that the speech of eduardo will be available on the ecb webpage as the seminar ends or maybe already is available now before we open the discussion with the participant let me go to lara please thank you elena and good afternoon everybody and i was first and foremost like to thank you and the florence school of banking and finance for giving me the opportunity to participate today and also to the european central bank i think this space for a dialogue between it and non-executive directors is is crucial it is a very important phase of one's participation in the board indeed it has been absent i believe in the recent years and all former channels for communication between the bank and its regulator are generally handled through the executives these are the people who are obviously dealing with the day-to-day management of the bank however i do believe that a two-way discussion between non-executive directors and its regulator is important it was actually as it does today accelerate the understanding of regulatory expectations in a practical manner and would also improve the regulators knowledge of the bank in question um i also feel that this dialogue should take place in a in an informal conversation in fashion as opposed to the more formal supervisory visits today's discussion is actually exactly that it is an excellent opportunity to further brainstorm on how this dialogue can be created and achieved and the white has highlighted i think some very important points today in respect of prospective amendments to the fit and properness assessment process i think both at example level and at an exposed level firstly i think he touches upon an important role which is the difference between the roles occupied by executives and non-executives as a non-executive director we are often faced with the dilemma and and a balancing act i think when directly the bank um and having to ensure that at the same time you're not interfering with the day-to-day management particularly when there are divergences for instance and opinions on a strategy between the executives and the non-executive directors and i think the only way these divergences can be used in the bank's best interest and and with the idea of having your proper board governance is through the nurturing of constructive criticism and a mature discussion naturally the chairman of every bank plays an important role in this regard and bringing together the various elements of the discussion and ensuring that there are no there's no bad chemistry created by that a second point which was mentioned is in relation to diversity and collective leadership i think diversity has developed from a nice to have to a must-have and there are some very important drivers underpinning this which i do i've mentioned as well and diversity is not merely a mouth about gender it comes in many forms including age background and values it's actually a representation of society in general and this society representation is can be sort of translated into a bank by having a representation of the bank's stakeholders and the bank's customers onto the board this is not to say that in my opinion that diversity should be the primary driving force behind nominating an individual i think it would be highly insulting to any nominee if the sole reason for their appointment is for instance their gender or their race therefore it is important to have diversity as part and parcel of any other of other qualifying factors such as a particular skill set needed on a board and i cannot but agree that the ucb's evaluation should also consider other supervisory factors and aml issues for example of what the candidate has been involved um having said this i am a firm believer that there is no one-size-fits-all approach to this since each bank is on a journey of its own with its own goals and exigencies and i think the ecb um needs to keep this in mind in its assessment process because they will need to understand i think the uh the journey of the bank and understand as they have as mentioned as well that it is the banks that are best suited in order to analyze this and it is a reassuring that the ecb acknowledges the primary role played by the bank itself related to this is also proportionality coming from a smaller sized bank i consider proportionality to to be key the one cannot uh compare the the banks in all the european markets as uh on the same level there's very little comparison that can be made between the larger banks and the smaller banks each of them have their own journey and will have their own timelines too to fulfill the diversity requirements and this i think also begs the question how effective is a regulatory um fap assessment and legislative measures in ensuring a proper functioning board and i think it's no easy question to answer for the simple reason that it's just not possible i believe for a regulator to fully assess all boards on an excellent basis let alone the next uh on an xbox basis let alone an example basis where there are other important elements that need to be assessed and are not easy to assess by a regulator for instance the healthy descent between the non-execs and the execs whether there is independence of mind whether the ongoing training is actually effective in ensuring that there is a basic set of skill sets amongst all the directors and a successful board is a function of having the formal requirements approved by the regulator but also having the right character makes soft skills and experience in conclusion i believe that the european central bank and every national competence authority should try to create and foster this direct relationship with non-executive directors and i really welcome the initiative taken by yourselves and the ecb to create this dialogue as well as to revise its guidelines with a view to assist banks in selecting the right candidates in this important role and i conclude by also urging the national competence authorities to also follow suits with their own directly supervised entities in creating a much needed dialogue thank you thank you very much alera now let me move directly to hans helmut we are running a bit late i don't want to put any pressure but please keep this in mind please answer thank you very much elena we can see this that yes let's go you did of course put some pressure on me i didn't want to i'm sorry it's a great pleasure anyhow to participate in in this debate which i find um very important and um i also think it's a it's a it's an excellent opportunity to have this platform at the florence school of banking and finance in an open way in transparent open way what i'd like to do well i probably should first start with a standard disclaimer these are my views and not the views of kaiser but of course i've profited over the years working with my colleagues there so what i'm supposed to do my chart was to assess and to challenge as the wording goes it was statement so let me just do that um the idea of the forthcoming guide is to clarify ecb's expectations and i do think that is very important to be open about what you what you expect app and it was started off with highlighting the complicated procedures it's a directive not a regulation and i completely concur with him this complicates issues enormously i have to confess i was one of the those who've been really glad about the ssm being introduced basically the most successful pillar of the banking union and the reason for that was of course to have some sort of equal treatment so harmonization would be very helpful to have there the second point he highlights is both should be capable to process a wide range of information and available data and for doing that you need diversity and i will come to to that in this in a second basically and diversity here means gender for sure but also probably in terms of experiences and so forth so this point about reading the data implies first and foremost of course that you know what you're talking about in what business you are that you have skills and experiences which go with this business so they are possibly different across industries otherwise it will be finishly difficult for non-executives to criticize what's what is going on in a firm or in an institution and i do think the idea that the ssm has sort of a second line role to um perform in terms of contributing and guiding the recruitment process makes lots of sense for me because it's again giving some sort of infrastructural background into the decision process there so this should happen by clarifying what are i quote supervisory expectations this is somehow the ssm listens what is done in monetary policy in other domains meanwhile meanwhile also and it is in particular about the capacity to assess or assess the capacity to constructively criticize constructively meaning discussing and showing potential alternatives and this should be done on more or less a regular basis i like this remark at the end my philosoph philosophical background uh and my supervisory experience leads me to there is no single recipe for success so now let me let me uh perform the charge eleanor has given to me i'm i'm i'm supposed to challenge so i start with a very simplistic model if if you like the first question good boards leads to good banks actually that also shows up in our q a here is there a simple relationship between good boards what are good boards and good banks so good boards are those who can in a forward-looking way um assess what might happen to to the bank through the lens of the objectives and the targets of the bank so in the light of objectives and missions and there are missions so the plural is there on purpose the other issue is what are the criteria um roe for example has proven to be a rather shaky criterion in 2005 we had in germany a debate about those famous 25 percent turned out those who came up with the idea this is not achievable of course not on average if achievable at all weren't wrong exposed and xnd so raroc for example might be a better criterion or cost income ratio or whatever and this is particularly important when we talk about this very difficult to assess beast of esg so what are the criteria and then also showing in our q a what are the determinants of this capacity to elevate and to evaluate knowledge skills diversity across which dimensions are they causal are they just covariates correlates so can we really identify what we're talking about i'm not trying to throw too much water buckets of water in our classes of wine but i'd like us to be really serious about those issues because i completely agree with all the objectives which are pursued there and there's a variety of objectives so when i read our esg reports which i find remarkably good done being a bad tempered economist at times i'm thinking about what what are the trade-offs what are the constraints so um wish lists do not help in terms of succeeding what we'd like to do and now let me go quickly about the main points i'd like to address with a few regrets so the first is corporate governance in banks should not be shareholder value oriented shareholder value oriented amplifies an underlying tension with within banks which is the conflict between creditors and shareholders so there's a broader scope stakeholders with which and we have to discuss this and that might be different in different institutions um let me let me show why good banks might not really perform in a proper way and he here i use two examples i only take 30 seconds for this one adrian plundell wicknell in the late 2000s 2000s early 2010 continuously embarrassed meetings with showing the following relationship there's a strong positive correlation between banks which had high basal 2 oriented tier 1 capital ratios and the necessity to write off so just the wrong way same holds true for a very if you take a very simple um leverage ratio the uh the less leveraged the less right dawns you you had so this is about also independence of mind with regard to our supervisors there's a reason why supervisors have been adapting rules because rules didn't perform and there was lots of academic research on on that actually you can show that's why i made the point with governance and the performance of banks or aoe actually you can show that those banks who have been closely aligned with their shareholder shareholder interest performed worst the traditions and and many others so the capacity to judge that's my second quick point is about processing i quote edouard a wide range of information and available data july 2007 suddenly spreads in interbank money markets exploded what was going on there unprecedented how should we read this what should we do how to respond the ecb responded in by adding 90 billion it was criticized for weeks as being panicky and hyperactive i don't know what this is i don't know what this is so this is the point about xanthe by the way this spread then later increased went down each time the crisis was declared to be over and it ended up here this market still does not work so xanthe is the capacity to decide which theory underlying theory is is is important now those are my final points i go don't go into the new risks i go into the bread and butter stuff and the present butter stuff is credit risk so if you look for and now don't take the other financial risk not non financial either so just credit if you look there for understanding knowledge skills there there's there's basically a multitude a variety of of models non-dominant non-decisive the one most used probably is mertens structural model and if you look into what theory had to tell the the book i liked most hull's options and and so forth from 1989 actually as i just looked it up yesterday evening just has one page on credit the latest edition 10th edition has two chapters on on credit derivatives so that's a continuously evolving evolving beast and it is important and it also mentioned that the the current issue is really a credit issue going forward that's why the ssm puts it first and in front in its new activities and the ssms has sent out a series of etters since the crisis began on december 4th the letter is titled identification and measurement of credit risk in the context of a kovit 19 pandemic calling upon calling banks to ensure first that risks are adequately reflected in the management process and financial statements and second avoid excessive pro-cyclicality so obviously to conflicting objectives so you have to have to decide on on the balance so what what does that mean now concretely large institutions are the risk basically is defined by the geography of their balance sheet and it's a portfolio risk so that's mainly macroeconomics and if you look at the current assessment of what might happen there's a huge diversion in assessments between institutions depending on location across time so for an individual large institution in one particular jurisdiction this is large and it is significant if this institution tries mainly to protect its own spelling sheet it will create procedurality really persecute pro-cyclical behavior and it will also maximize type 2 errors so a systemic risk will arise from there and i could explain that in the case of of portugal i was highlighting this and elena don't get nervous because i wanted to stress the point you should first of all be knowledgeable about the core business and the other risks which are really important don't get me wrong and they are not newer by the way not at all so climate risk the stern report of 2006 has has actually asked to integrate this into management management so the the point of the matter i wanted to stress here is to be open-minded and independent of mind as a net but also as an executive why um and that means in particular to accept um diversity in in terms of use pro-cyclicality this notion was first stressed by john danielson charles goethe paul empresser and others in 2001 i also had a little piece along those lines in 2000 it was dismissed and ignored there were also lots of people who were dismissing ragu rajan in 2005 or bob schiller and and others so we shouldn't over promise we should be modest and i like very much what lara said and also what um eduard said we have to mitigate group think that's the reason for going for diversity mitigating troop think great work by roland bin abu and and others and we have to accept and manage uh trade-offs and this is captured to large a decree in standard uh standard economic literature so thanks to elena for initiating this to lara for giving me lots of good ideas to eduard because he confessed something which i don't need confessing so it's great to come call normal soup but i like to stress as a as a as a simple economist german philosopher jurgen habermas he said my bad present translation would be understanding is a two-way relationship okay i think we have to to to continue thanks a lot hans helmut i noticed that in your actually point you raise a lot of and you try to address a lot of questions that the participants already were asking during the registration so maybe we can skip some of these but we only now have a 15 minutes so i'm afraid eduardo we will have to have another appointment where we will continue the conversation with the net and now that we see that there is such a great interest but having said that let me keep the microphone back to you and given that we don't have much time left unfortunately let me be trying to structure the discussion along three phases the first one is really what are the criteria that you look in the assessment so the pre-screening when you get the the application what is it that you look at given that many have called for bigger clarity from this perspective the second one is the the the the word that has come again and again diversity so what is can we think of somehow an optimal diversity what would you see that as an optimal diversity and in that i would raise a point that has been asking the chat box which is in order to obtain the verb to to reach diversity the bank has to be able to attract people and the experience in some banks is that it's very difficult to attract people coming from non-banking sector in particular with the senior experience and why is that why because notoriously the banking sector has higher burden on the non-executive directors but also because the pay is not very high relative to other sector or relative to the burden that it entails so what would you say from that so what is the capacity of banks to attract a different background that you seem to put really the core almost of the the criteria for this assessment and the proper board please let's start with this and then we move on rather on how do we evaluate collective competence and how we look at exposed assessment please well thank you for this question we should indeed go to the heart of the matter let me go to the criteria we have because it's a background of everything we have five criteria and all the things we say about diversity should be understood against these five criteria the first criteria is experience the second is reputation the third is time commitment you have to devote time to the fourth is independence of mind that's it uh and this is where we have this issue about uh preventing conflict of interest but also being able to challenge and and the last is the collective suitability so that's how do you fit into the uh how the board fits and this is for instance where clearly we were saying that if you have we need people with experience and skills and i very much like what helmut has helmet said to challenge you need to to have a ground to church but we need to have experience but if it is the same we have a problem because there will be only one kind of challenges that's why we need different experiences different uh skills to make this collective suitability and again it's one of the criteria but we do need to have experience and skills so so i'm not saying that but i i am unable to think for one second that it is impossible for two-thirds of the banks to find women with these kids i i just don't think it's really i don't think it's real that they should so they i don't see the issue of diversity being against the issue of skills for us it must be a given it's among the people that have good experiences and good skills that we need so that's for the first point the second point how do we catch people well i i will be tempted to say if you're looking for diverse persons then you are enlarging your recruitment possibilities so already that to be honest i i will be a little i was a worried if i say if you only catch people where you have to multiply by three what the you pay if all of these if you only get in the board members of the bank these people maybe we are lacking some sensibilities and and some skills also in the boards of the bank so again of course everybody has to get its compensation normally uh my experience is that banks are not to those who pay less but what we really need is that they are attractive to different kinds that they are looking also they make known that they are looking for different kinds of experience and okay for the gender diversity the uh the thing is very easy to observe while the other diversity is less easy to observe i cannot believe again that two-thirds of the banks cannot find skilled woman too for the ball so that's that's i just refused to believe it sorry i couldn't abuse myself i will go back to you on this question i see that you want to reply to this let me however go back once to eduard and i'm sorry if i give more floor to him now but we don't have much time so the other issue is the exposed assessment i think you said and in the question there were several references to how do you really uh how are you really going to somehow assess the board member after he or she is appointed are you going to look at minutes are you going how do you how are you going to evaluate this interplay between the board members and the dynamics of the board members i mean it's enough probably not so how would you evaluate this well here our intention is to use the full range of our supervisory instruments have a continuous dialogue with the banks so we have a many different instruments we will see what is adapted to the situation of each bank but we have we can go to the boards as you know we can have also on-site inspections where we go we there's a people that go and can have interviews with different members of the boats alone and and we can ask the bank to produce self-evaluations and look at the self-evaluations uh we can also of course look at the minutes we will look at the minutes and what happens and i will say in the course of our supervisory issues we can ask we see we will see we can ask for instance to just take an example do you have a diversity policy no who is responsible for this who should be doing it what are your place in the diversity policy what what have uh what have you foreseen does it work so we can have interviews with senior management we can go to the boats we can have people having interviews with the people the other members of the board we can ask for external evaluations how the board is working and have access to this we have a number of it and we will use it of course again i told you we have three thousand so we are not going to make 3 000 on site inspection or ask for 3 000 evaluations each year we will do it on a risk-based basis when we see it's needed when we see it's appropriate but we have a lot of tools and we are ready to use all of these tools do you know right now you said that you are conducting interviews with the members but of course and not all of them would you know the percentage of interviews over the total fit and preparation you're saying on the exam no because i'm sorry sorry i went i was going back to yes yes well essentially for the time being is with the executive or the chairman's of the of the rich committee so it's not for the we don't do it for the ordinary uh non-executive members uh because it's too much i mean again that's too much but we don't if if we see the need for it we will do it but this is not a regular practice let me say that i've seen a lot of comments or questions in the chat box that i really ask somehow for a supervision having a much more effective dialogue with the nets so this i think is one of the strongest message if i made that you get from today that the nets would like to have a more interaction with you and maybe not excellent here now exposed ha let's go back to you for a second on this issue of diversity and you see in the question in the chat but the question is whether diversity is a concept that somehow is temporary because anyway the people once they will be on the board they will acquire the knowledge and therefore the problem sort of will decrease at least over time what's your response to that i wanted to respond to it but that actually only works indirectly but let me do it that's a very good point and it it goes into this issue also which lara mentioned with with regard to chemistry you don't want to be continuously the party pooper possibly you want don't want to continuously spoil the spoil the show still and that has to do with courage you sh you should somehow try to get in a variety of views in my former institution i always invited academics who were completely opposed to our views we ran seminars on a monthly basis some of the people actually are cited here were invited because they didn't have our didn't share our view and i only felt confident when we could stand up to them and then that's what we're doing in our when we write our stuff you want to be exposed to the strongest counter argument and if you survive it's fine if not you won't be that sure but let me make two very quick points which i didn't bring over because my technique here didn't really fit i wanted to scribble on on the slides i had a very strong implicit critique which i didn't bring over the measurement for the quality of diversity was a difference in terms of 1.3 percentage points in roe by eba i haven't seen the statistics i don't know if it's significant a completely wrong criterion roe has proven to be the strive for 25 percentage points of roe has proven to be one of those issues with blew up the system in 2007-2008 and it was for that reason by the way also withdrawn and corrected by the way we as finance people would we only look at how we or wouldn't we divide this into risk it begins right at the beginning of being just funny and that's what it was used as a criterion for having diversity gender diversity on my book i'm i'm in favor of diversity but for completely different reasons and we should come up with these reasons the second point and i wanted to make has to do with this wish list no trade-offs add up a wish list much of this which is my deeply felt concern in terms of climate for a long time can be integrated should be integrated into our finance models and either as a constraint or in a way of optimizing what you what you're doing there the physical risk of climate change and i only need once one more minute are so traumatic and i've worked on that with another head for quite a while they are really devastating it's not wishing it's implementing and my point there is this is not what nets should do that's a policy issue public politics it is not the collective uh dictator the plutonian collective dictator of nets which deal with it it's politics it's good old musgrave who is in charge for collective goods not the individual institution it has to be organized uh by the public sector otherwise we won't make it there and then i just want to give the microphone a safe to large one so do you want to respond to this point of hansel helmut sorry was that to me um no i'm sorry maybe i hope no i was asking eduardo but i see that he's frozen no no okay no okay no he's not frozen okay now i just wanted i was asking you to add to you whether you had the response to hans helmut on this last point in particular of climate on the climate well yeah on the i mean on the road that the nether should have in this again we are taking our responsibilities and i fully agree that the this should come from the public authorities we have may we have sent a letter or expectations we said we think the bank should do this and we are saying we are looking and we will be looking next year to if they have done it and we will be doing a stress test with some characteristics to take that so i have to interrupt you i was talking now about climate change and how to integrate it but the other point which concerns us now really is let's suppose banks are careful they don't lend out money and they are the large institutions in in these countries what's going to happen to that country in particular if you're faced with a tourism sector and hospitality which has 20 percent of the which holds true for much of southern southern europe your fallacy of organizat to put it in philosophical terms you the same institution here in frankfurt gives money to banks to do what so there's a and too obvious inconsistency and that's why i'm a little bit frustrated i've been a major defender of the ssm right from the beginning if banks now take their response i stop there take their responsibility and account for the underlying risk they stop landing again well this is let me climb at risk we have taken all responsibilities so we will be looking that the banks have applied what we do and we'll see on that this is the biggest issue we have so so uh we need in fact another thing to deal with it this is the biggest issue but we are doing that exactly you remem you spotted that we wanted an equilibrium in our letter so this is what we are expecting what we want is that the banks keep lending and we have given way for the p2g so we have said to the bank you can lower you can lower the prices where credit risk is migrating strongly but wrong direction means okay just too fast to say we are saying but we will be dismissing opposition if we don't say this credit risk will come back and you have to be prepared if we don't say that we will be l we will be not performing a role as supervisor so we are trying to combine the two with uh which is not a it is a i think not an easy thing and we are ready to understand if we understand what the banks do and how they get the equity b t we need to do something we can't just you can't just say uh we we are hands off and we'll see the catastrophe when it becomes in one in one year we just cannot okay i think this is a little bit out of our discussion today which wasn't defeated in proper assessment so let's go back a little bit to this and let's conclude and i still want to give the microphone to lara that i saw that was raising the hand before so please and there were just two points that i wanted to make i think diversity is as i mentioned an additional criteria which i think should be spread amongst all the other elements of uh required skill sets so if you need to have somebody with a better banking background then you then within your proposed candidates ensure that there is at least at the first stage a diversity amongst the selection and so that you don't all have the same type of individual who is being proposed but you have a diversity and that's at that level and i and i will be the first uh promoter of the idea that it should be the best candidate irrespective of diversity that wins that role but i think it is crucial that in nominating persons the diversity is element is present there i think on the second element i wanted to point out on on asg is that esg is an extremely wide front and i think the role of the non-executive directors is apart from trying to source the necessary skills to to have that forever present in in a board discussion it is also a very fluid area which which requires uh the non-executive directors or insurers is filtered throughout the various mechanisms of the bank um and i think that's the the these type of values and then at the level of environmental and social and governance are crucial into every single discussion that is being made at bank level thank you let me just use this opportunity to remind everybody that on may 4th we will actually have an event an online seminar on the role of the nets in the context of esg and sustainability and we will have access weba from ubs and the deputy general manager of the bis on this topic but let me conclude that if i may see the um still two minutes um one issue that is very important is the collective suitability as eduardo said on several occasions now in the chat box several people suggest questions or way to improve to enhance the collective accountability be it for example that if the bank gets a fine above a certain amount for governance reason then all board members should not be a fit and proper anymore or that if one board member for specific reason becomes not fit and proper anymore this applies also to the rest of the board of course these are a bit extreme if you want extreme positions but what would be your views eduardo and how we can actually improve collectives with a bit exposed i mean in terms of enforcement measure now well in in fact this is one of the things i pointed out when i see we will take more account of us the past history of supervisory findings we are not uh be clear we are not suggesting to have a tainted rule a contagion rule as a as you mentioned if there is one failure everybody is out this not because we want our measures to be proportioned but what we will certainly will be doing is when we have identified there was an issue of governance to try to be more precise in our assessment and to have an ex-post and post-mortem that is more precise on what went wrong to to try to get more also precise remedies and this is where i say that we can of course use that as a lessons for um challenging the plans of organizing the board of how the the board will evolve of picking a particular person that was clearly completely uneffective even if it was not the one that brought that had that broke the problem but that was completely unaffective and challenging so we will try to uh in the cases that deserve it to be uh to have a more profound exposed assessment of what happens in the boards and to use it in or interaction with the with the banks in reassessment and new excellency assessment so really this is one of the lines we have followed but not in a in a tainting rule like this general just the last question very last when do you think the handbook will be published well we we hope you've seen that this is an issue where people are very motivated so we have to carefully uh i will say uh um design the the drafting but i hope next month we will have okay okay so i think unfortunately it's time to end this debate we are already late maybe we should go back to our uh pre-summer length of 1 hour and 50 minutes maybe it would be easier to accommodate more discussion let me thank all of you for your very interesting insight let me thank eduard and the ssm again for wanting this conversation i as i said before i think the strongest matches of today one of the strongest at the least is the willingness of the net to interact with you so i hope that we will have other occasions to do so in the future and thanks hans helmut thanks elara for your intervention and bye bye to everybody and see you again on march 18. bye-bye