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what we've spent the the first part of the morning focused understandably on the safety of the banking sector the resilience has been built up in terms of my capital and liquidity and all of these important Prudential issues this panel and I'm delighted to be joined by Swami about from Credit Suisse and casting after yoke luck from the ECB Supervisory Board to talk about behavior banks behavior bankers behavior and the extent to which banks governance can help the ethics in the sector specifically how can we strike the right balance that's the title of the session and something if I could start with you I suppose a casual observer of the banking sector over the past 10 to 15 years might be forgiven for thinking that banking and ethics is somewhat of a mutually exclusive issue slightly oxymoronic what would you say to that and can can governance kind of step in and protect Thanks yeah so I guess to the first question is it an oxymoron I think certainly when you look at and you made a comment in your introductory sessions that talk about the Prudential nature well actually conduct cases have actually become a safety and soundness issue for financial institutions if you've looked at a recent history with the level of fines and significance of fines there are estimates of upwards of 350 billion that have impacted financial institutions so clearly I think everyone is focused on addressing it ethics plays an interesting and important role when it comes to any corporation any entity obviously banks have a number of differentiating factors in terms of protection of public trust fiduciary responsibilities to our clients and I think I would say it's not an oxymoron I would say clearly we have a long way to go to address the ethical dilemmas and ethical issues that's why we had such a focus recently on the culture of financial institutions but and when I was preparing for one of these speeches previously I looked back at banking scandals they have existed as long as banks have existed even if you go back to the early foundation of banks right and 15th century and in fact one of the CEOs at a bank that I used to work at said he's often asked this question is the behavior of bankers worse now than it used to be and he said are you kidding me we were scoundrels back then we wouldn't trade unless we had inside information it's just that there are rules now to forbid that now that might be an extreme view but I think it is a tough nut to crack because it is human behavior and the whole debate and discussion around culture and mold and we will discuss that and I don't want to belabor the point because this is supposed to be interactive I think is that I think only through sharing best practices exchanging views encouraging what we think are really standards setting types of behaviors can we actually help to solve the problem it won't be ever eradicated just as fraud cannot be but I think that we can collectively achieve betterment for the industry and ultimately our the public trust okay build on that thought in a minute but just before I come back to you on that and I just want to bring in cast in here and and focus on what governance can do what how important can good governance be in preserving ethical behavior and I'm not just talking about regulatory scrutiny I'm talking about in governance within the banks yeah I think it's rather disappointing that ten years after the financial crisis says banks are still I mean over the public doesn't have trust in the bank so and I think there has been two waves I mean first there was a wave of banking banks taking too much risk and they were a lot of losses in the banking industry and then we have had a second wave of criticize from the public very much linked to institution specific scandals so I think this is all about behavior banks behavior and that is governors I mean how well the board and the management can steer the organization and what sort of frameworks they are establishing to get the right tone in an institution and if you look at there are many different indicators over how well the banks are perceived by the public but I think it's very clear that the trusting banks are still very low after the financial crisis and there is probably a lot more to do and I think therefore it's very interesting that we have this on the agenda today because I think this is something that both regulators supervisors and the banks themselves have to work a lot upon in order to strengthen the trust because if you don't have trust as a chair was saying this morning then you're probably out of the market after a while well yeah that's that's a key question I suppose is what we've seen remarkably I suppose despite all of the scandals and of the financial crisis that actually the the banks have been able to hold on to the vast majority of their business even though this Trust has been fundamentally shaken it hasn't really and despite you know huge competitive threats from for example the technology sector and so on banks have actually managed to retain their core businesses in large to a large degree even if profits are down because of other issues that the business has been remarkably resilient why do you think that is well at you alluded to competition I think that there's still recognition that so first of all I think it's it's if there is true competition and true alternatives which I don't think are fully developed yet we will see what the ramifications are but I think that banks still serve extremely important roles in the economy in general and I don't think that that's going to go away financial intermediation and the value that banks provide obviously is still incredibly significant but I would like to maybe turn to another point which is governance it's ironic because if you look at the developed economies and the developed financial institutions versus let's say emerging markets the crisis especially governance failures were by and large of those banks in jurisdictions that had the most developed governance programs the most sophisticated frameworks and policies so there's been a lot of written a lot that's been written about it so the question is what is it that really is at the crux of the issue and I think this discussion about culture culture can either enhance or completely undermine governance it's how you actually implement governance and is it in fact sustainable right so I think this is very important just to have a tick the box as we know doesn't ever work so you can have policies but unless they're really truly implemented not only by the literal terms but in the spirit of what it's supposed to be aimed at it will not work so that means not just putting up posters saying what you believe in all over your headquarters means actually the behavior of senior management and the board and so on is reflected yes I think it's its board I mean certainly of the regulators and and I think banks all are looking to the composition of board members if you look at large financial institutions for example like Credit Suisse right where I work the activities are incredibly incredibly complex how is it that a board member that is not from the financial industry let's say an independent board member from another another senator Pharma sectors can understand the complexity of what we do in order to ensure that there's appropriate direction on risk for example I think there's been a lot of focus recently on making sure that that board representation is diversified that there's a lot of you know in experienced individuals on boards and also that the level of information and transparency and escalation that goes to the board is enhanced you mentioned diversity is that an important safeguard in any of you do you think I mean that the it's been said a million times now that if the people running Lehman have been Lehman sisters and not Lehman Brothers then it wouldn't have collapsed in the dramatic way it did a more balanced approach to risk management but also controls might help ethical behavior as well as risk appetite I think this is a very broad question and I mean we have as supervisors we are assessing all the board members and the CEOs and in many countries also the main function holders and we have a broad list of issues that we are looking into we are making it around 2,000 assessments a year and we look of course that experience knowledge really look at criminal registers we are looking at if there are any tax issues that could create a reputational risk we are looking at conflicts of interest and also time commitment I mean it's if you are on a board of a very big Bank you'd really need there to the time that to be in the details of everything but then it is of course also the conversation if you have ten people with exactly the same profile that wouldn't make sense because then there may be blind spots so you need relevant composition and you need the people we have different knowledge and different experience IT is an issue that we are discussing quite often because it's important that there are members of the board who have enough knowledge in IT and how to develop the bank's activities how to identify the risks and how to follow up and make sure that you have a good information system that provides a board regularly with the development there in the risks so we are trying to do a lot here but I mean from our perspective we are approving those persons of the 2,000 assessments we are doing around in around 30 percent of the cases we intervene and have a discussion with the Year bags and with the candidates but that is I mean to approved persons it's just a first step than the excellence in governance it comes in the board room where the board works together and where they have to really set the standard which will then have to be implemented throughout the institutions this sounds like this is an increasing focus for the ECB the kind of abilities of the board how you mentioned there the proportion that you ask questions of in terms of the proposed appointments what proportion do you reject I mean when we are being more intriguing going into details asking about do you really have enough time for this as you have six other imports and maybe at the same time you are see you of a larger firm then people are rather often withdrawing so when you have the papers on the table and you understand the view of the supervisors there is the most I think a usual thing is that they withdraw when they are providing another candidate but we have also taken decisions but it's not so usual okay um something I wanted to come back to the the interesting kind of historical point you made about bankers being scoundrels just because they've always been scandals obviously doesn't make it a good thing now but I just wonder in terms of comparing bankers with other professions other comparable professions is it just the proximity to money that it makes it more challenging to maintain it yeah well it's really a perennial debate right so this has been intensely discussed and debated as to what is the role of an incentivization financial incentive ization in encouraging poor conduct misconduct I think well there are varying views of that I mean so the question is is that is there a direct correlation if so how do we address it I think the question is is there a direct correlation it's interesting because it reminds me of another quote which is one of the senior executives in a pharma industry that was on one of the board boards that of the banks that I worked at said do you know the number of hours that I spend discussing compensation per year with my management team I said I don't know probably like let's say 20 hours right 30 hours no two hours how much time do banks spend right you have a Compensation Committee management discussions on compensation now obviously well in excess of the couple hours how important is compensation to what attracts people into the industry which is another interesting question if you those of you who have children or know younger generations I'm not sure banking is such an attractive field if you're motivated by things other than money I mean I I'm not speaking for necessarily credit Suites right I first went into the government and in fact I had this discussion last night with one of the other speakers my motivation it was clearly in my mind it was not financial motivation it was doing good it was the higher social purpose I went to government and I wasn't necessarily impressed there with let's say the ethical compass and which banks they decided to take enforcement actions versus others and I saw disproportionate focus on foreign banks as opposed to US banks some of that cursey still exists you could call it hypocrisy or prevalence for protecting the local entities but in any event I think it's it's hard to say if that's the root of all evil I think interestingly if you look at the because there's different schemes to address that problem right so tying it to long-term sustainable profitability deferred compensation malice clawbacks and interestingly also someone said once that the bank that had the oldest scheme of deferring compensation of equity based compensation and I didn't know this was Lehman so and I'm not saying that you know once again there is a correlation I think but is it something that is the root cause of all the problems no I would not say so I mean I think the interesting point about Lehman is yeah they I think they had the highest equity ownership among staff of almost any bank but of course that's an incentive if you if you don't consider the downside risk that's an incentive to just take more risk all the time with the upside in mind I suppose and I think most people would agree that a lot of the structural reforms that have happened both within banks and enforced by regulators has made has taken away some of that one-way bet risk however the bottom line is that the amounts of money that people are paid is still very high and totally out of whack with the profitability if you think of you know the balance of the share of the Spoils between shareholders investors generally and staff it's skewed in banking to kind of pre-crisis level levels in a way that it isn't in other sectors and and I don't know how sustainable is well I think regulators are clearly putting a lot of pressure on financial institutions on compensation right so obviously if they're not profitable they're saying how is it that you align profit with the fact that you're paying these tremendous bonuses there's public disclosure requirements of compensation there's a lot more shareholder activism on compensation I think ultimately it will require there have been you know on the periphery suggestions and proposals heretofore but I think that there will have to be at some point probably a fundamental policy rethink and whether you can regulate it or is it just like chair as long as you have shareholders or banks the other question is should banks and this is not something that we can dictate but should they be privately held or is part of the problem that we are public corporations right that in and of itself adds interesting incentives yes you're suggesting Jeremy Corbyn in the UK might be have the right model nationalization is the way I'm not saying that but it's a people could see the obvious inherent conflict potential conflicts right yeah more regulation of pay is that the answer do you think because obviously in Europe there's already been more efforts in this area than most parts of the world in terms of the bonus cap although many banks would argue this is not really had the desired effect it's it's not kept a lid on pay it's actually just meant that more fixed pay is is part of the total total package I'm making structures less flexible maybe there's more that regulators could do as well as politicians and that's possible I mean money is a driver and if you can learn more and maybe you are overseeing a little bit ERISA today and the products you are selling but I think from the supervisors perspective it is a broader perspective so I mean over the last four years we have made for example reviews of the major banks in Europe checking for example the framework for banks risk appetite because it's important that the at the board leve
they have a discussion and that they are taking a decision on how far would we like to go on risk and what sort of risk do we want to have in this institution and when we made this first horizontal review four years ago there I think there were very very few institutions or banks who had that framework in place we have made the follow up on that now and we can see that most of them now have a risk appetite framework in place but there is still more to do in this area this is includes of course also remuneration policies another area where we have also reviewed over the last four years is to what extent the board has enough information on the risks and the risk development and on with the remuneration system and there are international standards in this area from the Basel Committee in which we are having as a benchmark and again we were rather surprised when we made this review that there were very few institutions where we could see that the board had enough information to assess the risk and also to challenge the year senior management so I think this is our perspective that we would like to see the board more active to have a competence and knowledge to really challenge the management in order to make sure that we have a sound imprudent development in our banks more broadly and without wishing to kind of do a marketing stunt for the FT we we've recently kind of talked about the need to reset capitalism it's been a big kind of project that we've we've run and I think that reflects a broader sense in the world arguably that unadulterated kind of shareholder value as as a concept isn't as maybe run out of Road to what extent do you think that is an important part of the way banking needs to change if indeed you agree and and and how does that broader focus on stakeholders get reflected yeah in the way you manage the business so I think first of all I think they don't necessarily have to be an opposite right so you can pursue sustainable profitability still aligned to your values right and ensure that you know there's there sustainable because that's what actually ends to ends up to be sustainable right to ensure that it's based on principles of integrity you're all of the banks have codes of conduct rate fairness and dealing ensuring that customers are well aware of the risks that they're incurring when they invest in a product that we maintain our fiduciary responsibilities to financial institutions we reveal and disclose conflicts so all of these things in ensuring that we banks comply with rules and regulations both as I said not only in the letter of the law but in the spirit of the law will end up being obviously sustainable profits so I think it is something that you know on the periphery people struggle with and going back to I think the comment also that Kirsten made in terms of you know the level of information that's going to the boards if you look at it's interesting to look at the recent AML cases because there's such structural fundamental deficiencies that no one questioned right so for the let the Estonian branch I mean the language of the reports were not even understood by the managers we're talking about danske thank you yeah don't you think yeah exactly um so here you know the the the controls in order to ensure sustainable growth you're saying you have to comply with regulations you have to know your business practices you have to appropriate risk manage are you even if you have the systems and a lot of banks don't even have the aggregate systems to look at clients across locations I mean there may be legal or regulatory restrictions but if you think about onboarding for example and maybe I'm diverting but for Switzerland they discontinued for the most part client business with us clients so how is it that they knew that a US client if they were off board of in Zurich would not be on boarded in Singapore or in Brazil or Mexico a lot of the bank systems in setting aside as I said any like Bank secrets your client confidentiality or legal regulatory restrictions do Bank systems even enable banks to be able to on an aggregate basis have a single view of clients a holistic view of clients how are you supposed to as a bank mitigate and manage risk unless you know what you're exposed to you may have even different ways of identifying the same client or related parties of the same client so let's not even talk about like individuals or corporations we know how complex these relationships are so when you start getting into the detail it is believing in what we're doing right so going back to the analogy of the board member who said you know our people are motivated at finding a cure for a disease what are bankers motivated by bankers should be motivated by ensuring that we are delivering to our clients right they were protecting the trust that the public has placed in us for a variety of reasons is that what really motivates people how to incentivize people to do that so it's not only the stick but also the carrot right so there are examples of incentivization during the US case where client advisors had to exit clients obviously their pay they thought would be affected so in order to neutralize that a lot of the bank's said if you have exiting clients or indicia of us persons and you investigate you find out that it's a u.s. person we're gonna neutralize the effect of that so you actually will not be penalized it's as if you still have that client so there are many things that banks can do to neutralize the effect of incentivization more broadly how long have you been in your current role two years okay I mean that that example you gave of you know governance failings in terms of structures awareness of you know another Bank practices in one division I suppose highlights that in global banks increasingly complex banks the question of are they too big to manage are they too big to govern is is still a big question I just wonder in your two years what changes have you seen to improve the governability yeah I think so you know and this is something that we've talked about also the three lines of defense the stature of risk and control functions compliance for example right so this is extremely important once again in sincerity right genuineness of valuing compliance and risk and ensuring that people in compliance or the second line of functions are appropriately remunerated right you have to attract talent it's the same with regulators by the way right I have this discussion recently with the senior person at DFSA and he said we pay our regulators really well we want to incentivize good people money isn't the only driver but it's very important stature status of the control functions participation at the senior-most levels of management of an organization and also just participation in the discussions all of us working at financial institutions know exactly whether control functions are respected or not it doesn't mean that you just have to be invited to the formal governance forums it's whether the business calls you up and says I need to run something by you it's whether you are involved before a decision is made on strategy to actually advise and make sure that the business wants to hear what you have to say and is that happening more no it's definitely happening more I would say the the stature of compliance was significantly enhanced as of the last couple of years three years or four years I you it's it's a it's very important to see compliance as an asset not only as a cost and actually I think at one of the recent credit suisse investor days it was the first time that the head of compliance actually talked at the investor day because if you look at the reduction of shareholder value and the stock price it is so much driven by financial misconduct and non-financial misconduct that if compliance is strengthened and you really have a solid risk management control framework you can preserve shareholder value um Kirsten that's those structures empowering those compliance people paying them enough and paying regulators another you paid enough I mean that's clearly an important thing what do you look for when you are considering how well governed the kind of risk functions are in institution I mean we were alluding to the danske bank failures and the fact that people just didn't know what was going on in the Estonian branch but I'm sure that's not an isolated instance I'm sure there are knowledge failures across a lot of different banks how do you spot them and get ahead of that before it blows up into some big scandal I think we can all take the wrong decision so I think that's for sure and you can take a wrong decision on a customer and that's why supervisors are insisting that there should be enough capital and liquidity in a bank but I think it is another thing if you are taking the if the decisions are not taking by accident but you are intending to do something that you are not allowed to and I think here banks are a little bit like democracies you need strong institutions in democracies and in banks you need a very strong framework and that leads me as well to the free lines of defense because I mean the first line of defense is a business area and here I mean we have a strong focus in our supervision on how well the business areas are assessing the risk in comparison to the profits and I think here there is more to do I mean this is a core part of supervision the second line of defense is the compliance and risk management functions and I think here there has been a quite mean substantial development over the last years the number of compliance officers is much higher now in most banks and I think at least from my home country I can see that they are rather well paid because the resources are scarce in the market and we can a supervisor see that they are also they are really I mean sort of I mean they are digging into a lot and they have the risk focus they are developing the methods also to measuring risk in a better way and then you have a third line of defense with the internal audit and there we can also see that progress is coming we think more can be done in internal audit that's probably not the case just in banks but in all kinds of firms that we need to develop our thinking and we also need with very good people in the internal audit functions who understand the business and who are able also to report to management and to the board and can that they can report in a way that really makes a difference and that can also help management to make changes if needed so Mia Karstens talked about there the massive buildup of resources in these internal departments of course that's one of the reasons why banks one of the many reasons why banks are showing slimmer profitability these days and they used to this is a massive overhead has it gone too far well I couldn't say that it goes yeah I don't think it has gone too far I think what we will see is a bit of an adjustment because of technology actually I think that as you also alluded to Kirsten I think what is happening is we need a lot of humans right to process the data to analyze to do due diligence I think with the advent of a lot of these monitoring and surveillance tools we will also be able to probably reduce the human humans needed to analyze the data and I think as we start seeing I mean I was giving the example of you know having a holistic client view once again a lot of this is analytical based right and it can be processed driven it can be app application driven and I think that that will ultimately reduce compliance spend in terms of humans spend right I think that the dedication to the compliance function as a whole be it by technological means or by humans will never diminish I think we're not I I don't see the industry getting to a place where there will not be you know some type of conduct or but as I said because when looking back at history it has been through throughout its inception it's like saying you know our people are going to cheat and defraud and how to prevent that there will always be incidents the question is the reduction I just wanted to touch on obviously we could spend hours talking about climate change but I just wanted to touch on this area because you talked about sustainability of business models and arguably the biggest and broadest definition of sustainability brings in the kind of fundamental question of how sustainable our world is and to what extent climate change threatens that when you think about the ethics of banking and the way to the balanced priorities how does that figure in your thinking yeah I think it's very important I think banks serve a very important social purpose I mean if you look at even the cases that I alluded to before the tax evasion cases with the Swiss banks the US IRS could not go after because they didn't know who they were the individual US citizens they have to go after the intermediaries that had the bank accounts so it's the same thing we are intermediaries we enable or we do not financing of industries that may damage the environment or that may pollute the environment so I think that banks do play a very important role in that I think that overall and there have been various groups of regulators and I think in the UK in particular started by Kearney which are very very vocal in this area and you've seen I think tremendous support among a not just about sector not just from an ethical point of view and from a financial point of view the stranded assets and so on and it's an absolutely critical component of risk mounted management absolutely and when you kind of fit into this we talked about you know regulators are starting to shout more about this issue how do you think about climate change as part of your brief yeah I mean that's part of the racism that we are discussing with banks and we are making a regular supervisor review and evaluation process of banks risk and risk management systems I would say that so far we haven't really seen that banks have developed I mean the year risk identification system in this area yet I mean this is a very difficult area there is a lot of discussions everywhere and we are discussing us fairly internally but I think here we have all to step up our efforts in order to identify the risks and also to make made sure that we can measure and monitor the risks in this area but it is difficult I mean I'm the first to say that but it is on the agenda and on our radar screen yeah okay in a couple of minutes I'm gonna come to the audience because I suspect you may have questions for my panelists but before I do I've got to be slightly provocative so Mia and and bring up the the vexed question of Iqbal Khan for those of you in the audience who don't know this story it was a slightly slightly tragicomic tale of a former senior Credit Suisse banker who fell out with the chief executive left the bank and then was tailed by private detectives and led to a confrontation in a center of Zurich it was great fodder for journalists and we had great fun writing about it but the serious point and why I'm bringing it up which may I get may interject that that raises a question of responsible media but well not so I don't think you're on the hot seat on that you might be outnumbered given the number of journalists in this no is an important question absolutely but the reason I raise it here is because it does come down to kind of culture and questions of culture and behavior and so on and what you were small we were talking about earlier in terms of the tone from the top being important in defining culture and the way people think about behavior given that the chief operating officer left the bank as a result of this having apparently been involved in authorizing that the taling how do you square that with you know the importance of sending positive messages to staff is it yeah so I cannot really comment on this specific incident I think just in general I would say it's it's a very interesting case study Harvard Business School once did a case study on UBS and remember when I was at UBS and they do they pick obviously different incidents but it's an interesting case study on governance and in general I would say just a couple of well broad themes I would say so first of all it's interesting what p
actices companies may engage in but which are never out there in the public domain so if there are valid predicate to surveilling for example right so if let's say you have a contract with someone which ensures that they're not supposed to do XYZ you think that they may be breaching that it may be that you hire some firm to surveil them or for example due diligence banks are under tremendous amount of scrutiny so do companies or financial institutions hire surveillance firms for prospects that they're about to hire let's say you're about to hire someone a very senior role at a bank and you need to know you know there were rumors let's say in the press about this person and you don't know if the person has been engaging in misconduct or not or goes to weird places do you hire a firm to surveil them these are interesting questions I think if anything and as I said I will not address the media question which I have my own questions about I'm sure many of you do even in the media you can ask but what it does is it raises I think it's always these these examples are unfortunate but they're very good examples because it raises to the debate you could even say it's an ethical in some cases at ethical dimensions right and then it also tests the governance of an organization right and this is not something that's unique great I mean there have been many crises organizational crises if you will and I wouldn't call this a crises but other in other context which the board has had to step in and address because management is somehow conflicted but I would say this is a test of whether it works and I know I'm not really answering the question because I can't comment about the precise incident research but what I would say about the media and maybe if you will please what I find interesting is the repetitive nature of non checked underlying source material but just a regurgitation of whatever is in it originated in the tabloid press yellow press or whatever you call it so that to me is a is a departure from what I think the responsibility of media is to society right I mean there was this outrage about fake news and all of this but it's also the responsibility of all of the media to make sure that they source check and they actually report on things that they themselves think are worthy of reporting on it's an important message like lovely um let's get some questions from the audience we can be about anything ethics stretches across a broad spectrum of topics as I've tried to reflect in the questions but do raise your hand if you have a question now anybody yep just here hi my name is andreas Williams from the SM I had a question just on how can we strike the right balance we're talking a lot about risks in banking oh they have an important role and giving credit deposit taking you know how do we make sure that we don't stray too far on you know not giving service in order to decrease risk and make sure that banks are providing the right risk to the communities yeah Kathleen you want to take that first amendment yeah I think that was a good question because I really want to say that there is no balance to be struck here because I think you have to make sure that there is I mean a good governance in an institution and strong governor's strong values sound ethics and sustainable profits that they are not by animation I mean mutually exclusive but they are mutually reinforcing so I was not part setting the headline for our seminar but I think that's important to say that you cannot strike a balance here between ethics and governance when you mean you say you can't you can't it has to be yeah I think you have to make sure that if you you cannot diminish the governance or the requests on governance in order to be more ethical or yeah or they are the way around yeah you clearly you can never eliminate risk or in any but it is it is about doing as much as you can I suppose how do you think about it yeah I think you know you have different categories as I see it I mean clearly things that are not legal we can clearly draw a black and white line it's not gray right a lot of lawyers and I'm a lawyer myself tried to say there's a lot of gray I think there's much more black and white than we actually will admit to so I think you know clearly there are boundaries that we should not actually cross but then once you get into the is it legal or not the question is also the fiduciary responsibilities that you have should you disclose even if you're not required to write for example with retro sessions for example right the fees that that fund to fund managers we're getting there wasn't a requirement to disclose so banks didn't do it now should someone have said you know what we should actually out of our fiduciary responsibilities disclose what we earn why is it that we're not more on the forefront of that thinking there I think we really need to work collectively with the regulators and policy makers but I think there's a lot more that can be done yeah because no one wants to go first wants to be upfront about something that nobody else is being up so you need regulators to step in and yeah so there's always going to be a risk taking and obviously it's also you know how you how you essentially make make your revenues right but I think it's it's the way of you managing and mitigating your risks the transparency within the firm and also to the to the stakeholders as you mentioned of which there are many as to you know how you're addressing the risks yeah okay other questions yeah the boss has a question there's a microphone just coming my question is about sanctions I mean how relevant are sanctions I mean you mentioned the beginning know how many sections were levied in this in these years how important they are in the behavior of banks because when I see for instance the in Europe we have very different national the same system for sanctioning misconduct money laundering terrorist financing and the like and sometimes you see that the market reactions when there is a European Authority investigating is very muted then you have rumors that the US is investigating the same Bank and then you see immediate impact on stock prices CDSs and the light so is a sanction an important component of the solution or isn't wrong to rely on sanctions to at two to three days you know it's an excellent question I think you know I analogize it maybe I'll start off by analogizing it - I used to teach law at one point in my career and I used to ask the question because they're different theories about penalties that you associate with crimes so deterrent effect right so does capital punishment actually deter murders from taking place horrific murders that warrant then the capital punishment this is not a direct analogy in some ways but it's it's uh [Laughter] but it is the question about what motivates people to do what they do with sanctions and in fact I asked the head of enforcement at Finland at the Swiss regulator why is it that they don't believe in huge monetary sanctions that's really something that the US and when I started in the government I was at the OCC and I worked on one of our cases that it was extremely proud of I was in the enforcement division and our largest fine was 70 million it was close to 80 million now you just have to add a B instead of an M right and even that's it's even small so and then you ask the question of where does all the money go which is a separate question but because I don't see improved roads or infrastructure in the US a different point but what is interesting is I don't know if it actually deters so you look at the ratcheting of fines and as you rightly said us starts off as soon as the US gets involved in u.s. is view of jurisdiction as we know is everything under the Sun it's it's very extraterritorial as soon as they get involved in the Europeans think oh my gosh I now I have to get involved and you look at the ratcheting up of fines there's been so much talk amongst the industry in the US regulators because there's so many of them to come up with a joint settlement so it shouldn't be the state bank authorities it shouldn't be the federal bank authorities that are adding on their pound of flesh they should work together and we've encouraged this broadly of not only US regulators but also European and Asia are a regulators for the same conduct if you see FX LIBOR it shouldn't be just a ratcheting up it should be collectively for them to work together to come up with a fine but III actually I'm pretty cynical when it comes to does that actually change behavior does it affect how banks and individuals actually engage in misconduct and it goes back to the incentivization thing if you look at the quake go at a bully case right it's an interesting case in many respects and I had heard once that he had stolen some device for an Apple Store and his boss found out about at the time and they just laughed it off right and said oh this is not an issue those are kind of precursors of what is a person willing to do but it's the it's also the incentivization structure it's it's the fear of not being able to speak up as to what the problems are and what the issues are and I think by after the fact I think we you have to invest much more at the drivers of conduct rather than after the fact punishment because I just don't think it really effectively works do you have a comment on that or will you take your cue from more questions yeah yeah any any final question we got time for one more I think yeah this lady over here alright thanks to the panelists I'm Carolyn I'm from the Bowser um my questions for smile regulation exists in large part we are we talk about financial stability obviously the key objective another one is to protect the depositors and creditors of banks it's a it's a key reason why you're regulated you have this privileged position of being able to take insured deposits and lend them out in multiple so leverage I'm wondering if how you think a credit suisse about accountability I was really interested in your your your characterization of how banks need to think differently about their accountability is there any discussion about accountability to depositors and creditors in comparison to shareholders and how that can create some conflict and perhaps affect ethics decisions incentives great question yeah I mean thanks for the question I think that's something that we alluded to earlier on you know it's sort of inherent conflict to drive you know for your investors right in your shareholders maximum amount of profits but at the same time to protect you know depositors and in the case of investment banks that let's say do not have retail deposits that are insured by the federal government it's still a question of the moral hazard problem right in general and you know the bailouts that of course governments did with large financial institutions so does yes actively I mean I think banks and not only credit suisse but a lot of banks actively discuss how to measure how to manage both at the same time obviously maximizing profits I think it goes into the same discussion of making sure that we are complying with rules and regulations and that we abide by ethical practices and our business conduct right so it goes back to like is the code of conduct that all the banks have is that really lived up to right so we have actually in the code of conduct we have like the interests of the shareholders right the interest of the stakeholders the interest of the customers which also include the depositors and then we really actively and I've seen that a number of forums debate is this in the interest of those various constituents and I think once again it's building up and maintaining credibility and Trust I think all banks there's probably not a single bank that has been has missed you know or been free of a scandal or some type of you know misconduct case but I do think that you know once the other thing I'd like to encourage is that we learn from best practices I think the regulator's sometimes are reticent I for understandable reasons I mean certainly fin mo because there's only two large banks to share what best practices are I would really encourage the regulatory community to do so right so be it in the area of you know developing technology and if you see things that actually work or what you were saying about climate change Carsten that we still don't yet see you know risk effective you know identification risk identification programs to address climate change sustainability I think if you know anonymizing obviously the institution but I do think that regulators can help play a role to see how and to your question how do institutions effectively balance these varying interests yeah I like the idea of normalizing institutions when there's two of them in Switzerland but would you agree that this is a good way forward yeah absolutely I mean and we have a broad agreement within the Basel Committee where that is a global committee so I mean many of the topics that we have now alluded to here are on the table and discussed regularly and there are also working groups in different areas yeah yeah well we are nearly out of time I just wondered if I might be able to put one last question to the pair of you just coming back to the big picture I suppose of the way in which banks behave and how differently how clean they have been since the financial crisis and I just to ask again a provocative question I suppose but if you think of the many pressures on bank profitability that there are today not least for ultra low rates the higher compliance costs that we've talked about but to what extent were profits pre-crisis those super super high profits in many cases the result of unethical behavior because we've had you know lots of scandals have been as a result of discovering things that were inflating profits missed selling of products scamming the system by by by manipulating the LIBOR all of these things to what extent should we be accepting that the fact that profits are low now as a result of the fact that the sector's not cheating so much or maybe not at all I don't know yeah I mean if you go back to the financial crisis it was very much excessive risk-taking at the time so and then we have had the individual scandals if I can say so but I mean it's fair also to say that it's not all banks who have I mean we have seen scandals in there being quite many banks who have recovered and they have improved also when it comes to the governance issues when it comes to the profits in the European banking sector I mean I can compare it with the Swedish banks for example and they are doing much more so they are also in a very low interest on vironment they are under the same requirement as the European banks more or less I think there is I mean when we are supervisors have a dialogue with the banks there is probably some over banking here in the Europe so there is a need for restructuring of the banking sector but there is also some banks have still rather high costs so there is a cost to income issues which they also have to work upon then of course I mean it's been taken some time to reduce the mpls but we are on our way no but that has been a cost of course for many banks in many countries but that is an investment for the future I mean in order to make sure that we will have a banking system here that can support the real economy I think that is what we really want to reach and so me I finally to put the the similar question to you in a slightly different way when you're thinking about controlling things within Credit Suisse if you see a very profitable bit of the business do your antennae go up and do you think hang on is someone cheating here that's not my first assumption I think it's a question of I mean there are many factors that you would look at right I mean what one NDB was a case where you looked at the fees that they that Goldman received and it was so out of proportion right - to analogous fees that other institutions had received for very similar activity so I mean those are seem to raise a red flag and no one yeah that's another thing right so it's the escalation and transparency so that clearly I mean there are outliers right which would clearly raise red flags I think so
hat's something but when you talk about going to your first question about profitability profitability is also a product of cost clearly as we've discussed banks if you look at the amount of spend on compliance this is a good thing right the amount of spend and not only in terms of resources but infrastructure and and data analytics and everything so in order to hopefully not repeat the problems of the past but also to hopefully also with artificial intelligence and other mechanisms be able to and behavioral indicators be able to look into the future and try to prevent problems from materializing financial institutions are spending a lot to address that and that's also obviously affecting profitability as well as what you talked about earlier the plethora of regulatory change yeah but hopefully it all come good in the end let's let's hope for that please everyone we're out of time but do join me in thanking my panel
