SPEECH

Introductory statement

Speech by Claudia Buch, Chair of the Supervisory Board of the
ECB, at the press conference on the 2024 SREP results and the
supervisory priorities for 2025-27

Frankfurt am Main, 17 December 2024

Jump to the transcript of the questions and answers

Introduction

Let me welcome you to my first press conference as the Chair of the Supervisory Board of the ECB.
This year marks the tenth anniversary of the Single Supervisory Mechanism, which provides a good
opportunity to reflect upon what we have achieved so far and what we can improve on.

Over the past decade, European banking supervision has contributed to the increased resilience of
European banks and thus to financial stability. The results of the annual Supervisory Review and
Evaluation Process (SREP) for 2024, which we have published today, show that the banks directly
supervised by the ECB generally have strong fundamentals. The asset quality of European banks is
robust, they have overall solid capital positions, good levels of profitability, and are a reliable source of
funding and financial services for European households and firms.

Looking ahead, banks will need to adapt to a changing environment. Faced with heightened
geopolitical risks, structural change, climate and environmental risks, and downside risks to the
macroeconomic outlook, strong financial and operational resilience will remain key. Corporate
insolvencies are on the increase, potentially leading to higher credit risk. The public sector may have
more limited capacity than in the past to buffer adverse shocks. The digitalisation of financial services
is changing the competitive landscape. Banks must therefore remain vigilant and prudent to sustain
their business and operations. Their currently good levels of profitability provide them with an
opportunity to strengthen their resilience.

Against this background, the current SREP cycle has not resulted in major changes to banks' SREP
scores or overall Pillar 2 requirements in aggregate terms. The annual Supervisory Review and
Evaluation Process assesses each bank's risks, business model viability and resilience. Where we
identify shortcomings, supervisory measures are put in place that ensure remediation by the banks.
Banks' individual SREP scores and Pillar 2 requirements take bank-specific risks into account.

The supervisory priorities for the years 2025-27 continue to focus on risks related to macro-financial
threats and geopolitical shocks, as well as on challenges stemming from the digital transformation,
while emphasising the need to remediate shortcomings, particularly those related to governance and
risk management.

This year, we have taken a large step forward to make ECB Banking Supervision more efficient and
effective. We have launched a comprehensive reform of the SREP to respond to emerging risks in a
more targeted way, to simplify, and to reduce complexity. The reform will be implemented over the next
two years.

Overall resilience of the banking system

Let me provide an overview of the resilience of the European banking system.

Chart 1: CET1 capital and leverage ratios of significant institutions

18%
CET1 ratio
16%
14% mer
12%
10%
8%
Leverage ratio
6% a ee ee
4%
2%
0%
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Source: ECB supervisory banking statistics.

Banks directly supervised by the ECB have overall solid capital and liquidity positions, which is a

significant improvement compared with the situation ten years ago.) The aggregate Common Equity
Tier 1 (CET1) ratio stood at 15.8% in mid-2024, which is a slight improvement compared with the
previous year. Similarly, the leverage ratio increased slightly to 5.8%.

Chart 2: Distribution of capital headroom between CET1 capital ratios and CET1
overall requirements and Pillar 2 guidance after 2024 SREP

100
90
80
70

60
50 Projected

Current
40
30
20 I
: a)
a I

<0% [0-0.5%) [0.5-1%) [1-2%) [2-5%) [5-10%) >10%
Capital headroom (%)

Number of institutions

oO

oO

Sources: ECB supervisory banking statistics and SREP database.

Notes: Projected capital headroom is based on the 2024 SREP decisions and will be applied in 2025; current
capital headroom is based on the 2023 SREP decisions and applicable in 2024. Pillar 2 CET1 requirements and
Pillar 2 guidance are as per the published list of Pillar 2 requirements applicable as of the first quarter of 2025.
CET1 ratios are as at the second quarter of 2024. For systemic buffers (global systemically important institutions,
other systemically important institutions and systemic risk buffers) and the countercyclical capital buffer, the levels
shown are those anticipated for the first quarter of 2025 and included in 2024 CET1 requirements and guidance.
CET1 ratios have been adjusted for AT1/T2 shortfalls.

Capital headroom compared with overall capital requirements has remained broadly stable on the
previous year. Next year, 85% of institutions are expected to have capital headroom of over 200 basis
points; only a few are projected to have capital headroom below 100 basis points.

Chart 3: Liquidity ratios

180%

170%

Liquidity coverage ratio

160%

150%

140%

130% Net stable funding ratio

120%
110%

100%
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Source: ECB supervisory banking statistics.

Overall liquidity conditions have remained favourable. After the ECB started a period of quantitative
tightening, banks turned smoothly to the markets to meet their financing needs. The share of funding
through deposits remained largely stable. Generally, banks have good access to retail and wholesale
funding. Yet some banks need to better prepare for an environment with potentially tighter liquidity
conditions. This is the result of targeted reviews of banks' funding plans, of their capabilities to
mobilise collateral and of their asset and liability management.

Chart 4: Non-performing loans by counterparty sector

9% 9%
8% 8%
7% 7%
6% 6%

5% 5%

4% NPL ratio forloanstoNFCs 4%

3% 3% NPL ratio for loans to households

2% 2%
1% 1%
0% 0%
2020 2021 2022 2023 2024 2020 2021 2022 2023 2024
9% 9%
8% 8%
7% 7%
6% 6%
5% 5%
4% = : : 4% of which small and medium-sized
of which collateralised by commercial enterprises
3% immovable property 3%
2% 2%
1% 1%
0% 0%
2020 = 2021 2022 2023 2024 2020 2021 2022 2023 2024

Source: ECB supervisory banking statistics.

Note: "NFC" stands for "non-financial corporations".

The quality of banks' assets has remained strong. The ratio of non-performing loans to total loans has

remained around 2.2% over the last two years and is close to historical lows. 2] However, there are
initial signs of weakening asset quality driven by exposures to commercial real estate and small and
medium-sized enterprises (SMEs), the latter accounting for about 50% of European banks' lending
portfolios. Non-performing loans are rising in Austria and Germany, and to a lesser extent in France,
albeit from very low levels.

Low levels of credit risk reflect the strong fundamentals of households and firms but also stem partly
from the public support during the COVID-19 pandemic and the energy crises. Generally, the debt
sustainability of households is benefiting from a strong labour market, rising wages and decreasing
levels of indebtedness. Corporate balance sheets and profitability have generally remained resilient in
2024, thanks also to declining input and energy costs.

Chart 5: Insolvencies and real GDP in the euro area-4

10% 30,000
25,000
5% 7
20,000 =
= €
: DUadh ah i
DS » re}
- \ evant m 5000 f
8 \ 3
= o
Qa
& 10.000 §
-5% -
5,000
10% I

0
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Sources: Eurostat and national statistics.
Notes: The series is based on developments in Germany, Spain, France and Italy (euro area-4).

Insolvencies are shown as the average number of firms per quarter within each year. Real GDP is the 4-quarter
moving sum growth rate. The latest observation is for the second quarter of 2024.

But pockets of vulnerabilities are emerging, reflecting higher borrowing costs, weaker growth and
structural changes in the real economy. Even during the pandemic, when GDP declined, corporate
insolvencies fell. Since mid-2022, however, corporate insolvencies have been on the rise, signalling a
potential future deterioration in asset quality.

Chart 6: Return on equity and return on assets

12% 1.2%

Return on equity (Ihs)

10% 1.0%
8% 0.8%
6% 0.6%

Return on assets
4% (ths) 0.4%
2% 0.2%
0% 0.0%

2016 2017 2018 2019 2020 2021 2022 2023 = =2024

Source: ECB supervisory banking statistics.

Bank profitability has remained strong, with an annualised return on equity of 10.1% in mid-2024.
Higher interest rates are a key driver: during the low interest rate environment, banks' average return

on equity was 5.5%; following the normalisation of interest rates, it increased to 9.2%.) in addition,
the average cost-to-income ratio declined from 66% in 2020 to 54% in 2024. Cost of risk has remained

muted.

Chart 7: Aggregate net interest margin

1.7%
1.6%
1.5%
1.4%
1.3%
1.2%

1.1% = -xo TTS
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Source: ECB supervisory banking statistics.

Chart 8: Share of fixed versus variable rate lending to non-financial corporations

LT

So

=

@ Fixed
© Mixed
@ Variable

10%

20%

30%

40%

50%

60%

70%

80%

90%

=
o
ao

2

70

Source: ECB (2024), Financial Stability Review, May.

Notes: Lending shares refer to outstanding amounts for loans to non-financial corporations. "Fixed" indicates a
rate that both parties to the loan contract agree to at inception. "Variable" indicates a rate linked to an exogenous
parameter (e.g. EURIBOR). "Mixed" indicates a combination of fixed and variable rates.

Aggregate net interest margins have widened across euro area banks. In countries where floating rate
loan contracts prevail, the pass-through of higher interest rates has been relatively fast. In countries
where fixed rate loan contracts are more common, the impact of higher interest rates on profitability
and borrower default risks has been delayed. On the funding side, shifts from demand to term deposits
with higher interest rates have so far been relatively slow. Variations in the pass-through also reflect
differences in banks' pricing power across countries. Cross-border competition in deposit taking is

particularly limited, with only around 1.6% of deposits held across borders.!4]

Banks' distribution plans foresee a relatively stable aggregate payout ratio. Supervised banks expect
to pay out 49% of profits for 2024 or one percentage point less than in the previous year. Share
buybacks have become less prominent, representing a little less than one-quarter of distributions
compared with one-third a year ago.

The future performance of banks will depend on the economic outlook, their resilience to adverse
shocks, shifts in the yield curve and interest rate pass-through. Banks' ability to contain costs while
investing in the digitalisation of their business models will be crucial to sustain profitability. Distribution
plans thus need to be aligned with sufficiently forward-looking capital plans that also consider relevant
adverse scenarios.

Risk outlook and supervisory responses
From a macroeconomic perspective, the year 2024 has been characterised by a resilient euro area

economy, which is projected to grow at a rate of 0.7%./5] But the short and medium-term outlook for
growth remains subdued and subject to considerable uncertainty. The likelihood of tail events
materialising appears higher than a year ago. Geopolitical tensions alongside growing deglobalisation
trends could push energy prices and freight costs higher in the short term and disrupt global trade.

Our supervisory priorities reflect this risk outlook.

Chart 9: Measures of uncertainty in the euro area

Political uncertainty

Systemic stress

2k
2007 2009 2011 2013 2015 2017 2019 2021 2023

Sources: ECB, policyuncertainty.com and ECB staff calculations.

Notes: The composite indicator of systemic stress (CISS) and the economic policy uncertainty index are monthly
data series (standardised by the standard deviation from the mean over the period January 1999-December
2019). A value of 2 should be read as meaning that the uncertainty measure exceeds its historical average level
by two standard deviations. The latest observations are for November 2024.

Heightened geopolitical risks affect banks through various channels. Adverse geopolitical events are
often not priced in by financial markets, which can lead to an abrupt repricing of risks if such events
materialise. Financial sanctions and cyberattacks can affect banks, including through outsourcing
arrangements. In terms of the real economy, higher costs for firms and disruptions to global trade
could increase credit risk.

Credit risk management therefore remains a priority for ECB Banking Supervision. Novel risks may not
be adequately captured by risk models that are based on past data. Accounting overlays are thus one
instrument that can be used to address novel risks in a forward-looking way. From our supervisory
perspective, we are therefore addressing deficiencies in IFRS 9 accounting frameworks in terms of
identifying and monitoring risk.

To address the deterioration in asset quality, we have carried out targeted reviews on commercial and
residential real estate as well as SME portfolios, and we are taking supervisory measures where we
have identified weaknesses. To provide transparency on our risk assessment methodologies, today we
are publishing a comprehensive supervisory methodology for assessing interest rate risk and credit
spread risk in the banking book.

To deal with heightened risks and uncertainties, banks' decision-making bodies need reliable

information. Over the years, however, we have identified ongoing deficiencies in risk data aggregation
and risk reporting. These deficiencies prevent management from receiving timely and comprehensive
information on relevant risks and they also increase the cost of responding to supervisory requests. At

the ECB, we have therefore intensified our efforts to encourage banks to improve their information
systems and address IT security and cyber risks.

More generally, banks need to speed up their digitalisation efforts. SREP scores for operational and
ICT risk remain among the worst. We are therefore focusing on addressing outsourcing risks and
enhancing banks' cyber resilience, also taking into account the Digital Operational Resilience Act,
which comes into force in 2025. This year, we conducted a cyber resilience stress test to assess
banks' ability to respond to cyber incidents. The stress test showed that banks are prepared, but it also
revealed areas for improvement in cybersecurity.

Moreover, climate-related and environmental risks are increasingly relevant and continue to be a
significant concern. Banks need to fully account for transition and physical risks. They have started to
make progress in integrating these risks into their governance and risk management frameworks,
addressing our supervisory expectations. However, we found that some banks were still lacking key
elements needed to adequately manage climate and environmental risks, prompting further
supervisory actions.

2024 SREP assessment

Let me now turn to this year's SREP assessment, which was carried out against the backdrop of the
risk outlook I have just described.

Chart 10: Overall SREP scores

35%

30% 2024 SREP

3+ 3 3- 4
Source: ECB SREP database.

Notes: 2022 SREP values are based on assessments of 101 banks, 2023 SREP values are based on
assessments of 106 banks, and 2024 SREP values are based on assessments of 104 banks. There were no
banks with an overall SREP score of 1 in 2022, 2023 or 2024.

2023 SREP
25%

2022 SREP

20%
15%
10%

5%

0% ieee

O+


The average overall SREP score in 2024 remained stable at 2.6, with 74% of banks scoring the
same as last year. 11% of banks saw their scores worsen, mainly because of their exposure to the
commercial real estate sector and interest rate risk, while 15% of banks achieved a better score,
mainly because of increased profitability.

This year's SREP resulted in more binding measures to address severe weaknesses. This reflects our
increased focus on ensuring that supervised banks remediate any findings in a timely manner. More
specifically, we imposed the following quantitative and qualitative supervisory measures.

Chart 11: Evolution of overall capital requirements and Pillar 2 guidance - the total
capital stack

@ Pillar 1 requirements CET1 M@ Systemic risk buffers CET1
© Pillar 1 requirements AT1+T2 @ Countercyclical capital buffer CET1
@ Pillar 2 requirements CET1 @ Pillar 2 guidance CET1
®@ Pillar 2 requirements AT1+T2 = Overall capital requirements and guidance
tm Capital conservation buffer CET1
18% 15.6%
0,
16% 14.8% 14.5% 14.7% 15.1% 19.5% ""
14%
12%
10%
8%
6%
4%
2%
0%

2020 2021 2022 2023 2024 2025

Sources: ECB supervisory banking statistics and SREP database.

Notes: The sample selection follows the approach taken in the methodological note for the supervisory banking
statistics. For 2020 the first quarter sample is based on 112 entities; for 2021 the first quarter sample is based on
114 entities; for 2022 the first quarter sample is based on 112 entities; for 2023 the first quarter sample is based
on 111 entities; and for 2024 the first quarter sample is based on 110 entities. For 2025 the first quarter sample is
based on 109 entities, with the Pillar 2 requirement (P2R) being applicable from January 2025. The chart shows
RWA-weighted data from the second quarter of 2024. "Overall capital requirements" comprise the Pillar 1
minimum requirement, the Pillar 2 requirement, combined buffer requirements (i.e. the capital conservation buffer
and systemic buffers (global systemically important institutions, other systemically important institutions and
systemic risk buffers) and the countercyclical capital buffer). Rounding differences may apply. The reference
period for the combined buffer requirement is the first quarter of each year. For the first quarter of 2025 buffers are
estimated based on announced rates applicable at this date. Estimated values are shown with a lighter colour and
marked with an asterisk. The Pillar 2 guidance is added on top of the overall capital requirements. Under CRD V,
which came into effect on 1 January 2021, the P2R capital should have the same composition as Pillar 1 - i.e. at
least 56.25% should fall under CET1 capital and at least 75% should fall under Tier 1 capital, in line with the
minimum requirements. By way of derogation from the first sub-paragraph of paragraph 4, Article 104a CRD V,
the competent authority may require an institution to meet its additional own funds requirements with a higher
share of Tier 1 capital or CET1 capital, where necessary, and considering the specific circumstances of the
institution.

In terms of quantitative requirements, the overall CET1 capital requirements and guidance stand at
11.3% of risk-weighted assets, compared with 11.2% last year. Overall capital requirements and Pillar

2 guidance have thus increased slightly.'2] Changes in the risk profiles of individual banks led to three
types of Pillar 2 add-ons being applied.

> For nine banks, an average add-on of 14 basis points addresses excessive risk arising from
leveraged finance.

> For 18 banks, an average add-on of 5 basis points addresses shortfalls in the coverage of non-
performing exposures.

> For 13 banks, an add-on of between 10 and 40 basis points was applied to the leverage ratio
requirement.

Quantitative liquidity measures were issued for four banks.

Qualitative measures were issued for 95 banks, mainly to address deficiencies in the areas of credit
risk management, internal governance and capital adequacy.

The stability of the banks' SREP scores reflects, on the one hand, an improvement in key risk
indicators and, on the other hand, the high degree of uncertainty concerning the economic outlook. We
have therefore taken a number of measures to ensure that banks assess risks in a sufficiently forward-
looking way. These include supervisory focus on capital and liquidity planning that takes relevant
adverse scenarios into account; on provisioning frameworks that capture novel risks; on operational
resilience, particularly in relation to cyber and outsourcing risks; and on stress tests that capture

geopolitical risks.

Microprudential supervision needs to be complemented by a strong macroprudential framework.
Releasable macroprudential buffers in the banking union have in fact increased in recent years: the
weighted average rate for countercyclical capital buffers and (sectoral) systemic risk buffers rose from
about 0.3% at the end of 2019 to 0.8% in mid-2024 5] We very much welcome the progress made in

this area in addressing uncertainties and risks to financial stability.

Supervisory priorities

Figure 1: Supervisory priorities

Priority 1: Banks should strengthen their ability to withstand immediate macro-financial threats and severe geopolitical

shocks

Address deficiencies in credit risk management frameworks lt) Credit risk
Address deficiencies in operational resilience frameworks as regards IT Operational risk
outsourcing and IT security/cyber risks ose SI

Special focus: Incorporating the management of geopolitical risks in OSS yee Te
supervisory priorities P 9

Priority 2: Banks should remedy persistent material shortcomings in an effective and timely manner

Address deficiencies in business strategies and risk management as regards Climate-related and
climate-related and environmental risks environmental risks
Address deficiencies in risk data aggregation and reporting & Governance

Priority 3: Banks should strengthen their digitalisation strategies and tackle emerging challenges stemming from the use

of new technologies

Address deficiencies in digital transformation strategies © Business model

Our supervisory priorities for the years 2025-27 continue to focus on external challenges for banks,
while putting greater emphasis on remediating persistent shortcomings.

First, resilience to macro-financial threats and geopolitical shocks requires the attention of banks'
boards and senior management. Improving credit risk management and maintaining adequate levels
of provisioning remain important for financial resilience, while increased IT and cybersecurity risks
require adequate governance structures and sufficient investment.

Second, banks need to address shortcomings related to governance, climate-related and
environmental risk management and risk data aggregation and reporting capabilities. We will continue
to monitor these areas and take supervisory action as necessary.

And third, risks associated with digitalisation require adequate safeguards. We will continue to assess
banks' digital strategies to ensure that risks are mitigated, and we are publishing an updated SREP

methodology for operational and ICT risk today.

SREP reform

Just like the banks, supervisors have to respond to changes in the external environment. During its
first decade, ECB Banking Supervision has become an internationally recognised supervisor,
delivering on its mandate. But our supervisory procedures have become complex, potentially impairing
our ability to react to new developments in a timely manner.

The SREP reform that we announced earlier this year will make our supervision more efficient, more
effective and more intrusive. We will sharpen the focus on bank-specific risks, better integrate different
supervisory activities and communicate more clearly with banks. We will use our full supervisory toolkit
to ensure that findings are remediated more promptly. We will make methodologies more stable to
achieve greater consistency. And investing in advanced IT and analytics will simplify data submissions,
while enabling us to provide more tailored and timely feedback to banks.

These reforms will be fully implemented by 2026, and we will carefully monitor their impact.
Conclusion

Chart 12: Consolidated gross debt of the non-financial private sector in the euro area

== Total debt (consolidated) tm Debt securities
tm Loans from MFIs M@ Other loans
@ Loans from non-MFls
@ Loans from rest of the world
160%

140%
a. 120%
a

© 100%
80%
60%

% of nominal

40%
20%

0%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Sources: Eurostat, ECB and ECB calculations.

Notes: MFI" stands for "monetary financial institutions. Consolidated gross debt is defined as total gross debt
minus loans granted by firms and households. The latest observations are for the second quarter of 2024.

Let me conclude. European banks have overall strong fundamentals in terms of their asset quality,
capitalisation and profitability. This contributes to financial stability and the provision of financial
services to households and firms across the banking union. Bank loans remain a key source of
funding to the real economy, while non-bank financial intermediaries have grown in importance.

Looking ahead, heightened uncertainty will require a high level of prudence. Banks' ability to maintain
robust business models depends on their resilience to shocks and their ability to adapt to the new
environment, particularly the digitalisation of finance. Sound profitability enables banks to further
strengthen their resilience and to remain a reliable foundation for the euro area economy, including
during periods of stress.

As supervisors, we will continue to focus on the resilience of European banks. Weakening standards
of supervision would weaken banks, making it harder for them to support the real economy and
compete successfully. At the same time, we need to ensure that our supervision is as efficient and
effective as possible. This is the aim of our SREP reform, which will also bring benefits for the banks

we supervise.

We in ECB Banking Supervision rely on strong support from policymakers and regulators to achieve
our goals. Completing the banking union and capital markets union, rather than relaxing banking rules
or delaying the implementation of Basel Ill, is critical to enhancing financial stability and fostering
economic growth. Decisive action would further bolster our capacity to cope with future shocks

effectively.

Thank you very much for your attention. I now look forward to your questions.

kK

Two questions from my side. The first on "efficient and effective". As you redeploy resources -
you have spoken a lot about geopolitical risk - as you focus more on that, what are you
focusing less on? And I ask this question also with respect to banks complaining about rising
demands from supervisors. What are you giving them an easier ride on at the same time?

And then the other question on significant risk transfers [SRTs], I mean the capital relief type. I
was wondering if you could confirm that you now will be shortening the period that banks have
to apply in advance to get these. Why are you doing that? I assume it's because you like SRTs?
And if you have any words of warning to banks on this front? I'm thinking specifically about
leverage employed to buy SRTs, so whether risk is not actually leaving the financial system,

but is getting more and more complicated.

Thank you for these very good questions, which allow me to explain a bit more what we are doing with
the Supervisory Review and Evaluation Process [SREP] reform to become more efficient and
effective. So first of all, very simply speaking, what it does is that we are giving more flexibility to the
Joint Supervisory Teams, to the supervisors, to adjust their supervisory action to the risks being faced
and that are most relevant for the specific bank. So we have overall risks and priorities that are being
defined by the Supervisory Board, but then of course the relevance of specific risks might be very
different for different types of banks. So, the teams have more flexibility. It's not that they ignore certain
types of risk, but rather say: what is really relevant for this bank? What do we need to focus on? We
have a risk tolerance framework that allows the teams to actually do this, and they can also spread out
their risk assessment over a three-year period. We have a multi-year approach so that not every risk
needs to be looked at with the same intensity in each year for each bank. So we become more
targeted - this is our role, this is also how we define good supervision - we become more targeted to
the relevant risks.

You also mentioned: is there an ever-rising demand of supervisory requests? No, there isn't. The
demand of supervisory requests is again linked to the risks that we see, because this is our role: to
keep European banks safe and stable. And if the environment changes, if climate and environmental
risks are relevant and not fully addressed by the banks, we need to react to that. If the geopolitical risk
environment changes, then we need to address the risks that are relevant for the specific banks. Of
course, we also need to do this in an efficient and effective way. So what we will do even more in the
future is use what we call integrated planning, so that all our activities - whether they are horizontal
across different banks or vertical for specific banks - are integrated even more closely and can also
inform each other, so that we don't have to duplicate certain types of activities. But it's very important
for us that we address the relevant risks that are there and don't lose relevant risks out of sight. And
the teams have more flexibility now. By the way, the risk tolerance framework, the multi-year approach,
has already been in place since 2023, but we are rolling it out now more forcefully and we monitor the
progress being made.

As to your second question on the significant risk transfers, this is related obviously to securitisation
and we generally think that securitisation can be a useful instrument to move risks to the part of the
financial system where they can be better borne than on banks' balance sheets. But at the same time,
of course, we need to make sure that there are no spillover effects on the banking sector - this is a bit
the second part of your question. So who's financing these significant risk transfers and could there be
amplification effects in the financial system? Of course, we need to monitor this very closely.

Now, within this framework that we have and also within the regulatory framework that we have, there
was actually room for improvement, and this is what you mentioned. In terms of, for a given risk
transfer, can we speed up the process until we approve a certain significant risk transfer? And here we
have worked with the European Banking Federation to get a pilot started. Of course, we need some
products for which we can run the pilot. We will do this next year and then hopefully speed up our
efforts - to the benefit of us, because less resources will go into that, and also to the benefit of the
industry. But let me reassure you, we will never lose resilience out of sight. This is given a certain risk
that is being transferred and we will also carefully monitor the effects on the financial system, because
this is mainly about efficiency - it's not about weakening resilience.

Question one: how exactly shall banks consider geopolitical risks? It's a very broad term and I
would like to have an idea what the banks specifically should do about it.

The other question is a little bit more specific. It's on the recalibration of the SREP. Deutsche
Bank, whose Pillar 2 requirement [P2R] has increased, suggested that their higher Pillar 2
requirement is due to the recalibration of your SREP and it would have nothing to do with any
reassessment of the riskiness of Deutsche Bank. So is this view or description of Deutsche
Bank accurate? So can I imagine that you don't see Deutsche Bank as more risky, but
nevertheless the Pillar 2 requirement can increase?

Thank you very much for the first question on geopolitical risk, which is indeed an issue about which
we have been thinking hard to get to some extent a conceptual framework around it, because different
people may have different understandings of what geopolitical risk is actually about. What we have
done is we've published our way of thinking about this in September this year, and the main idea is

that geopolitical risk is not a new risk category for the banks. It's affecting the banks through credit risk,
market risk, operational risk. But there are dimensions of this risk which you wouldn't cover if you
didn't think about it in terms of the geopolitical environment. And here it's relatively broad, i