sabine lautenschlager : european banking achievements, challenges and the way forward supervision - speech by ms sabine lautenschlager, member of the executive board of the european central bank and vice - chair of the supervisory board of the european central bank, at the ese conference 2017, vienna, 28 september 2017. * * * “ what does it mean to be human? ” this question has preoccupied philosophers for hundreds of years. one of the more popular answers is that humans are rational animals – a view that goes back to aristotle. let us take that question and adapt it to our world : what does it mean to be a european banking supervisor? the answer is certainly not that banking supervisors are rational bankers. but apart from that, being a european banking supervisor means many things. first of all, it means looking across borders. it means being tough and fair, unbiased by national interests. for us, it means being part of a team of supervisors from 19 countries and 27 institutions. it means working in the public interest – and having an exciting job. but it also means dealing with many challenges at the same time. and it is these challenges i ’ d like to talk about in my speech. but as there are many and as our time is limited, i have to make a choice. so let me first tell you what i won ’ t do today. i won ’ t discuss the bringing together of cultures and languages that are very different. i won ’ t discuss dealing with banks that struggle to remain profitable. i won ’ t discuss digitalisation, and i won ’ t discuss brexit. instead, i will focus on three issues : first, the rulebook for banks and how it relates to supervision ; second, the toolbox that supervisors have at their disposal ; and third, the role of the market. supervisors and the rulebook a solid rulebook is a cornerstone of a stable banking sector. it ensures that banks acknowledge the risks they take and build up adequate buffers. a solid rulebook lays the foundations for banking supervisors to do their job. since the financial crisis, the rulebook for banks has been thoroughly revised. today, banks face much tougher rules than before. they need to hold higher capital buffers that consist of better capital. at the same time, they need to hold liquidity buffers – for the first time ever. and these are just two of the things that help to make banks more resilient. so the regulatory

with the most important representatives of socialism. catholic economists and sociologists – from the italian scholar giuseppe toniolo to the germanic intellectual carl von vogelsang – analysed the problems of capitalism and proposed new models of work organization ( see o. kohler, la formazione dei cattolicesimi nella societa moderna, in storia della chiesa, vol. ix : la chiesa negli stati moderni e i movimenti sociali 1878 - 1914, milan, jaca book, 1982, pp. 234 - 239, and o. de dinechin, sj, rerum novarum, in ‘ aggiornamenti sociali ’, 3, 2019, pp. 258 - 262 ). 1. war cannot generate prosperity humanity cannot thrive without peace, and neither can the economy. in the countries involved in a conflict, war seriously damages the drivers of growth. 4 hostilities destroy productive capital : infrastructure, machinery and raw materials. they claim victims, especially among the young generations, bending learning opportunities and the formation of a skilled workforce to the requirements of war. this reduces the availability and quality of ‘ human capital ’. furthermore, wars often erode social capital, 5 thereby weakening social cohesion and trust in institutions. the war effort supports aggregate demand and can stimulate innovation, but seriously distorts its purposes. the economic benefits are short - lived and do not remove the need to reconvert the economy once a conflict is over, even in countries that were involved in the conflict but suffered no direct damage to their territory. the high inflation and the steep fall of economic activity that often mark wartime periods are signs of the damage that wars inflict on the economic fabric ( figure 2 ). the manufacturing of war equipment does not help increase a country ’ s growth potential. 6 development comes from productive investment, not from arms. that is why, in the 1930s, john maynard keynes proposed a massive rise in public investment spending as a solution to economic depression in the united states, suggesting that president roosevelt ’ s focus should be on ‘ the rehabilitation of the physical condition of the railroads ’. 7 moreover, it is misleading to attribute technological progress to military expenditure. it is scientific research that sparks innovation. military investment can generate innovation if it is allocated to research. 8 however, we do not need to resort to war for this : technologies developed for military purposes only translate into progress when they later find civilian applications. war is therefore a