peter praet : interview with bloomberg interview by mr peter praet, member of the executive board of the european central bank, with bloomberg, conducted by mr alessandro speciale, mr jeff black and mr jonathan ferro, and published on 17 november 2015. * * * how can we estimate the impact of the tragic events in paris? i would like first of all to express our profound sympathy for the victims. it ’ s something that concerns everybody. now when we talk about the possible impact on the economy, in general, we have to take a holistic view. it ’ s not so much the economy as the geopolitical environment that is impacted by these events. the impact remains to be seen, beyond the tragic events of last week. the main issue is the economic context of such events, which is a rather difficult one, we cannot deny that. it ’ s difficult because the euro area is still going through the aftermath of a balance sheet recession which started in 2008. as of today, the gdp of the euro area has still not recovered the level it had in 2008. that ’ s one thing, and the second thing is the management of immigration in europe which creates some strains at the political level in different countries. how is the next round of staff economic forecasts shaping up? it ’ s too early to tell, of course, because the teams are working on it. but let me say that when we look at the flow of information so far, the economy is still in a cyclical recovery. incoming data have been supportive to our base scenario. but we are also very well aware that downside risks are present and even that they may have increased in light of the weekend ’ s events. on the inflation side, the return to close - to - two - percent is at risk of being pushed backwards again. i know that today we just had the final data for october for inflation, we had 1. 1 for the core inflation and 0. 1 for headline inflation. but we remain in an environment of weak price pressures in the medium term. that has not really changed. we will have to see what the new projections show. hard data have been a little bit less encouraging. we see q3, which was more or less in line with what we were expecting, but on the low side of estimates. we also had, from the german side, slightly less positive news on the real economy. it ’ s not sufficient to say that the base scenario has

##sb determines the minimum amount of loss - absorbing fout! onbekende naam voor documenteigenschap. capacity g - sibs should have. last month, the tlac principles were implemented in european legislation through the banking package. this means that, as of last friday, all g - sibs in europe are required to have a minimum loss absorbing capacity of at least 16 % of risk weighted assets, plus the combined buffer requirement. the european legislation on some aspects goes beyond the tlac term sheet, for example by requiring mrel targets for all banks instead of only g - sibs. also, the new brrd2 introduces binding minimum subordination requirements for banks with over 100 billion euro on their balance sheet. this will ensure that sufficient loss - absorbing capacity is available for bail - in during resolution. the fsb has been monitoring the progress g - sibs are making in building up loss absorbing capacity. we see that progress has been steady and significant, both in the setting of tlac requirements by authorities and in the issuance of tlac instruments by banks. this has been instrumental in enhancing resolvability and boosting market confidence in authorities ’ capabilities to address “ too - big - to - fail ” risks. however, despite all this, we are not at the end of the road yet. the tlac review that the fsb recently finalized, has shown that additional steps relating to loss - absorbing capacity are necessary. i will address three topics where i believe progress is required. first, it is clear that there will be less issues when bailing - in a subordinated liability compared to bailing in a senior instrument. no creditor worse off issues come to mind in this context. the tlac term sheet, by way of exception, allows for senior instruments to be counted towards tlac. in my view, more analysis is required as to how these exceptions influence the resolvability of banks. second, we have to make sure that adequately distributing loss - absorbing capacity within the group, needs to be prioritized. this means making sure losses in subsidiaries can be upstreamed to the parent company, and capital generated through bail - in can be downstreamed from parent to subsidiary. without an efficient internal mechanism, bail - in simply will not work. it is good to know : this topic also has the attention of the srb. third, further work is needed on bail - in execution.