Good afternoon and welcome to the annual conference of the European Systemic Risk Board. The conference marks the 15th anniversary of the ESRB, which is why the event is fittingly called ESRB at 15. May you stay forever young. I'm Connie Lotser from ECB Communications. I'm honored to moderate the conference once again. We have a great program with high-level officials and speakers discussing the state of the financial system amid a complex geopolitical landscape, how it has changed over the past 15 years, and what challenges and vulnerabilities lie ahead. We will start with a welcome address by the chair of the European Systemic Risk Board, ECB President Christine Lagarde. Following her remarks, the president will chair a fireside talk with two distinguished speakers, Klaas Knot and Stefan Ingves, on the topic of how to ensure that the EU financial system contributes to a strong EU. And without any further ado, President Lagarde, please.
Thank you for this round of applause, and thank you to all of you for being here today. May we forever remain young. That's what I wish for all of us. And I think the title of this conference is perfectly suited, particularly for somebody who has passed her retirement age by a long way, as some of you may have as well, but we feel good. So it's a real pleasure to welcome all of you at the 10th annual conference of the European Systemic Risk Board and to mark actually the 15th anniversary of its creation. Some of you are witnesses to this institution ever since its inception, and you will all remember that it was born of a hard lesson that resulted from the global financial crisis and which was reinforced by the European sovereign debt crisis. Risks had been building across institutions and markets, while the view of any one authority, however scrupulous and rigorous they were, remained incomplete. Europe needed a way to see the financial system as a whole, so that it brought central banks and supervisors together around one table to provide that overall perspective. 15 years on, the rising importance of artificial intelligence is putting that system-wide view to the test, and that justifies the title of my address to you this afternoon, which is 'Where AI Risks Meet'.
Generative AI is already widely used in finance. Nearly nine out of 10 significant euro area banks use it. In addition, a recent survey of EU securities market firms, according to that study, seven out of 10 respondents expected to increase their investment in AI. So we conduct those surveys at the ECB level with the corporate world, and this is significantly higher in the financial sector relative to the rest of the corporate world. There is a good reason for that interest. AI can help financial institutions analyze vast amounts of data more quickly and improve how they assess risks. More broadly, the potential productivity gains could allow firms to offer customers a better service while using their resources more efficiently. To date, most users of AI in finance involve limited autonomy, but AI agents are beginning to take on more discretion. They can pursue a goal with limited human direction, potentially devising trading strategies or finding vulnerabilities in the systems on which trading depends.
The ESRB is well placed to examine how recent developments in AI could create risks across the financial sector. And we were lucky this morning, on the occasion of the general board of the ESRB, to have a report by the secretary general on the monitoring of the risks that have developed only since last June, and it's actually quite significant and accelerating if we are to believe our findings. So I'm going to talk about three different areas that, in my view, call for particular attention. The first is in financial market trading. AI agents may pursue goals in ways that human overseers did not intend and cannot detect. Second area, in cyber resilience. An attack on shared technology has then the potential to disrupt several firms at once and be very broad. You all have heard about it, and many of you are particularly concerned about that risk materializing. And third, in geopolitics, where international tensions can increase the threat of cyber attacks and prompt restrictions on the frontier models that firms use to defend themselves. And we have seen that risk actually being realized. So if you look at any of these three risks in isolation, they are serious, but together they can interact and compound across the financial sector. That potential interplay calls for careful and encompassing macroprudential monitoring going forward, and that is certainly a task that we have decided to undertake at the ESRB.
So let me start with financial market trading first. The use of AI in financial markets is not new; it predates generative AI. Investment firms have long relied on algorithms to execute trades, and banks have already been using AI to assess credit and detect fraud. The possibility that AI could amplify market moves has been recognized for some time already. The Financial Stability Board warned almost 10 years ago that traders adopting similar machine learning strategies could reinforce a financial shock. Nothing new. But today, competitive pressure gives firms a strong incentive to adopt the latest AI models, to hold their ground against their rivals or step ahead of them. And those frontier models are few in numbers, even if they are constantly renewed in order to increase the consumption of such services. The ESRB's Advisory Scientific Committee — and I can see a number of its members here in the room — that committee has recently warned that the widespread use of similar models may lead firms to assess a shock in much the same way and make similar trades in response, reinforcing the move in prices. Against this background, the arrival of AI agents could mark a new stage in how financial markets use the technology. So how often and how much are they used? Not much for the moment; it's still limited. In a survey that we conducted this year, only 5% of asset managers said that they gave AI autonomous or semi-autonomous authority over investment recommendations or trades, but that percentage may very well increase over time. So currently, it's 5%.
In a potential sign of things to come, one of the world's largest hedge funds has launched a strategy in which AI is the primary decision maker, with the firm's stated goal that I quote: 'has to build a fully artificial investor that can outcompete humans.' The uptake of agent AI may mitigate some risks, but it could also create new ones. If firms train the AI agents on proprietary data, for instance, their balance sheets, their client flows, their client data, trade decisions may become less correlated than if traders were simply querying the same models with similar prompts. But greater autonomy also brings a new risk for financial markets: misalignment, where AI agents may pursue goals in ways the human overseers neither intended nor actually can detect. In one recent study, researchers gave an AI model the role of a trader at a fictional investment firm. It traded on an inside tip, knowing that management disapproved. Then that was not enough; it hid the reason for its trade from its manager. So ignore the rule, breach it, and then cover up. Separate research finds that AI trading programs learned how to collude without communicating in a simulated market, creating a risk of market manipulation and distorted prices. So as more discretion passes to ever more powerful machines, human oversight will likely become harder to sustain. And when we cannot fully understand how those machines reach their decisions, the consequences may be harder to foresee and mitigate. Now, some people have said in similar forums, 'You just unplug everything.' Yes, but then what do you do? It's a bit like the race to the bottom; everybody ends up at the bottom.
So turning now to risks that actually extend beyond the decisions agents could make. AI is changing how quickly weaknesses in financial firms' systems can be found and exploited. In July, the ESRB issued a warning on the cyber risks posed by frontier AI models. In July. We're just proud of that at the ESRB because there were not so many who actually at the time flagged the risk of essentially the cyber resilience and the cyber attacks that were precipitated and facilitated by AI. So all members of the ESRB, including those in the room, take some pride in this, myself included. Independent tests show how quickly their capabilities have advanced. In a simulated 32-step attack, models released at the end of 2025 completed about a third of the steps on average, with the remaining steps proving too difficult for them. So that was at the end of 2025. The latest models, however, completed each and every step. Rapid advancement in AI could leave financial institutions far less time to contain an attack. The ESRB has warned that the interval between an initial exploit and widespread automated exploitation could fall from weeks to hours. How? We already know that human attackers are using AI to find weaknesses and move faster. Misalignment is now emerging as a risk to cyber resilience as well. We have seen several incidents this year in which agents from leading AI labs breached the systems of both firms, corporate and government. In one case, around 1,200 agents being tested at an AI lab were meant to work in isolation, but they found a way to communicate and formed a swarm. A hierarchy emerged, with some assigning tasks to the others. The swarm gained internet access, which it was not supposed to, and hundreds of the agents joined an attack on Hugging Face, a platform for AI developers. So firms once again face a strong incentive to build their defenses with frontier AI. But while frontier AI can help defenders find weaknesses faster, financial institutions still need to test their fixes. It was the race for patches that maybe some of you have experienced earlier in the summer, because we wanted to test those fixes before deploying them in essential services. That takes time. Attackers, by contrast, couldn't care. They can exploit a weakness as soon as they find it. No test is needed for them. So for that reason, the ESRB expects attackers to hold an advantage in the short to medium term, even as AI strengthens defenses over time.
Final and third category, geopolitics, because we believe that access and rapid access to frontier models can still materially shorten the time a defender needs to respond to attacks. So retaining that access to frontier models will become a matter of fundamental national security in an environment of growing geopolitical tensions. That creates another form of risk. When everything can be weaponized, frontier models can be just as well. Frontier model development is concentrated in the United States and in China. For Europe, that raises a question: who controls access to the models its financial institutions may come to rely upon? That question was once hypothetical. Since this summer, it no longer is. In June, a US export control directive concerning two advanced models led their provider to suspend access. And for Europe, the result was an abrupt cutoff. While access to the general-use model was restored a few weeks later, access to the model with fewer cyber safeguards remained limited to organizations vetted by the US administration. That incident passed without any discernible disruption to the financial system. But let's bear in mind that we are only in the early stages of the AI evolution and adoption. We have already seen what concentration risk can mean. In the summer of 2024, one faulty software update grounded flights and disrupted banking services around the world. Now imagine a future in which almost every institution depends on a selected few models or a selected number of AI firms to adjust trading strategies or find vulnerabilities in their system. In that scenario, a loss of access could prove highly disruptive to financial stability. What may begin as a short-term decision driven by a strategic imperative can quickly lead to unexpected knock-on effects for Europe's financial system. And that is why Europe needs to develop AI capability of its own: have the computing capacity, and if it cannot be the whole, it should at least be an indispensable part of the supply chain that ultimately produces AI, so that access to tools that are vital for its financial resilience does not depend on a switch that is controlled outside.
So by way of conclusion, let me quote Stephen Hawking, who described once the future as, I quote, 'a race between the growing power of our technology and the wisdom with which we use it.' Einstein had something similar, by the way: 'I can resolve all the equations in the world, but I cannot cure the madness of man.' AI has the potential to offer many benefits to society. It is transformational. It enhances — we will hear all these over and over. But it also poses risks, including for financial stability. So if we are to use AI wisely, policymakers need to anticipate risks to the financial system as a whole. They should use their respective mandates and coordinate where those risks cut across them. In Europe, where the AI Act applies, it sets rules for AI systems according to the risks that they pose. But contending with frontier AI models that are becoming ever more powerful will also require cooperation at the global level. We are seeing a degree of cooperation at the corporate level. We're not seeing that degree of cooperation at the policymakers' level on a global basis. History offers some precedents, though. During the Cold War, the United States and the Soviet Union agreed to limits on their own nuclear capabilities and worked to prevent nuclear weapons from spreading, even as they continued to compete with each other. Now, of course, the difference with the AI race is that one country, the United States, holds a lead in frontier AI, at least for the moment, and it may view any global agreement for the moment as a means to slow it down. Yet it seems to us that such a view might be short-sighted. Strategic rivals still have a shared interest in preventing frontier AI from falling into the hands of bad actors, while at the same time preserving access to those who need to defend critical systems. I hope — I really hope — that such global cooperation actually emerges. Here in Europe, action is already warranted. The ESRB has warned that cyber defenses around critical financial systems need to be reviewed and updated as frontier AI changes the threats they face, and financial authorities should ensure firms plan timely responses and work together where an attack could spread across the sector. Since the ESRB was established 15 years ago, the financial system has changed profoundly. AI is reshaping it one more time. But one thing has remained constant: the ESRB's commitment to its mission of monitoring how risks interact across the whole financial system and helping authorities respond accordingly. And with that, I'm very pleased to open the 10th conference of the ESRB and to announce that we're going to now move together with my colleagues and friends Stefan and Klaus to a fireside moment where we will compare notes and think about the future. Thank you so much for joining me.
Perfect. See, they are hard on me. I don't even have time to breathe. So I know that these two gentlemen do not need any introduction, and you know them all. But given that this is streamed and it will stay for posterity, just in case history forgets about the three of us, I'm going to tell you who they are. So the first, to my right, is Klaas Knot. Klaas Knot was president of the Netherlands Bank, the national central bank of the Netherlands, for 14 years, from July 1st, 2011, to June 30th, 2025. He was a member of the ECB Governing and General Council and of the ESRB General Board. And I think you've been a member of the ESRB General Board for 14 out of the 15 years, so you know a bit about this institution. You were chair of the Financial Stability Board, the FSB, between 2021 and 2025. And today you have your own advisory firm. You're a member of the Group of 30. You're a member of the CFA Institute Systemic Risk Council. You don't avoid that. And you're a distinguished visiting fellow of the Peterson Institute for International Economics. And to my left is Stefan Ingves. So, governor of the Sveriges Riksbank, the national central bank of Sweden, for 16 years, between 2006 and 2022. You were chair of the Basel Committee on Banking Supervision between 2011 and 2019 — critical years for all those of you who remember. You were — and I had forgotten about that actually — you were head of the Monetary and Capital Markets Department of the IMF at a time where there was a lot of consolidation and also banking crisis. And before that, you had a whole career at the Swedish national banks. So when it comes to the ESRB, Stefan was a member between 2011 and 2022. You were the chair of its Advisory Technical Committee, and you were vice chair of the ESRB between 2020 and 2022. And I had the pleasure of working with you when you had such capacity. So today you chair the Toronto Centre, and you have joined the Swedish House of Finance as a senior fellow. So between these two gentlemen, we have, you know, something like 20-plus years of ESRB, despite the fact that it's only 15 years of age, and you know a lot about the topics that we are going to talk about. So if that's okay with all of you, we've decided, the three of us, because we had a little chat beforehand — it's always the case in those situations — but we decided to talk a little bit about the past as it informs the present, and your respective judgment on, first of all, your memories and then your judgment about how things are going and panning out. And that's what we will start with. So can you tell me, both of you — and I'll start with you, Klaas — your memories of the early days of the ESRB. Did it feel like a startup kind of environment? Were you so focused on the mission that it all happened in spite of you, but you managed to deliver? What was it like?
Well, thank you very much, Christine, for having me, and it's really good to see all of you again, some of which, of course, I haven't spoken to for a certain while. But if I go back in time, Christine, I would probably even go back a little bit earlier to 2009, because the cradle, let's say, of the ESRB was, of course, in the de Larosière report. It was in the aftermath of the global financial crisis.
So, Jacques de Larosière, pronounced in French.
Jacques de Larosière. Okay, I'll do my best. I have to practice a little bit. But at least, I mean, that is my sort of first memory, because the crisis, of course, demonstrated that microprudential supervision needed a significant upgrade in Europe. And that was the three agencies at that time — we had CEBS, CEIOPS, and they were all upgraded into EBA and ESMA nowadays. But I think an important conclusion was also that you can sort of strengthen all the microprudential work, but that the crisis had manifested very clearly the importance of interactions and having a system-wide view. The crisis, I think, was very much dominated by risk transfer mechanisms that before — and we had been charting, we had been studying them. I mean, also the Banking Supervision Committee, which was a committee also here at the ECB in the 2000s, they already did a report on credit risk transfer in 2005, and already in that report, for instance, the German Landesbanks were singled out as significant buyers of this stuff. Unfortunately, it didn't get much attention until 2008, 2009. So I think, to cut a long story short, it was important that we added a sort of roof on the building with the three pillars, and that roof was going to be the ESRB. And I think immediately, from day one, it was proving its value, because if you now look at the financial system also today, it doesn't make sense anymore to just look at single columns. I mean, we can talk about private credit, thinking that that is a different sport than banking, but then if you look a little bit more closely, the banks fund like 30% of these private credit entities. So there is no way you can separate the various sectors, and the need for a macroprudential perspective on this and macroprudential oversight was clearly there, and the ESRB took up that baton. Of course, it had to start from scratch. And when you have to start from scratch, you have to think about a mandate, you have to think about your proceedings. And there was a sort of a lot of legality and governance issues that had to be tackled — who will be on the table and who not, and these kinds of things. But I think what I remember, there was a lot of enthusiasm, and people were all convinced that we were missing something and that we were filling out something that we were in desperate need of.
Excellent. And the first president at the time was Jean-Claude Trichet. Yeah. Right. And these discussions about governance and how the work would be organized and who was doing what and the secretariat and all that — you decided that internally?
Well, actually, that part I was not part of, because 2009–2011 I was still in the finance ministry. So I worked on the preparation, but Stefan was there.
Brilliant. So anything that you want to add, and that input?
A kind of a very sort of super microeconomic observation when it comes to the creation of the ESRB. It was good, and it was sort of in the air that something had to happen, and similar processes took place after the Asian crisis, but that was more on the IMF side. So there was a consensus, and we had the report, and eventually this passed through Brussels, and there was agreement that this is going to happen. I was sitting on a plane down to Frankfurt for the first conversation about what the ESRB is supposed to look like. I can't say that I was extremely well prepared, but I read all these papers very, very quickly. And then I realized when I read the papers that if you volunteer to become chair of the Advisory Technical Committee, then automatically you are a member of the steering committee and also of the ESRB board. And given that this was a greenfield operation, there was no guidance at all, none, about how to set up this whole operation. Then I sort of realized that you can do whatever you want. You can create this, and that was — so it was a startup. Yeah, it was a startup, and that was absolutely wonderful. And it didn't really bother me at all, because I tried to be a public sector entrepreneur, which is an anomaly. But I also sort of realized that, okay, when I was deputy governor, I happened to produce one of the first financial stability reports in the world. So that was one background. When I was with the IMF, I created a financial sector assessment program from scratch. So this was kind of, with that background, it wasn't that difficult to come up with a vision of what to do. And then we set out to work together with the secretariat and created a work program. And people were kind of happy that somebody actually told others what to do. So they said, 'Yes, yes, let's do that.' And then we kind of took it from there. But of course, with some difficulties in the beginning, because it's a large table.
Okay, bear with me on that, because — everybody is there. Klaas talked about EOPA, ESMA, EBA. Who were the other members around the table at that time?
Well, then all the other supervisors and the central bank governors.
Okay. And then you have, with also backbenches, I don't know, between 50 to 100 people in the room, and then you have to engineer out of that an agenda that makes sense. And that's one of the difficulties when it comes to European cooperation, because you have to have binoculars to see who is talking on the other side of the table, and the only thing you can see is a red dot, and you have to make sense of that. But we were able to do that, because everything in the beginning came via the Advisory Technical Committee and via the Scientific Committee, and that actually created a work program in such a way that it became possible to carry out a sort of an informed conversation at the ESRB board table, despite all the difficulties with so many people in the room. So, how did you pick and choose what was on the agenda and what the technical committee should work on? Did you —
I wrote it at home, and then I said, 'This is what we're going to do,' and most people said yes. I mean, that's what you do when you run things. And then you do your best when you are the chairperson to say when there is not a consensus that I hear that there is a consensus, and then you get on with it. And if you don't object, then in the next meeting you say, 'Well, you know, the train left the station in the last meeting.' And of course, this is — of course, all of this has to happen within the mandate of the —
But the ESRB's mandate is open for interpretation. So it's pretty broad.
Very entrepreneurial, clearly.
So for both of you, what is special about this institution relative to others in other corners of the world, including — well, especially advanced economies, I would say. Klaas.
Well, I think what is special here is again that we are in a monetary union that is, of course, incomplete in many dimensions. So I take it that in other parts of the world you will have financial stability committees where you will have the central bank, where you will have the supervisors, the finance ministry, but that will probably be a relatively contained committee, where in a relatively small group you can actually have a back-and-forth discussion. That unfortunately — and Stefan already alluded to it — that of course is not possible in a room where you have 78, I think the latest count was 78 official members. Then what you get is more a dynamic where I think at the table people are stating positions, and then more of the sort of room for interpretation moves to the committees underneath the main board. No, I think we have always been able to please ourselves, and it's not just because I'm with Stefan in this fire yet, but I think we've had good chairs, good and effective chairs of the ATC, the ASC. It also —
And we still do. Yeah. And I think that makes a difference, because a lot of the judgment calls then have to be made at the levels, let's say, immediately underneath the board. The risk identification, I think, over time has become more of a bottoms-up approach, and that's inevitable, that you try to sort of accumulate the collective wisdom, but then at some point it needs to channel into a consensus. And usually when the board itself, the general board, decides on the risk profile and the risk outlook, and there is not so much room for maneuver that can dramatically change what is at the table. But I think that is part and parcel of committees like that, and in Europe it's a little bit more complicated, since we have always the confluence of European entities but national authorities that are partly competent and that therefore need to have a place at the table. You need to have everyone, because of the inclusion, because everyone you also want to change, you want to create common language, common culture, that we all have a common vision on the risks and the risk outlook. For that you need everybody at the table at the same time. It makes a substantive discussion that leads to material changes a bit more difficult.
You mentioned the three — you mentioned the supervisory and the banking institutions, but there are others as well, because as the European institutions grew, new additions joined as well. You know, I'm thinking of the SRB, I'm thinking of the SSM, I'm thinking of those that rallied the group and became members of the institution as well. So that's also a characteristic.
Yes, it is, and Klaas already alluded to that, makes it a bit more complex. But on the other hand, it's a good thing that everybody is at the table in one form or the other, because otherwise, with a high likelihood, you're going to miss things, because the financial sector is a kind of a partial general equilibrium system where everything depends on everything else.
And then if you are too much in silos, then you are likely to make mistakes sooner or later, because you didn't really fully understand where all the risks went until they actually bubble up to the surface, and then it usually is too late. But let me add a few other sort of features of the ESRB which I found important. First of all, it was kind of an innovation, the whole thing with warnings and recommendations.
So before you get to warnings and recommendations, Klaas just said that the selection of risks was a bottoms-up process. Is that your impression as well?
You had so many around the table. The risks were not necessary —
Yes. In the sense that you have to get the original documents have to come from somewhere. And that means that it becomes very much bottoms-up. And then part of the bottoms-up was to make sure that there is a conversation going on between the ESRB secretariat and the individual countries.
Yeah. Take the real estate risk that you know well, which was not initially in the cards. How did it come up, and how did it become sort of everybody's business, and then the committee's work, technical and scientific?
Well, if you know a little bit about financial crises, then you know that real estate always is an issue. And that means that in a number of countries there had been a struggle with that. And in some countries a long time ago, and in other parts of Europe it's sort of more acute. And then that meant that it made a lot of sense to try to get a better handle on what was going on. And I think both of us kind of supported that, in the sense that you had your Dutch problems and we had our Swedish problems, and they were pretty much akin.
Correct. Correct. Then I remember so well in a conversation that Nout Wellink, one of the former governors, told me that he said that if you really want to know about what not to do, I can tell you. And that created an environment around this table where it made sense for those who had a bit of experience of this to tell the others that, yeah, watch out, watch out, because it's a bad — there was some note comparing and experience sharing. So go into the warnings and recommendations, because that's a field where the exercise —
That was one of the early moments when I would say everybody around the table realized that they were sitting there not just to do the talking. That part of your job and part of your mandate is actually to issue warnings and recommendations. And that was a serious moment, because then sort of people realized that this is not just a talk shop, and you have the right and you have the responsibility to turn to individual countries and say, 'You are not behaving.' And that in combination with — which is different from, let's say, the BIS — that ultimately at the end of the day you can vote in order to get on with it, because you can say, 'Time is up.' So let's vote.
Tell us a bit more about warnings and recommendations. How different they are. What do you remember of them, and how complicated and contentious it was?
Well, first of all, I think the distinction between the two was always an item at the table of the general board. But I can assure you that outside this building and outside this room, nobody can tell the difference. So it is a big committee that has an opinion on financial stability risks and is therefore relevant regardless of whether it is issued in a warning or a recommendation. Now, I think as an individual policymaker coming from a small open economy, I actually usually tended to welcome some of the recommendations, because some of the recommendations that came out of the ESRB were very much in line with positions that the central bank had already been taking for a long period of time. The housing market is an excellent example. We all think that we are unique in our housing market, and we all can have lively discussions about what's wrong in our housing markets, etc. But when you come here, you actually find out that the main drivers behind what's wrong in the housing market are not all that dissimilar across countries. I mean, politicians like owner-occupied housing, and if that's not available for young couples, they find ways to allow them to borrow a little bit more, etc. And that is of course the thing that we as financial stability authorities get a little bit unhappy with. If you come here in Frankfurt, then you discover that this is actually going on in all 27 countries, and that you have the same pressures on loan-to-value, loan-to-incomes, on mortgage tax deductibilities and all niceties, etc. And that I think also helps a lot, this sort of peer review, that you can show the tables to your finance minister and say, 'Okay, I mean, I'm not going to discuss with you what's good and bad, but I have a table here, and there are 27 countries in that table, and the Netherlands is a bit on one extreme end of the table. Do you really want to be there?' And that is usually a stronger communication mechanism than just telling the minister that he does something which is fundamentally wrong.
So did you do that with the finance minister? Did you use it in your closed meeting with the prime minister? How useful was it in that context?
Absolutely. I used it in my background conversations with the minister, and of course also the staff of the ministry, with the prime minister, etc., to really show that, for instance, in terms of loan-to-values, we were an absolute outsider until 2013. You had loan-to-values of 125% in the Netherlands. You basically, if you wanted to purchase a boat, you first bought a house, you borrowed, because your house is the cheapest asset against which a household can borrow. And that was quite common practice. Now, fortunately, we managed to put an end to that from 2013 onward, but that required really some convincing, because voters like to borrow a lot against their house. And so, yeah, the ESRB was a big help, I think, in this regard. And I was sometimes, in honesty, a little bit surprised when I saw other countries taking a lot of issue with the recommendations that were given against their country, because I always took the approach, 'Okay, let's use that recommendation to help me actually in some of the domestic discussions.'
So I'll give you some numbers here. Between — and you were part of that — these operations between 2016 and 2022, the ESRB issued 18 warnings, so —
not the most constraining one, and eight recommendations, and there were 10 countries that actually complied. So the warnings were effective as well. And yet when a country is given a warning, it doesn't have to justify what remedial actions it has taken. Whereas for recommendations, typically at the next meeting the country is expected to say, well, we've done this, we've done that, we've put in place some macroprudential measures that will actually cool down the real estate markets. So that goes in the direction of what you say. Outside of these rooms, warnings, recommendations, pretty much the same. You use it in your dialogue with government representatives and action is taken, which is not bad.
No, that's, that's, I agree. I found it always a big support of the things that I, that we also at the Netherlands Bank thought were necessary to make the Dutch housing market a little bit less unstable. I would, I would say, and so we got partial results, I must admit, because had it been for my preference, I would have preferred an even slightly lower loan-to-value limit, but at least we made significant progress that I'm convinced we would not have made without international pressure. Of course, the IMF with its Article IV also played a helpful role here. But I, yeah, I think again, peer pressure and benchmarking are effective tools if you want to change behavior.
Stefan, do you remember particular instances, without naming any country, where the recommendation was resented or a warning was not accepted and there was a bit of a turf battle as to how numbers could actually change so that it would not be so?
In the early days, it was quite a surprise that the whole system with warnings and recommendations existed and that it was to be used. And I don't know how many conversations I have participated in, without getting into any names at all, where somebody showed up saying that, Stefan, you have misunderstood this completely. The ESRB is only supposed to deal with pan-European issues.
That's right. Not country issues. And I still heard that in the last few years, remember?
And this sort of kept going on and going on. But then eventually, when you go to a large enough number of meetings and discuss these things, then out of that comes a, let me call it, a median view of things. And that means that then you slowly begin to accept that there is peer pressure. Maybe we are an outlier. Maybe we should actually do something about this. And then eventually, if you go to an infinite number of meetings in Frankfurt and Brussels and you constantly have somebody yelling at you, then it makes you think, and then you slowly adjust here and there so that you can start yelling at somebody else. And that's how sort of the European project operates slowly over time.
How many of those meetings did it take in general?
Oh, in the early days it took many, many meetings because then it was very prevalent, just this issue that the ESRB is only for sort of pan-European issues.
And you discussed not only macroprudential measures but macroprudential measures as well, just coming out of a sovereign debt crisis.
Yeah. Can we just make this thing go?
Was that complicated as well in terms of discussions with the countries?
Well, one aspect that has not been mentioned yet, Christine, is of course that we got regulators from the banking, the insurance and the securities side, and that after 2008-2009 there was not a single banking supervisor that needed any convincing that financial stability and the macroprudential perspective was very, very important. But it is also true, and that I must admit played also a role in the FSB that I chaired for a few years, that to get the same sort of understanding of the importance of financial stability also in the hearts and minds of insurance and securities regulators is a little bit more of an uphill battle. I think a lot of progress in the meantime has been made, and particularly also because NBFI has become so much more important in understanding what's going on in the financial system. But I recall at the beginning that that was still quite, yeah, quite a challenge at the beginning in the ESRB to also convince, for instance, supervisors that have a sort of investor protection mandate and to combine that with financial stability, and that financial instabilities could also come from markets, from insurance, pensions, correlated asset exposures.
What caused that in your view? The independence that they had, the mission that was theirs, or the reluctance to open up to others? What was it?
Yeah, I think a little bit of all of that. All of the above. I think we're all too human, and if there's a new kid on the block that all of a sudden also has an opinion on what you used to regard as sort of your domain, then initially there's always a little bit of that. But I mean, I would say I would definitely want to end this with a positive note. I think there has been a lot of development here, and I think the ESRB committees like the ESB have probably been very helpful in sort of fostering more consensus on the importance of interconnections between the different sectors, getting the risk transfer mechanisms, have a better view of that, and the fact that you can only have that view collectively and not individually, etc.
Well, we're very lucky to have the head of EIOPA and the head of EBA. I'm going to turn to both of you. Forgive me, it's not in the protocol that I was given, but would you agree with that point that Klaas made? So if you can move a microphone, or if you don't, then just... Okay. And the former ESMA chair is also there. Yeah. Okay. You're here. So a microphone to Petra, so head of EIOPA, and then to both of you, to ESMA and EBA.
Yes, so thank you for the question, and I would say yes, it did help, and yes, it was a bit of getting used to each other at the beginning. So why would particularly a group of central bankers start to talk about insurance and pensions? But it works the other way around as well. It's a good table to be at from an insurance and pensions perspective and listen what the risks are, because ultimately whether it is housing market or it is credit or now these days it is private credit, it's a risk that in the end impacts the financial market of which we are a part. So I would say yes.
I would add to that that not so much the sharing of data but access to data, which was very restricted and very much often subject to turf territorial protection, actually went away much more easily as a result of that. Vina, we're delighted that you are still with us, not for many more days because you're getting to the end of your term, but please tell us in complete freedom your views about this point.
No, I wanted to very much echo what Petra said. I think it was very much a mutual learning process. So I think Klaas is right. Many of the securities regulators certainly and supervisors did not have financial stability as one of their objectives originally. So this was a new way to think about what do I need to worry about as a securities market supervisor and regulator beyond orderly markets and investor protection. But I think there the ESRB played an enormously important role to bring that debate much more up also in the securities markets family. And on top of that, I think it is however a mutual learning because I also felt that there was quite a lack of understanding sometimes from the banking supervisory side that actually what the banks are doing has a wider impact on the market and the other way around. And so the other thing that I repeated today is NBFI, non-bank financial intermediation, is defined by the fact it's not banking, but actually it's a hugely diverse set of activities and players in that set. So I think this is also something where we collectively need to continue to listen to each other and work together.
Do you want to react to that, Stefan, before I give the floor to Frolu?
Just to say that it wasn't so easy in the early days because when it got unpleasant, then it was very easy to sort of escape and start talking about banking only. And when it got unpleasant on the banking side, then everybody escaped into talking general macro instead of sticking to the real issues and get the silos to get together and understand each other.
