John thank you very much for coming here. Were discussing earlier that it is similar to one of those revolving stages on which rock bands perform, we will eventurally revolve around as we go. The rubber band thing is at least briefly accurate to this extent that we have five rock stars in finance in different ways. We have min su from the world bank and steve schwarzman. Brian moynihan, we will start with you. You have this challenge of this slightly amorphous thing where people from Silicon Valley will come in and eat your lunch. Do you think the way that is being regulated is correct . As it imposed too many costs on you, and what way do you look at it from the point of view of future finance . If you think about the regulation it clearly has not , caught up to the change. But that is natural, because everything is moving very quickly. I come at it and say, what does it really do . Of aistributive power smartphone in the hands of a person is so different from anything we have faced in our careers. I think it will take a long time for regulation to fully understand that as it will take a long time for all of us to really understand that. If you look at our customers, we had 19 million computer bankers and the amount of volume on those devices grows at 20 to 30 per year and the amount of customers continues to grow. Even though it is a big base. So the ability to talk to and and give with them, notifications, these are all the things that used to bother people that had to call and wait. These are amazing things. It will take a while for the regulation to come, but if it is an activity that you feel that you have to regulate, that will be regulated across all participants. That is what they are struggling with right now, regulators are struggling to catch up to the people who are not under the tent. John are there any particular areas of risk . Bryan it is all of them. On the lending side we used to have credit risk, and the ability to create credit on quick terms. We used to grant credit on pretty good terms and it cost us 90 billion in chargeoffs. And we had the best data scientists in the world doing it. I think there is balance to that. And then in the Money Transfer, we have a big business. The ability for a Small Business in the United States to engage with a Small Business with brazil is fascinating, but if you are worried about where the money is coming from, that regulatory inspection is amazing. It will take a while to catch up. John bill, do you want to come in on that . I realize you were an earlier rockstar. [laughter] bill i agree with bryan, regulation will come from the markets, but but another point is that they have been intermediated. Capital markets continuously disintermediate banks. It is important for us and for regulators to ask the question, why do banks exist . What is the value added . For a bank, and ultimately if we do our jobs well, we are servicing customers. Were hoping the manager there we are helping to manage the data, and these are things that are somewhat enduring in terms of the role of the bank. Fintech has these applications. There is a disruptive element, and that disruptive element will challenge regulators along the way. But the way we are thinking about in tech is the app store, where we have the front end and we have to protect the all the time. We have an infrastructure that moves money around the world. Through us, you can get to any number of applications behind us or through us. If we do our job well, we will give a line of sight for regulators as well so the business can be done safely and soundly. And to the extent that we get disruptions, the regulators will have to adapt. And farewell and they will. You look at this world, and how do you see it from a regulatory point of view . This is not a new concept, but how do you attempt to bring in people from Silicon Valley and these new ways of moving money around the world . Fintech is still in the very early stage. Today it is very much focused on payment, payment transfer, and a little bit of a move to the sme lending. So it is still very limited. Securityu think inues, customer issues, watching technology, you can reach so many customers. About what ifink the system broke down . The regulators facing challenge, it would become a function. The whole regulation function has to shift away, back to the issues of 15 years ago that were never realized. Stage,uld say at this the regulator is actually moving because this transfer across the continent moved dramatically. We think about how much john is on the Security Issues of the global volatility issues. John going back to what you said at the beginning about Money Transfer, and things like that, surely these are the bare bones of finance. These are not small things. Min if all the Money Transfer moves away from the banking business, it could be. Then i would say, what does the banking business to . Do . John steve, you have been a disruptor of banks for a long time. As well as a beneficiary of them. When you look at these issues of fintech, do you see potential for yourself or banks being challenged in new ways you have not seen before . Steve we are not bankers. We are basically investors. We work with banks. We are a user of credit and advice. We basically want the Banking System to be strong and sound and prosperous. That helps us do our job. And it helps society if they can exercise their charter in a good way. The fintech stuff does not affect us in a direct way. We are not disruptors, we are friendly, lovable investors. [laughter] it is really how that affects the global Banking System, and i think if you look at china this is a model of something. , i am not sure exactly what. But you know, the kind of things alibaba is doing, opening money market accounts. And there is this other consumer in effect, lending that is intermediated in some fashion. This is like the brave new world. You can do that in china because some of their institutions arent as developed as they are in the developed world. You will have a variety of changes, as brian was talking about. Everybody walks around with their devices like living off of them. You will either adapt, or be damaged. I dont have anything particular to contribute. This is not something that we are studying in a way that affects us directly. John what about the general theme of the past few years , which is if you look at it from a regulators point of view, they are trying from a large extent to make banks, if not smaller, banks less key to a lots of things. They tried to bring in insurance companies. They talked about more people getting into credit separation. Growing Capital Markets. Everyone thinks that is a good idea. It would be wonderful if europe had a Bigger Capital market. Organizations like yourselves you are a source of funds to some people who may previously have gone to banks. What the regulators have managed to accomplish is to make the banks on one hand safer, but turn into cash pools with credit extension. It is an indication of a slower growing world. This was all foreseeable. If people are scared to lend or dont lend or are monitored in such a way that they cant take anything like normal risk, they dont do it. The people who suffer arent just the banks themselves, it is the world. More unemployed people, less new businesses, and that is the world that has been visited on us. And what we do is, among other things, we do perfectly safe businesses that banks have been forbidden to do, and we do very well. We are not taking risk. They have just been artificially run out of the business. So, we are plugging those holes with little risk and for a very good return. It is sort of an odd outcome. John do you think that is fair, bryan . You have been pushed out of business . Brian the purpose of higher createance policy to higher liquidity from the social policy has been effective. We were 3 trillion applied at the highest point, now we are down to 2. 2 trillion. The equity went from two and 60 billion to two and 20 billion. 100 billion liquidity. If you do all that math, you come out to stevens point. For every point of capital, there is 200 billion of lending we could do. The more buffers you put in, the less it is. There is a policy decision to make it that way. That is fine. We learn to live with it. Using technology, we took our cost from 80 billion to 57 billion this year. We have been spending 3 billion in Technology Development every year to implement not only fintech, but to drive efficiency in the business. And so, we lost things, but the way we had to get underneath it was to drive our technology for everything we do. That is the customer level, but also at the business operational process level. We have become a safer, sounder, smaller industry in the outcome of people like stephen. Stephen regulation has made the world more dangerous in certain levels. Its taken the individual institutions and made them safer, without any doubt. But by, for example, forcing them out of the dealer business. , there is nobody to make markets in fixed income. That is a very, very bad outcome. Because when you have markets with no bids, you have gaps. Huge gaps. That comes in times of stress. And then those market movements , get translated into huge losses that really dont need to happen, except there is nobody to be in the middle. Thats a regulatory achievement. If you asked them, if they really want that to happen as individuals, they would probably say, no. I dont really want that outcome. Im not trying to really hurt markets. But as a group, that is what they have achieved. So i think there needs to be some kind of finetuning in the system to deal with issues like that get created by good intention, but bad execution. John this is your chance to come in and defend everything that has been done by politicians and regulators. When you look at the european economy, we are still far too dependent on Banking Systems. But when you say banks are being pushed out and eating made too are being made too small, i would say that is certainly not true for europe. The european economy needs alternative channels of finance. Going back to fintech, i would hope that they can play a part in that. I would also hope, that looking at some of the european countries, the Banking Sector is far too concentrated. Some very large institutions dominating the markets, they need to be challenged. We need to competition, newcomers to come in and Service Consumers and smes to get money out there. John would you like europe to become more like america . Absolutely. Our Shock Absorption capacity in europe is far too small. We are still overleveraged in households. Governments still dont have a lot of fiscal space. There is only one large country that can spend more and that is it. If the next crisis were to come, who is going to buffer the economic shock . The banks cant at the moment. If you look at the u. S. , economic shocks, for a very large part, are buffered by private investors and Capital Markets. We dont have that in europe and we need to develop that. That makes it very vulnerable. Technological elements can be helpful here. If you are worried about the role that banks play, i would say they need to be challenged even more. We need alternatives, and i think technology can help. John you can fight back. , after the financial crisis it dramatically enhanced over big banks with liquidity and the last ability for capacity building. I think that is the reason we see the whole Banking System much of stronger. Important. Lly the commodity market is the one, currency is the one, and the banking becomes smaller. We need to understand the impact on the global risk, on Global Market and liquidity situation and a few other issues. Regulation reform agenda, other proposals. Looking forward see whether when , the Banking Sector withdraws bonds, what is left to the market. Back to your thing, this is another big challenge for the regulator in addition to also very debatable on the big Bank Regulation issues, is how do we regulate fintech . They are still very much a transfer business. Payment systems, clearance systems. How much of the Capital Requirements for that . What we found is those companies do better you guys can have different comments. The credit risk reading of traditional banks. They move faster because they have all the big data. They have all this information. Those institutions are moving to the lending business quickly. John do you accept bryans point that there should be a level Playing Field . That they should have to effectively produce capital . Min that is the key challenge for the regulatory committee, the community of the world and the Banking Sector together. Because how do you plan that for , everyone . It is important to separate the issues. If we are talking about the provision of capital what you really want to have is a good diversification of capital providers. Blackstone is providing capital, banks are providing capital, lending and investors are providing capital. That is good. What you get concerned about is when it is too much concentration through the channel. When it breaks, and really disrupts the economy. When you talk about taking deposits or a Payment System, it is a different thing. The Payment System isnt a series of entities, it is one entity. There is one Payment System. If the Payment System goes down, the economy stops. Banks play a central role in managing the Payment System. Not necessarily because we are better than a Technology Provider could be, but because we are regulated. On the one hand, a systemic regulator will look at whether you have diversity of capital provision. Good. Up until that point, why regulate the capital provision industry . Let independent investors make the decision. Payment systems have to be regulated. That is a utility. Participants in the Payment System need to be operating on a forget level Playing Field, they just need to be observed and be made secure. When it comes to stores of value, which is the third role a bank plays, that is something that regulators tend to care about, because people should not have to worry about, individuals in particular, about whether the money is safe if they are general depositor. They are not lenders, they are not investors. They are depositors. This is an area where regulation plays a role to make sure the stored value function is protected. You have to keep these things apart. Fintech as a role to play in each regard. Where the issue is systemic, fintech has to play by the same rules as everyone else. John are you happy in europe , that europe has dealt with that issue of fintech on a level, particularly with that thing to do with payment transfer, the embryonic industry , in the way you see when you look over brians shoulder. Regulators should not be at the front of the technological development. A part of that is that the regulators should follow it as closely as possible, understand it, and deal with financial stability, consumer protection, and all of the other things the regulator has as a responsibility. Obviously, as this fintech issue is developing very, very rapidly, they will try to follow it. The regulators in europe are all tanks,ng up think knowledgebase, groups to try to grasp the issue. If you say is the regulator adjusting . Are we adjusting legislation quickly enough . No. That is probably a good thing. You dont want to overregulate it before you understand it. You are watching future proofing global finance, a Panel Discussion of technology and regulation in Financial Services at the World Economic forum in davos, switzerland. There is a more nuanced question stephen has raised. You need a deep Capital Market buffer, no question. But what is happening now is the u. S. Is questioning whether we have somehow impacted that. That is a good thing. There is not a debate that we can beat the amount of leverage in the system, the amount of nonreal economy work. Fundamentally, in that debate, the role of Capital Markets provisions playing in the real economy. There is a bit of a debate about whether it is just for Companies Like ours, to make money, or whether it makes liquidity that provides a value. There is a fundamental debate among various participants, industry participants, regulators that value that. The question in the United States is have we impacted Capital Markets in a way that we cannot figure out . That is why you are seeing the volatility steve has described. The question we have for europe , which it does need a deep Capital Market for shock absorbers, they have to think through which strategy they want to chase. The strategy that currently exist in the United States, the strategy that used to be in the United States with more care around it it is a nuanced question at this point about what is going on. Especially with fixed income. It is just not as ubiquitous as equities are. There is one bank of america stock, hundreds of debt issues. Everyone is a little bit different. Exist in the united se i want to share this part, that is one company. I think this liquidity, volatility, the core debate about, is it core to the market . It is on the table in the United States to what we will see play out. That is what is happening. John we are going to come back to steve. When you said you wanted a more american system, which bits do you not want . [laughter] jeroen what i want is again, technology will help us here to have a deep Capital Market with the right information provided to investors, so that risks can be well priced. I think that the technological opportunities we have to get better information for investors and for bankers to know what risks are in what bond markets, etc. , that will provide a much better functioning Capital Market. I dont want an oldfashioned Capital Market. I want us to use the best technology that is out there, or that will be out there, to make a well functioning Capital Market. I think, especially for smes in europe, there is a great need to invest at the moment. Smes are late coming out of the technology, that will be out there, to make a well functioning Capital Market. And i think especially for smes in europe, there is a great need to invest at the moment. Smes are late coming out of the crisis, they have been very overleveraged, but the ones that have survived are now craving john stephen fought most of the good ones. Stephen the european banking market, from what we experience, is much different now than the u. S. Market. U. S. Banks are very strong. This was in effect, a regulatory triumph on the good side. They are much more willing to provide capital. They need earning assets and they have good capital positions in europe. We are going into businesses where we are lending money to people who really need it. They are fine credits. They just cant get the money. This is a real constraint. Jeroen any bit of the european element of finance you would like to see in america . Stephen europe is sort of a reverse of the United States. We are about two thirds of the credit extended through the Banking System. In the United States, it is one third. In the United States, two thirds are Capital Markets. One third is Capital Markets in europe. It has always been thus since i have been in business, over 40 years. Never had as robust Capital Markets as they should. I do not understand why that is, but it has always been that way, so i do not think there is much to learn on the Capital Market side, from europe to the u. S. It is something the u. S. Is very good at. One of the interesting things is because the european banks in effect served as a Capital Market, they can put up an entire tranche of lending that has subordinated debt in effect buried within a bank loan. We do not do that in the United States. We separate those, which allows the markets to develop in a much more robust fashion