We were discussing on the stage earlier that it is strangely similar to one of those revolving stages on which rock bands at the end of the 1990s. U2 had one of these. We revolve around as we go. The rock band thing is a briefly accurate in the sense that we have five rock stars of finance in different ways. We have brian of bank of america, the head of the eurogroup with the much faceted role of keeping the single currency in order. Steve schwarzman of blackstone. Perhaps i will start with you. You have this challenge of this amorphous thing, people from Silicon Valley, and eat your lunch. Do you think the way in which that is being regulated is correct or does it impose too many costs on you and give these other people too much of a fair crack at it . In what way do you look at it . From the point of view of the future of finance . Brian if you think about regulation, it clearly hasnt caught up to the change. That is natural. Everything is moving quickly. I come at it and say what does it really do . The intimacy of the distributed power of the smartphone in the hands of a person is so different from anything we face in our business careers. The ability to communicate in realtime, the ability to transact in realtime, 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 understand it. If you look at our customers, we have 90 million mobile phone bankers, 30 million computer bankers. The amount of volume on those devices rose 20 a year. The amount of customers continues to grow. The ability to talk to them, transact with them, give the notifications when they are traveling, the ability to tell us all of the Different Things that used to bother people. They have to call and wait to tell people they are traveling. These are amazing things. It will take a while for regulation to come. I think the clear thing, the basic principle will be it is an activity you have to regulate, regulate it across all of the participants otherwise you end up with arbitrage. That is the struggle, regulators are trying to catch up to people who are not under the tent, so to speak. John is there a particular area where you see the risk or is it other businesses like Money Transfer and foreignexchange . They seem to be pecking away at you. Brian it is all of those. In the lending side, you can have the credit risk and people understand it. The ability to grant credit under quick terms, is that a good thing or bad thing . What used to grant credit on good terms, a cost is 90 billion in chargeoff. We had the best data scientists in the world doing it. I think there is balance. In the Money Transfer, bill as one of the great banks and numeral to transfer money. The ability for a Small Business in the United States to engage with Small Business in brazil or something is fascinating. If you are worrying about the movement of where the money is coming from, that regulatory inspection is amazing. It is going to take a while to catch up. It is every facet. John do you want to come in on that . I realized, bill withers. Got carried away. Bill i completely agree with brian. Regulation will likely develop in the market. Banks have been disintermediated. It is important for us, the regulators, to ask the question why do banks exist . What is the value added for a bank and if we do our jobs well, were servicing customers, helping them manage data, restore value, and these are things that are enduring in terms of the role of a bank. Fintech and fintech applications will be contributors to that process. Of course there is a disruptive element. That disruptive element will challenge regulators along the way. In many ways, the way that we are thinking about fintech is that it is like the app store where we have the front end, a front end, and we have to protect that all the time. We have a customer relationship. We have infrastructure of money around the world. You can get to any number of applications behind us or through us. If we do our jobs well, we will give a line of sight for regulators, as well so that it can be done safely and soundly. To the extent that we have disruptions, the regulators have to adapt. John you look at this world, how do you see it from a regulatory point of view . These new entrance into the world of finance. We will come back to steve in a second. How do you attempt to bring in people from Silicon Valley and the new ways of bringing money around the world . Thank you for introducing me from the world bank. Realizing i am from imf. Today is very much focused on transfer, clearance. A little move to the sme lending. It is still very limited. Security. Antimoney laundering issues. Knowing your customers. On technologies, it could reach so many customers. You have to think about what if the system broke down . The regulators facing challenges, the regulation function back to roughly 15 years ago, never realized. I would say, at this stage, the regulator, this transfer across the continent, it moves dramatically. We think about Security Issues on the global volatility issues. It is a serious issue. John to get 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 it moves away from thinking, it could be. What would the Banking Sector do . John what about you, steve . You have been a disrupter of banks as well as a beneficiary of them for a long time. When you look at these issues of fintech, what do you see . Do you see potential for groups like yourself or banks beginning to be challenged in new ways that you havent seen before . Steve we are not bankers. We are investors. We work with banks. We are a user of credit, we are a user of advice. We basically want the Banking System to be strong and sound and prosperous, actually. That helps us to do our job. It helps society if they can do, exercise their charter in a good way. The fintech stuff doesnt affect us in a direct way. We are not disruptors. We are just friendly, lovable investors. [laughter] it is really how that affects the global Banking System, if you look at china, this is a model of something. I am not at sure exactly what. The kinds of things alibaba is doing, opening money market accounts. Consumer to Consumer Lending intermediated in some fashion. This is like a brave new world. You can do that in china because some other institutions on as developed as they are in the developed world. We all have a variety of changes as brian was talking about. Everyone walks around with their devices living off of them. You 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 a from a regulators point of view, they are trying from a large extent to make banks, if not smaller, banks less key to a lot of things. They tried to bring in insurance companies. More people getting into credit separation. Growing Capital Markets. Everyone thinks that is a good idea. 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. Stephen what regulators have managed to accomplish is make banks safer but turn into cash pools with credit extension. 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. What we do is, among other things, what we do perfectly safe businesses that banks have been forbidden to do. We do very well. We are not taking risk. They have been artificially run out of the business. We are plugging those holes with little risk and very good return. It is sort of an odd outcome. John do you think that is fair, brian . You have been pushed out of business . Brian the purpose of 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. 100 billion liquidity. If you do all that math, you come out to steves point. For every point of capital, there is 200 billion of lending we could do. There has been a policy decision to make it that way. That is fine. We have learned to live with it. Using technology, we took our cost from 80 billion to 57 billion this year. It will be lower this year. In applied technology, we have been spending 3 billion in Technology Development every year to implement not only fintech, but to drive efficiency in the business. Yes, we lost things, but the way to get underneath it was to drive technology revenues. That is both of the customer level, mobile banking, Money Transfer, but also at the business operational process level. We have become safer, sounder, smaller industry in the outcome. Stephen regulation has made the world more dangerous in certain levels. It has taken the individual institutions and made them safer without any doubt. 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. When you have markets with no bids, you have gaps. Huge gaps. That comes in times of stress. Those market movements get translated into huge losses that really dont need to happen except there is nobody to be in the middle. That is 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. I am not trying to hurt markets. As a group, that is what they have achieved. I think there needs to be some kind of finetuning in the system to deal with issues that get created by good intention, but bad execution. John 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. When you say banks are being pushed out and being made too small, i would say that is not true for europe with the european economy that 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 it, the Banking Sector is far too concentrated. Some very large institutions dominating the markets need to be challenged. We need new 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 . Jeroen absolutely. Our Shock Absorption capacity in europe is too small. We are still overleveraged in households, smes are overleveraged. Governments dont have a lot of fiscal space. Only one large country could spend more. That is it. If the next crisis were to come, who would 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 that is still very vulnerable. We need to develop that. 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 technology can help. John you can fight back. Min over big banks like brian was saying, the capital requirement, the liquidity requirements, the last resort, capacity building, extra surcharges. The reason we see the big Banking System is it is stronger and safer. That is also very important to understand. This is the backbone for the Global Financial system. This is very important. Banking withdrawing from certain markets. Commodity market is one. Currency is one, we need to understand the impact on the global risk, on Global Market and liquidity situation and a few other issues. A regulation reform agenda, other proposals. Looking forward, see whether when the Banking Sector withdraws bonds, what is created and 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 . Are we imposing Payment System, clearance system, capital requirements. What we find is those companies do better you guys can have comments. They do better than traditional commercial banks and they move faster because they have big data. They have the information. Those institutions move into lending quickly. John do you accept brians 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. 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 is a good diversity of capital providers. Blackstone is providing capital, banks are providing capital, lending and investors are providing capital. What you bit concerned about is when there is too much concentration through one channel. When that channel breaks, it disrupts the economy. For that, we want diversification. 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 dependent 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 level forget level Playing Field, they just need to be observed and be made secure. When it comes to stores of value, the third rule a bank plays. That is something that regulate his care about. Individual should not have to worry about whether their money is safe. They are not lenders, they are not investors. They are depositors. That is a scenario where regulation plays a role to make sure the store 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 same way you look over brians shoulder or bills . They should never be at the front of the technological development. A part of it is that the regulator should follow it as closely as possible, understand it, and deal with financial stability, consumer production, all of the things the regulator has as a responsibility. Obviously, as this fintech issue is developing rapidly, regular readers will try to follow it. They are building up banks, 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 over regulate 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 to buffer Capital Markets. There is no question. What is happening now is the u. S. Is questioning whether we have somehow impact of 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, is 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, of the value of that. The question in the United States is have we impacted Capital Markets in a way that we cant figure out . That is why you are seeing the volatility steve has described. The question we have for europe, they have to think through which 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 not as ubiquitous as equities are. There is one bank of america stock, hundreds of debt issues. Everyone is different. And, by the way, that is one company. Liquidity, volatility, the core debate is it a value to provide a market . It is on the table in the United States. We will see it play out. That is what is happening. John in some ways, brian has performed brilliantly by framing the question, 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 technological opportunities we have to get better information for investors and bankers to know what risks are in what bond markets and in what companies, etc. , that will provide a much better functioning Capital Market. I dont want an oldfashioned Capital Markets. I want us to use the best 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