Is my money safe?

Banking supervisors exist. They are here. They are very committed. They are doing their job, you know, to keep the system safe. >> Would you say that the financial crisis was this wakeup call for Europe where we realized, okay, we need stronger checks. We need stronger rules for banks. >> Of course, the [music] point of all this is to make sure that banks can serve businesses and people, you know, with banking services, loans, payments, etc. Uh maybe I can give you three examples of you know concrete things that banking supervisors do. >> We trust banks with our salaries, our savings and our everyday spending. But is that money we keep in a bank actually safe? And who checks that banks aren't taking risks that could put our money or even the economy in danger? Welcome to What [music] the Euro, the podcast where we make sense of the economy, the euro, and the economic decisions shaping our lives. I'm Katherine and I'm here to break down the stories you hear about but rarely get explained. [music] To help you find out more about the safety of our banks, I'm joined by Fosma, whose job at the ECB is to explain banking [music] supervision to journalists and members of the public. So, welcome to the podcast. >> Thanks for having me. >> So, I really want to start with a question that many of us might have, but we might be afraid to ask. Is my money actually safe in the bank? >> Yeah. So it's a good question, an important question and indeed how would you know as a normal customer of a bank you don't have the time and you also don't have the knowledge to check whether your bank is financially healthy. So that's why banking supervisors um do this on your behalf. So what do banking supervisors do? They speak with banks every day. they receive a lot of data and they check that that banks are solid uh that banks have good governance, good controls to look after people's money. So there is a lot you know more to say about the details but in a sense yes uh banks are resilient in the eur area banking supervisors are doing their job and your deposits in the bank are safe. >> Okay, good. But I want to be a bit of a Debbie Downer here and imagine the worst case scenario like what happens if a bank gets in serious trouble. Does that mean I would lose my savings? >> So it h it depends what form your savings take. Savings is a broad term. So if your savings take the form of shares in a bank. So you are a shareholder. You own a percentage of the bank and you receive dividends for that. If the bank really fails, then of course you would lose that investment. >> Uh if instead you're a normal customer of a bank, uh you have deposits in the bank, then your deposits are guaranteed up to €100,000 >> per depositor per bank, even if the bank fails. So let me step back a bit to explain this. It's called the deposit guarantee scheme. So first in a normal situation banking supervisors check that banks are solid and then we also ask banks to prepare um something we call the recovery plan which is how they recover in case something really bad happens. >> Then if something really really bad happens and the bank really fails then we have um procedures in place to make sure that um the bank fails in an orderly manner. So maybe one point on that it's you know it's a bit theoretical it doesn't happen very often but it can happen that a bank fails after all the banking market is a market so it's normal that players enter or exit the market so what we really try to achieve is that um if a bank fails this you know supervisors take over. We do that together with a sister institution in Brussels called the single resolution board. um to make sure that the the banks the bank fails in an orderly way. And the the basic idea of how it works is that the shareholders of the banks would bear the losses. Also certain investors in the bank would bear the losses but not the depositors or at least not the part of the deposits that are below this you know protection of 100,000 euro per depositor per bank. So you can think of it like you know big ship that sinks. Uh what we want to make sure is that if the ship sinks it sinks in an orderly way without making too many waves you know without spreading too much. So yeah maybe the main point is this one that u even if a bank fails your deposits are guaranteed up to >> 100. Nice. Okay. So there are safeguards in place if the bank fails but obviously that's kind of the worst case. We don't want things to get that far. And who's then checking that banks aren't taking too many risks to get in that position in the first place? >> Yeah. So, who um those are people like you and me, colleagues here at the European Central Bank in Frankfurt and also banking supervisors in each of the 21 national supervisors in in the 21 countries of the Euro area. So, typically it's the central bank of of the country. And this is I mean it's not so new anymore. Um it started 12 years ago this European banking supervision. So be before that the supervision of banks was done nationally. So bank of France would supervise French banks, bankalia would supervise Italian banks etc etc. And then in 2014 we moved this national supervision into a European banking supervision where the ECB here in Frankfurt works together with those national supervisors. Um we have teams called joint supervisory teams. So they are joint because it's the ECB together with the national supervisors. For each bank or for each banking group there is one joint supervisory team that you know look looks after that banks. Um, and you were talking about, you know, taking too many risks. Maybe one thing to to mention here is that it's absolutely normal for a bank to take risks. In fact, it's part of the job of a bank to take risks. Think for example, when the bank lends you money or lends money to a company, they take a risk, you know. So, so that's that's okay. That's that's their job in the economy. What we really look after is that uh banks measure the risks they take before taking the risk and that bank manage this risk and and bank really that banks really only take risk that they are able to handle. >> Okay. And you so you mentioned these joint supervisory teams. What are they doing on a kind of day-to-day basis? Are they going to the banks? Are they doing inspections or are they just reading reports? Are they doing stress testing? Yeah. what what do the GSTs do? >> So there are many things they do maybe like the sort of big overview like we are talking about risk is is this thing of understanding the level of risk in the bank and the quality of the controls of the risk. So you look both at risk level in the bank and at at the risk controls and basically what we want to see in in every bank is a sort of of of balance uh between risk level and risk control. And then of course the point of all this is to make sure that banks can serve businesses and people you know with banking services, loans, payments etc. uh in your everyday life um and that they can do that without putting the wider economy at risk or putting people's money at risk. Maybe I can give you three examples of you know concrete things that banking supervisors do. Um one is stress testing. Mhm. >> So a stress test is you know what if what if I jump from the first floor okay I break one leg what if I jump from the second floor okay I break two legs you know what if what if so we do this kind of simulation with banks you know what if this and that happens this shock etc how does you know this situation travel through the balance sheet of the bank what it what does it mean for the bank so stress testing very big tool um another one indeed on-site inspections so most of the work we do it offsite But indeed when the joint supervisory team wants to check something a bit more in detail they have the possibility to send an a team on site. So on-site inspectors uh in the premises of the bank um for example you know you want to have um deep assessment of the way the bank lends money to small firms you know so then you you have a mission on that. Um so the the team of on-site inspectors come to the bank they look at the data they interview the people etc and then they write a report for the joint supervisory team to to follow up on. So that's one tool and and and the third tool is that the ECB um checks that the people leading banks have enough time, enough knowledge, enough experience, a good reputation also to to do a good job in the bank. So if you are a gangster and you don't have any banking experience, you probably will not be allowed [laughter] exactly to to you cannot lead a bank basically. So those are three examples of tools that the ECB uses to supervise banks and of course we don't only produce knowledge also when we find shortcomings we can act. There are many ways to do that. Broadly speaking we have quantitative measures. For example, we can ask a bank to keep more capital to you know absorb losses like as a cushion for future losses and we also have qualitative measures where we require a bank to fix something you know improve their system or change some risky practice. >> So clearly banking supervision affects everyone. Um but I think a lot of the time the language around it can be really technical. What would you say kind of how would you explain supervision in a way that is easy to understand? >> Yeah. So, you know, you could think if you go to a restaurant um you can trust that you're going to be safe because there must be you know some rules and regulations and you know hygiene practices etc that restaurants have to meet so that you are not going to get poisoned you know. So it's the same if you become the customer of a bank. uh we have those rules in place to make sure that you're safe. So if tomorrow you want to open a restaurant, surely some authority will come and ask many questions, you know, to make sure that you're working you know in in a very professional way. Now if tomorrow you want to open a bank, then the ECB will come and and ask many questions. In fact, a bank is a company which received the stamp from the ECB. We call it a banking license to be authorized to grant credits and take deposits from the public. And this authorization then comes with supervision. >> Great. That was super well explained. But I think a lot of people can still have that feeling that banking supervision is super complicated. You need an economics degree to understand it. And you know, why should I care about any of this? Why do you think banking supervision is important? >> Yeah. So even if you're not an economist, you still live in an economy that is very much based on banks. So we depend on banks every day you know to receive your salary, pay your rent, uh send money to friends, get a loan for your project also firms are very dependent on on banks especially in Europe for for lending you know that they can then hire people invest etc. So our our economy is very much bank based. Uh so as a consequence having strong banks, resilient banks uh is a prerequisite to have a strong European economy and competitive Europe European economy. So good supervision matters because it's really here to help keep the system stable and resilient so that banks can continue support businesses and people not only you know in good times but also in bad times. H speaking of bad times, one thing I wanted to touch upon in this episode is the financial crisis because I think for for many people this was a time when lots of people lost trust in in banks in 2008. And actually I have a question for the listeners um because I'm curious. I was 10 when the financial crisis happened. I wanted to know did the financial crisis change the way that you think about banks or were you like me a little bit too young to really understand what was going on? Let us know in the comments. But for Franis, I wanted to ask, would you say that the financial crisis was this wakeup call for Europe where we realized, okay, we need stronger checks. We need stronger rules for banks. >> Yes. So, I was 20 when the 2005 financial crisis happened and it's one of the reasons which, you know, made me want work for central banks and banking regulation. And indeed the the financial crisis of 2008 really uh showed that problems can travel very fast you know from the financial world to the to the real economy also that those problems can spread ac across countries and can also spread into people's daily life. You know many people lost their job as a consequence of the financial crisis of uh 2008. So really this crisis and also the sovereign debt crisis in the Eura that happened right after was a wakeup call indeed for banking regulation in and supervision maybe in two main ways. Um the first one is we came up with better rules sort of stricter rule for banks a better way to manage the risks um better quality capital to absorb losses um so stronger regulation and the other big change was um what I mentioned earlier about this move from national supervision you know from 20 21 different national supervisor into a European single supervisor and this has many benefits like whenever a shock It's of course um having a single European banking supervisor helps us a lot you know to um respond in a way that is a lot more unified. So we are in a much better place now thanks to the lessons learned from the crisis indeed. >> Yeah. So banks are safer now than they were then. >> Yes. Absolutely. So banks are much stronger today. So I could bore you with many figures to show that. But for example the level of capital that banks keep has increased. Also the quality of this capital is is is better. Banks generally have better risk management and and the closer supervision. So the the quality of banking supervision also improved because when we created this European banking supervision you know we thought you know we already had a single sort of banking law like a single rule book in the area. So we thought okay we must be doing this more or less you know homogeneously. But actually we were very surprised to have very different practices across different supervisors. So as of 2014 when European banking supervision kicked in we really sort of took the best practices so from every national supervisors and this helped you know raise the bar for every countries. So um as a results now we have banks that are you know better able to help the economy also through shocks. Um you know you can think of recent shocks like the pandemics war etc. Still of course you know banks are in a better place but we can never be complacent. Um so you know the world is a risky place a dangerous place so we are always alert and and and banks also are always alert. >> Yeah. And what would you say are the biggest risks facing banks in the current environment? >> Yes. Yes. So that's a question we ask ourselves all the time because of course as banking supervisors we have limited resources. So um we really want to focus our efforts on the biggest risks because we want to be efficient and impactful. So um every year we define what we call supervisory priorities. So sort of you know what we're going to be working on. Um we publish them on the website. Um at the moment we have two main priorities. The first one is to keep banks resilient to all the shocks you know all the uncertainty that that's in the world you know think about you know geopolitical risks wars you know tariffs etc and also you know things like climate change you know climate disaster and all the consequences of natural degradation for example so that's one aspect this sort of macro resilience and the second priority is um focus more on the operational resilience. So think about for example the capacity of banks to defend their systems against cyber attacks. >> Yeah, absolutely. I mean I think that's something that's super important actually for lots of the listeners because nowadays most people are doing their banking on their phones and when you talk about operational resilience that's kind of in concrete terms hacking, cyber attacks, scams, things like that, right? How are we making sure that banks uh resilient in that way? >> Yes. So cyber resilience has been on our supervisory priorities since 2020. So there's been a lot of work on that. For example, we were talking about stress test. We did a stress test in 2024 focused on cyber resilience. We also did what we call the targeted review on outsourcing. So when a bank um brings in a third party like an IT service provider, this comes with some benefits and also some risks and we want um to make sure that banks look at those risks. So it's been a field on which we're working very closely with banks. You know, it's really a cooperation with banks. At the moment, the latest developments are related to artificial intelligence. You may have seen in the news that some um AI models can be used to um perform cyber attacks including on banks. So we've been working extensively on that topic with banks and we have asked banks to come up with action plans by the end of October to explain how they address those >> cyber risks steming from AI. So we're going to follow up on that as part of the regular dialogue we have with banks all the time. >> Nice. And what can we do as consumers to protect ourselves against these sort of scam? >> Yeah, indeed. So, we banking supervisors, we check that banks do their part, but sometimes it's not really the bank that's the target. It's you, you know, you and me as a as a customer. So, here there are, you know, some uh some some tips you can use to to remain safe. For example, you know, stay alert. You know, if you see a promise that is too good to be true, um you know, you you you you should worry. Um, another thing generally is that you you need to protect yourself. You know, things like strong password, two factor authentification, of course, never share your password, etc. And one general tip is, you know, typically scammers when they contact you, they put you under time pressure. They want you to rush. So, you know, >> just slow down. >> Yeah. >> Double check. Am I really talking with, you know, with my bank, etc. You know, take the time and and that helps, you know, to to prevent many, many problems. um some European institutions we work with actually came up with tips um a few months ago. Maybe we can include the link somewhere. It's available in many languages. You know, you can check it out. Your listeners, I think, will be interested and it gives you some tips to to remain safe online. >> Nice. I think yeah, resilience matters for for banks and for consumers alike, right? Um let's circle back more to this kind of supervision topic as we as we close the episode. What's one like real life example of where banking supervision has helped people in kind of crisis or in normal times? >> Yes, unfortunately the the latest years have provided us with many such examples where banks have acted as shock absorbers rather than shock amplifier. You know, if you think about the pandemic, the war in Ukraine, uh the tariffs, the war in the Middle East, you know, the energy shocks, etc. All of these were problems not coming from the financial world. Those were coming from the real economy or you know geopolitics and banks have helped absorb those shocks. This is very different from what we are talking about previously. You know the 2008 financial crisis originated in the financial world and then spread to the to the real economy with banks sort of amplifying that. So that's >> one one example. Another example, I don't know if you remember in the spring of 2023, we had a bit of a banking turmoil in the US and also in Switzerland with some some banks failed back in the time and we did not have such an accident in the Euro area. So that's you know again thanks to the good work of of banks and banking supervisors. >> Nice. So one final question for you. What would you want the listeners the viewers to take away from this episode? What's your main message? So I think you know maybe one main message is banking supervisors exist. [laughter] They are here. They are very committed. They are doing their job you know to keep the system safe. Um and this point about the deposit guarantee scheme I think is an important one to remember. You know the fact that your deposits in any bank of the area are protected up to 100,000 per person per bank. I think for most people this limit you know is very high. Now, if you're lucky enough to have more than 100,000 euros in the bank, what you can do is split it, you know, into two banks and then you can remain below each. >> Yeah, you're covered in each. So, it's 100,000 per deposit or per bank. So, if if you have more than 100,000, just spread it over two banks or more >> and then your deposits are are completely protected. >> Nice. Well, thank you so much for joining me on the podcast and that's all for today's episode of What the Euro. If you enjoyed it, don't forget to subscribe to the Euromasters podcast [music] and leave us a comment or DM us on Instagram to let us know what you want us to cover in future episodes. Until next time, thanks for listening.