Conversation with Prof. Richard Werner

From: Dialogue of Civilizations Research Institute, #RhodesForum, October 12, 2018 https://www.youtube.com/watch?v=8FT-zyTX2nE

Stefan Grobe: “...on which we want to talk about money and banking, and I'm very very delighted to have Richard Werner here, one of the foremost economists. To say he's not mainstream is an understatement and I'm sure you'll see, you'll see why. This is a guy who studied in England and Japan, he worked in England and Japan, and he speaks Japanese perfectly. Just to let you know here, and he wrote a book on Japanese banking that was a national bestseller in Japan. Now, who who does that as an economist and he beat Harry Potter on the bestseller list for six weeks, right, six weeks, so yeah that's worth a round of applause. So this is a guy who is just not, you know, familiar with numbers but somebody who can speak out and in a very very clear fashion. When I arrived here, two days ago mid-afternoon, I thought I might get, you know, catch some time at the beach or so, but it was too windy and then I opened my computer and read his articles and, believe it or not, I was so fascinated that I couldn't stop. By the time I finish it was too dark so I dropped the beach altogether. So, Richard, thank you for coming, a very welcome, thank you, and he also coined the term a quantitative easing something we're all familiar with, ten years after Lehman Brothers, and this would be my first question: we're not celebrating it but we're kind of commemorating the 10-year mark after Lehman Brothers, what has changed what is the legacy, what is the fallout, do we still see you know what went wrong in those days.

Richard Werner: First of all thank you for the, you know, introduction and for having me here, and, to answer your question, I think the lesson from the 2008 crisis, in fact from all those banking crises because we've had over 100 in the last 50 years across the world, because not all of them get as much publicity as the European and North American crisis, which they immodestly call a global financial crisis, Asia didn't have any problems and Australia didn't have any problems at the time, anyway, that one was widely publicized. But we've had many crises, over 100, and so what is the lesson from these crises ? I think there is one clear lesson and that is that we and the key decision-makers, who are quite sophisticated at central banks and various institutions, the key lesson is that they don't learn the lessons because, I fear, we're almost in the similar situation again, now 10 years after 2008, and the pattern of all these crises is always the same. In fact I think it's a great point to start with because it's it's a fundamental question and of course many people wonder about this: why exactly did we have the crisis ? Well, in the media you get a lot of detail stories. Oh, subprime mortgages and some technical concepts, you know, derivatives, credits CDS, and it all sounds very specific and, therefore, each crisis has its own acronyms and its own specific terms and so there is the impression that, while each crisis is different, you know, we didn't have subprime in the previous...

Stefan: This time will be different, right ?

Werner: Yes exactly, exactly. But actually the crises are always the same and although these expressions the particular instruments that become a trigger or that are used quite a lot in that particular crisis they vary but they're all the same kind of instruments and the cause the economic cause and the mechanism is always the same and maybe we should very briefly actually start with that because once we understand why we have these crises and how they work then it'd be much easier to look at, okay, what's happening next.

Stefan: Right, yesterday we talked a lot about multilateralism here on stage, and in over lunch and over dinner, the core question is always can multilateralism work ? Now, on a financial level, we of course talked about the central bank's. You have been very critical of central banks in your work give us your sense here, as a major central bank watcher, have the central bank's learned ? You said they haven't. What are they going to do ? What are they doing now ? What is, what is not right in your opinion.

Werner: To answer that question we need to look at what central banks are and how they operate and that allows us to explain how banking works and why we have the recurring banking crises. Let me do that. In fact, it goes back to a fundamental question: how do banks operate ? And actually there have been three theories on banking, for over a century, three different explanations, and I'm sure you will have encountered all three, at one stage or another.

The currently dominant theory is that all banks are just financial intermediaries, and this one is being reinforced a lot by the financial news reporting, by statements from central bank's, and also their if you look into academic and research literature, the leading journals, say the Journal of Finance, American Journal, considered number one in the area, it considers banks nowadays as financial intermediaries. What does this mean ? That means the banks gather deposits on the one hand then they do their thing, their analysis, and their credit risk assessment, all these things, whatever it is, good or bad, and then they lend those deposits. so they're just in the middle and middleman. There's the middleman theory of banking that one is currently dominant and also bank regulation. How actually regulators look at banks and how they regulate them. The entire approach to regulation, which you know is this Basel approach, we can come back to the specifics but this Basel approach is also based on the assumption, the belief, that banks are just the middlemen: they gather deposits and they lend them out. Now, if you go back in this Journal of Finance to the 1960s you might get confused because it's the same journal, but in the 60s they were talking very differently, in this journal, because then still just about the previous theory of banking was dominant, which was dominant from the 1920s to the 1960s, and that one you will also have heard, maybe once or twice before, the fractional reserve theory of banking. This one is connected to another concept known as the money multiplier. I think a lot of ears of those who haven't looked in, into economics and finance, should prick up now. When I was a student and I heard this money multiplier – whoo, that sounds interesting – I thought, what is that, the money multiplier, the magic money tree ? So, well, just very briefly. In fact, there is a similarity of the money fractional-reserve money multiplier theory banking to the middleman intermediary theory of banking. Namely, it says yes, each individual bank is an intermediary. It's also this fractional reserve theory also says that, but they say, as you put many banks together, you've got many banks now they interact and they do their things overlapping, interacting, then something happens. Somehow, in this system, as the banks interact and operate together, money is being created. There is money creation going on. It's not the central bank, we're not talking about central bank money creation, okay ? Now, the actual technical details are a little bit complex, students are always confused, and there's actually reason: it's meant to be confusing. So, don't worry if you think this sounds a bit confusing you can look it up later: “fractional reserve theory of banking”, “money multiplier”. The main point is it says each Bank isn't is a middleman, an intermediary, but in aggregate collectively and it's interesting that there's a recognition we have to look at something systemic which is different from each individual Bank, something happens and money is being created. Of course you can imagine if that's true, and if money's being created, this will have an impact, there will be some consequence. This therefore means there should be a different approach to Bank regulation, and the approach to Bank regulation going hand in hand with this fractional reserve money multiplier theory of banking, is the old reserve requirement approach to bank regulation which was dominant, in fact, during that era when fractional reserve theory itself was dominant, which was until the early 1980s. Even the Federal Reserve and the Bank of England were looking at reserve requirements. It's a bit monetarist, you know, looking at money aggregates, but then that was scrapped as from the 1960 1970s onwards this financial intermediation theory of banking became dominant, and then we have the Basel approach which is all about capital adequacy, is all about capital not reserves, we'll come back to this regulation but, okay, now there's one more theory of banking. You need to hear the third one now, now that we've come this far. Namely, until roughly the 1920s this theory was dominant, and this theory says that no, banks are not financial intermediaries, neither individually nor collectively. So this is a different theory. This theory says when a bank gives out a loan, a bank loan, which is talking about ordinary banks, commercial banks, when they give out a bank loan, then money is being created. Money is being created essentially out of nothing. Economists tend to write ex nihilo because it's a bit embarrassing “out of nothing”. It's too obvious, it's it sounds too shocking, so put it in Latin, it sounds more technical. This theory was dominant until the 1920s. Now, we've got this all these three theories. If the older theory that banks create money,known as the credit creation theory of banking, is correct, then you need also bank regulation consistent with that theory, and it's not the fractional reserve approach to the reserve requirement approach, and it's not the Basel approach. Notice the Basel approach has not been very successful. We've had so many banking crises since the Basel approach was introduced in the 1980s. Basel 1, Basel 2, Basel 3... it's like these, you know, movie installments.

Stefan: Could you just briefly explain what that is, I'm not sure everybody knows Basel 1, 2, 3…

Werner: Yes. This is the currently dominant approach to bank regulation and the fundamental idea is that, well, we can somehow contain and control and regulate banks if we give them a requirement to hold capital, let's call this capital, now. This capital is just like when you look at the balance sheet of any company, or also a bank, you've got equity from shareholders. That's the capital. There's some slightly different types that can exist but we don't need to go into this. That's the capital and banks, so before the 2008 crisis, had not much capital. The large internationally operating banks had capital around two or three percent of their balance sheet. That, by the way, is already a quick explanation why we've had all these banking crises, because you can have them very quickly. Particularly if the oldest theory of Bank behavior – the credit creation theory – is correct, the banks create money, this will have consequences, and then the Basel approach imposes capital requirements, you must hold 8% simplified, and it's not quite true for the big banks as issues was much less than 8%, of your balance sheet, in capital, then this is some kind of security to ensure stability was the thinking, but it's not true the cause and to answer this we must now ask this fundamental question, I'm sure you want to finally hear this. So, which of these theories is true and then I can answer your question properly about Basel. Which of the three theories is true, because Basel is linked to the currently dominant theory, that banks are just intermediaries, and if that was true, then Basel has a chance to work. Now, we have famous economists supporting all of these theories, and the credit creation theory is supported by Schumpeter, for instance, austrian economist, and also the young Keynes supported that one. Then the fractional reserve theory is supported by Alfred Marshall, famous neoclassical economist, and also by the slightly older Keynes and by many other economists; and then we've had the financial intermediation theory which is supported by essentially all economists, nowadays, but which one is true ? We need to test this empirically, is what I thought. Over a century of debates but no empirical test ? What is the scientific way of doing this ? Empirically test this. Well, all the three theories differ when it comes to the question of: where does money come from. It's actually written a book with that title, Where the money come from, because when you take out a loan from a bank the question is ‘where is the money for the loan come from’ that's where the three theories differ. The financial intermediation theory says, oh the banks take deposits and then these deposits are lent out, so and alone the money comes from deposits. The fractional reserve theory says that banks need to hold excess reserves in order to lend, and so the money for the loan comes from excess reserves; and the credit creation theory, you may guess this one, says the money comes from nowhere, the banks create the money out of nothing. Because that's the most shocking theory, so I ran this experiment a few years ago. I actually took out a loan from a bank, and the bank was collaborating with me in this experiment, this empirical test, because I told him: look, I will take out the loan, I will transfer the money away from you to my own old Bank, and I want you to show me exactly what you're doing. Which transactions, what bookings you're doing internally in your system. I want to see where the money comes from that is booked into my account – it's a reasonable approach. It took a long while to get a bank to cooperate. Initially, all said yes, sure, we'll do that, the big banks, and then when it comes to actually wanting to see their systems, ‘oh no, no, no, this is far too sensitive’ and... all sorts of reasons, you cannot see this, but I managed to find a bank in Germany that collaborated. We actually had the BBC, there, filming this empirical test. I took out a live loan 200 thousand euros and it was gonna transfer it away from the bank, and we looked at the bookings and what they did, and it turned out where did the money come from. It was not transferred away from any other account inside the bank or outside the bank. It did not come from deposits. It did not come from reserves at the central bank.

In fact, they didn't care about their reserves. They didn't even look how much they had. Reserves were not affected. It was newly created. How does that work ? Well, the best way to understand this if you look at the law, and this is, of course, one of the reasons why economists don't understand banking, and why they leave out banks in all their economic models. Because they never look at the law. Law is reality. If you've got an issue, well, you can use the law to claim your rights, and the court will decide, and that is the result, and you can challenge it to a higher court, but ultimately, you know, the highest court will make a decision and that is it. That's reality. So, what is the law say about banking. Economists consider banks as deposit-taking institutions that lend out money. That's a standard definition by economists. But when you study the law in the country that invented modern banking, which is England in the 17th century, and that's also when this legal system was created and it's still the same, the law tells us: it's a different story. Banks are not deposit-taking institutions and they don't lend money, that's what the law says. How does that work ? At law, and we have Supreme Court judgments on this, there is no such thing as a bank deposit. It doesn't exist. So what is it when you deposit your money with a bank ? We have the feeling, and we are given the impression that when you put your money with a bank, ‘it's my money’. In fact it did a survey and people respond no, the money at the bank belongs to me, that's my money and I'm holding it in deposit. The bank, they're taking care of it, but it's my money. I can ask it as my money back anytime.But at law that's not true. At law there is no such thing as a bank deposit. It's not held in custody, it's not held for you. You are not the owner of the money at the bank. The money held in deposit at a bank is owned exclusively by the bank. It was your money before you deposited it. When it's deposited at the bank, the bank owns it and what rights do you have ?

You're a creditor. So, what that means: the money at the bank is a loan that you've given to the bank, and you're just a general creditor. So, that's why banks don't take deposits: they borrow money we lend it to them. We are general creditors. They own the money, and they can do as they please. They're the owners of this money at law. Very clear-cut, okay, but it's surely they lend money. What else would they do with this money ? No, there is no bank that has ever lend money. At law, again, very clear-cut, how does that work ? Very intriguing. I thought…

Stefan: That would be my question...

Werner: You go to a bank, and you say: I want to borrow money. Now, an important thing is the loan contract, and they will make you sign it. Now what happens at law is: the moment you've signed the loan contract that you will borrow X amount of money and you will repay this money at this date with his interest, whatever, that moment, once you've signed it, you have issued a security, a debt instrument. That's what this long contract is at law. So, what the bank does, when it gives you a “loan” as we call it, and “lends” you money as we call it, at law they do no such thing. They're in the business of purchasing securities. They will purchase the IOU, the debt instrument that you've issued. The bank will purchase this from you. Okay, fine, I don't care. I just want the money when I get my loan. Ah, you're right. The bank now owes you money. So the bank owes you money, well, that's what we call a deposit. Right ? A deposit is when the bank owes you money, and the record of how much money the bank owes you we call a deposit, and that's what you get. You get a record of how much money the bank owes you, and that's all you get because that's what the banks do. So, they purchase your debt instrument and then they record their debt to you, and here's an accounting trick, and actually in another paper published, find it online, I could demonstrate that there is actually a slight, well, aspect of incorrectness, let's put it politely, in banking, because technically, from an accountants perspective, they now have an accounts payable liability to you, right ? You've signed the long contract, they should give you money – accounts payable liability for the banks – but the banks will book this now, this liability called accounts payable liability, as another type of liability which sounds much more convenient for bankers. Namely, “customer deposit”, and that's how they'll show it to you ,and that's in your account. In other words, the bank will invent a fictitious deposit for the borrower, and that is how the money supply is created. I did a survey in Frankfurt of 1000 people, students helped me to do this, and we asked in the streets around the University, so probably slightly above average educational standard, but doesn't matter. Bias may be in the right direction. We asked them: who do you think creates the money supply in the economy ? The majority of the money supply, and of course the majority, over 90 percent response: well it's the central bank, isn't it ? Central bank or the government. But that's not true, the central bank only creates 3% of the money supply, and the correct answer is: the majority, the vast majority, 97% of the money supply, is created by the banks when they lend money. So, this was the result of the empirical test as well. Turns out the money supply is created by banks, and where does the money come from for a bank loan ? It's created out of nothing by the banks, and because of that, so, it's the credit creation theory, the oldest theory, which is correct. It's now been empirically proven, you can look up the paper if you Google “can banks individually create money out of nothing” you will get it. It's the most downloaded research paper of any Elsevier academic publication...

Stefan: Yeah, Elsevier being a major scientific publishing house right.

Werner: Thank you, and that means it's it's the oldest theory is correct, and therefore for bank regulation, to come back to your question on Basel, we need a bank regulatory approach that recognizes this reality that banks create money. The Basel approach uses the financial intermediation theory and thinks: by having capital requirements we can contain the banks and avoid crises. But it's not true because it's the credit creation approach which is correct. Banks create money out of nothing. Have you heard of Credit Suisse, or Barclays, in 2008 ? Well, how they got out of the crisis ? They were actually as bust as all the big banks, remember ? In 2008. But did they go bust ? Did they need public money ? Neither, they didn't. What did they do ? They were clever. They were aware of this, and the decision makers in the crisis, you know, in the crisis you're under pressure, they remembered that banks create money out of nothing. Why should we go bust ? They created their own capital out of nothing. How do you do that ? Well, you need a borrower. There was a borrower: the sovereign of Qatar. They had relations with them, business relations, and so they needed suddenly ten billion roughly, that's saying, ten billion dollars worth of capital.

Well, let's create it out of nothing. Let's lend it to somebody like Qatar, obviously needs to be a big player to borrow ten billion, and be credible. They will buy our newly issued shares of ten billion and we can create the money out of nothing for our capital. That's exactly what they did. In a way, we shouldn't do what is now being done in the UK: the Serious Fraud Office is going after them for fraud. Well, they're just doing banking, and they save the taxpayer billions and billions in money. In fact, this tells us that we can get out of any crisis without using taxpayers money and without reducing public welfare spending as a result in austerity, because we can just use the reality of bank accounting to get cleanly out of any banking crisis, and this is also what central banks have done and put in the past when they didn't want a banking crisis to turn into a major recession. They just solved the problem like this. You can do it in one morning and you will not have a real banking crisis, and you will not have a recession. This is what Ben Bernanke did,

in 2008, and he was actually... I proposed all these things in the 90s in Japan in these big debates we had, where I also proposed quantitative easing, and Bernanke was joining these debates and he was in 2008 the only central banker to implement my advice, the true quantitative easing, because the others slightly changed the definition. Step one: you have a bust banking system. The capital and the Basel approach is not enough, you know, is a tiny amount anyway, and when the banks had create money, use it for financial transactions, push up assets price by three four hundred percent, which is due to banks creating this money for financial transactions. At the peak if then assets prices drop by ten percent, you've used up all the equity for the non-performing loans already, you are bust. So, that's why we have the banking crises. So, how do you get out of this quickly at no cost to the taxpayer ? It's very simple. The central bank steps in, goes to the banks, and says: oh, you've got non-performing assets larger than your equity. You are bust, all of you. Most of the banking system, always the same story. No problem. Because we don't want a banking crisis now turning into big recession. We will let you off this time. We will put in in place measures to prevent this in the future, we'll talk about what those are, but we'll get you out of this one now. You don't use tax money, that's expensive, that increases national debt. Ireland was a fiscal poster boy but because the ECB forced it to fiscalize all the banking non-performing assets, Ireland became bankrupt and had to call in the IMF. No, we don't do that. The central bank steps in, goes to the banks and purchases the non-performing assets at face value, and the problem is solved. There's no cost, and this is exactly what Bernanke did. That's why in September October 2008 the balance sheet of the Federal Reserve quadrupled in one month. This doesn't create inflation. Some people thought at the time wow ! We're gonna get hyperinflation now. They're inflating their way out ! No, no. If you want to create inflation, some countries try to do this, allegedly, like Japan for 20 years, it's not going to work with this method, because it doesn't create money. Because you're just shifting assets between central bank in the banks, in the right way, away from the bank balance sheets where they are harmful, to the central bank, where they can't do any harm but you don't eject money into the non banking sector. So, you can't create inflation. Oh, but hang on, the dollar is gonna collapse ! Well, no, as I said at the time, and it strengthened. Why ? Because you're not creating money. You're solving the problem in the banking system, the banks are healthy again, have strong balance sheets, and can lend again, and they did in America who is the first country to get out of the crisis since then very strong bank credit growth, unfortunately too much. That's why we're back in the same spot. They continue to create credit for financial transactions. That's how you prevent getting into this situation the first place of banks being unstable. Because banks create money, you have to split the stream of credit creation from banks into two: for the real economy and for financial transactions, because they are not part of the real economy. If banks create credit for financial transactions, you are creating an asset bubble which is always unsustainable and will always lead to a banking crisis ultimately, if it's large enough. So in the early 2000s I was warning that, in Europe, the ECB, which is newly created, was gonna create bank credit driven asset bubbles, banking crises, unemployment, large recessions in the eurozone. That's exactly what they did in Ireland, Portugal, Spain and Greece, based on 30 percent credit growth for – how many years ? – three four years. Way ahead of GDP growth, this is all credit creation by banks for asset transactions, property, real estate, that's how you blow up these countries, and that's what the ECB did.

Stefan: You mention, you mentioned the real economy. Where are the banks, where is the banking sector, where are the central banks in all this: do they participate in as they, you know, create money ? Do they create value ? Are they part of the larger GDP ? What can you tell us about that.

Werner: First of all, what is the link and, you know, between banks and GDP ? The banks have a crucial role. They are, in what we call our market economies, the decision-making control center of the entire economy. Why ? Because they create the money supply and they decide who gets money for what purpose. Is this an important decision ? You bet, it is. In fact, that is the decision that completely reshapes the economic landscape in just a few months, or years. The decision of who gets purchasing power, for what purpose: newly created money. So, the banks are the control center of the economy, and that's why we need to distinguish between bank lending for transactions that boost GDP, then you get high economic growth and no inflation, job creation, everything is stable, you get also less inequality, you get more quality, but if banks create money for unproductive purposes, either for consumption, then you get only nominal GDP growth but lower real GDP growth, you get inflation that's not good, that's well-recognized, but the biggest problem has been the last 30 years banks creating money for unproductive purposes that are asset transactions. That's not part of GDP, and when banks do this bank lending for property, bank lending for asset, stock market, whatever financial instrument transactions, lending to private equity funds, to hedge funds, investing in financial instruments, which banks do a lot because all the leverage of these funds comes from banks, plain old bank lending, bank credit creation. So, this money creation for asset transactions, of course, is pushing up asset prices creating these asset bubbles. While it happens it looks stable because we're all making money, we're all having returns, but they're all based on the capital gains, and the expectations of capital gains, and that will continue only as long as banks continue to create new money for asset transactions. It's a game of musical chairs. If we took out all the chairs where nobody's sitting, and then only have all the chairs where you're sitting in the room, and then we take one out, and we ask you all to stand up we take one chair out. Right, this game of musical chairs and we have the music on, and if the music stops everyone has to sit down. But one chair is missing. Well, this is the credit creation for financial transactions. It's a game of musical chairs: when the music stops that's when the banks do not anymore expand credit creation for financial transactions. But when they stop it, or slow it, then there won't be enough chairs for the speculators – those who've borrowed money and invested in financial instruments – to sit on. There will be bankruptcies. But the moment there are bankruptcies, banks will have non-performing loans. The banks get more risk averse, they reduce lending, then as they reduce lending, as the prices come down further, there's fewer and fewer chairs, there's more bankruptcies, and of course you will end up with a massive banking crisis. That is the mechanism. So, therefore the answer to your question is: one link is that actually banks at the heart of the allocation of resources, and they can determine by their decision to lend to whether we'll get high and stable equitable economic growth, without crisis, without inflation which is possible, that's the scenario that East Asian economies have implemented through. In fact, I haven't told you what is the regulatory bank regulation regime in line with a credit creation approach to bank, to understanding banks, which is the true approach. It is credit guidance, direct guidance of bank credit, window guidance, also known as credit controls. Sounds a bit harsher, but it's good credit guidance, is more in line, and that's being the key tool used in Japan, in Korea and Taiwan, and then adopted by banks helping in China to create the Chinese economic miracle of high growth, and, if you do that, you will get your high growth. But if banks create credit for asset transactions, you will just create these asset bubbles, and banking crises, and higher inequality, and all these problems, and that's of course what's happening in most other countries because the bank regulators have not asked the banks to create credit for productive purposes. It's quite extraordinary, you know, the banks make these key decisions but nobody's told them, oh, be careful, when you make this decision, you should create credit and lend mainly for productive purposes for business investment, for implementing new technologies, for increasing productivity which creates jobs, is non-inflationary even at full employment. You can have more growth if you have productive credit creation. There's almost no limit to growth because the limit is the technology, the ideas coming from humans, as long as we have humans, and we can have more humans if we have quantitative easing for having more babies. QE baby bonus created by credit to have more babies, fertility shoots up, you know, all these things are possible once you understand credit creation. All the problems that we have, that have to do with the economy, including demographics, can be solved. But the second answer to your question is how do banks fit into our standard statistics of GDP, and that's a very profound question you're asking there. because even the statistics doing, you know, making our GDP accounts, national income accountants as they're known, and every country has big agency calculators with very smart people. Even they, haven't really solved this problem.

The other answer to your question, because when we calculate GDP, you know, we've got the expenditure measure, we've got the income measure and the output measure, three approaches. Normally we talk about the expenditure method measure, you know, consumption, government spending, investment, net exports, where do banks fit into this ? How do we get banks into this ?Actually, it's really not clear. Why ? Because the approach in national income accounting is that while you measure value-added, you measure value-added, and you add it up.

So where do banks fit in ? What is their value-added ? Good question. They're supposed to be, according to the official theory, they're supposed to be only an intermediary, a middleman. There's no stuff not really meant to be a net value-added because the middleman margin that they charge, if we call that the value-added, will be tiny, supposed to be tiny, but of course that's not what what's happening. The banks are essentially claiming a lot of resources that they're paying out to them, themselves, and that is somehow, this, they're actually not a value-added, in reality, in most countries, to the economy. They're like a net drain, a cost, a loss.

So, the national income accounts if to say, okay, but it's too complicated to try to figure out what banks are adding value in the economy. Maybe there is not much visible going on. So let's just create a theoretical value that we call it “imputing”, and let's just assume a number, and let's wait, let's just plunk that there and add it on to GDP, and that's what they're currently doing. Because the fact is, with the sort of banking system what we have currently in most countries, is not clear what value the banks are adding to the economy.

Stefan: Yeah, that's very interesting. I want to open up to questions from the audience. I can imagine that anybody doesn't have any questions, but while you think about it, I want to ask you to talk about your current projects. I know you're working with and about community banks. Tell us about this, please.

Werner: Yes. thank you very much. In fact, another part of the earlier question you asked was where do central banks fit into this, and that's also in response to that I'll talk about community banks. So, briefly, where do central banks fit into this ? Well, central banks in many countries are guilty of dereliction of duty, because they have not insured that bank credit creation takes place for productive purposes. As a result, we have not received what we can get, in quite easily stable high economic growth that delivers job creation, no inflation, and no banking crisis. That's not what we've, what we've got, but what we've got is central banks getting ever more powerful but not using these powers to give us good results. In fact, in my book “Princes of the Yen”, and also “New paradigm in macroeconomics”, Princes of the Yen is the one that was a best-seller in Japan,

I warned that the next – this came out before the 2008 crisis, Princes of the Yen and now is the new second edition just come out – I warn that there will be another major financial crisis, a global financial crisis even in Princes of the yen, and the central banks will demand more powers, because they will argue “it's because we were not so powerful that's why we have this crisis”, which is not true, and I pointed this out before the crisis, but then is exactly what I warned would happen, unfortunately, did happen. We had the crisis, and what was the result ? Central bank saying all-the-way at the crisis, because the central banks are not powerful enough we need to give them even more powers, and we need to create more agencies, and so the central banks were given even more powers. In the last 40 years central banks have been made independent from governments, globally, and the idea was that we give them more powers, we get better results, and that's really absolutely not been true. We've had more and more banking crises, boom and bust cycles, credit creation not going, not being used, for productive purposes, and yet they claim more and more powers. But it's not true for some countries, you know, I'm slightly generalizing because we do have some very good central banks out there, that do their job, that work with the government not necessary being totally, you know, under control of the government, but they realize we are in the same boat. We want the same result as the government, and they collaborate very positively constructively with the government, and they deliver stability and high growth. It is possible, there are some examples. Anyway, but the tendency is for central bank's to grab more and more power and not deliver the right results, and I've worked in Japan for 12 years. In the end I was, well, fairly well known financial figure, with a best seller out there, all over the media, and so on, and I was also asked by the ruling Liberal Democratic Party to advise them, as the official adviser, to their monetary reform group, and so I came close to the levers of power: the Prime Minister, the Finance Minister – before he became Finance Minister he advised me round many times – and what I found is that even when they understand what I'm saying, and they agree, and they agree on what needs doing, it was not happening. It was absolutely not happening, and I did this for a few years, and I became a bit frustrated, and I... so why is this... and the answer is that the resistance on the top-level, central government level, is very strong, because the vested interests, including the central banks and big banking groups, are very entrenched. They essentially can play the politicians, and they can make sure that things are being immunized from change. So, I left Japan and went to the UK, and there also trying to think about what can we do to improve things. It is possible to have this stable growth without crisis, deliver job creation in an equitable fair manner, without inflation, you know, all these things are possible. We can have full employment, we can have thriving communities and societies. I gave up on the centralized approach, and I thought no, we've got to do this bottom-up. Because, when we do it bottom-up we can implement with grassroots support from local groups, and, really, literally geographically local groups, community groups, we can establish alternative networks, and studying banking systems across the world I realized, actually, in your own home country, in Germany, also my original home country although I've been abroad for 32 years, there is an amazing banking system that is the best in the world, I had to conclude. I didn't start with this conclusion at all, compared with all the banking systems. In Germany, 70% of all banking is not-for-profit, local community banking, and these are small banks. They mainly lend to small firms. Small firms are the main job creator in the world: 70, in some countries 80%, of jobs are with small firms, SME, small and medium-sized enterprises, SMEs, and small banks lend to small firms. Actually, we did a study on America. America is the biggest banking sector: 15,000 banks. In America we did took all that data over 20 years, just to ask what's the link between bank size and lending, and customer size, borrower size, and the result was very, it's very obvious really to you but, you know, we economists need to crunch the data to see reality. Turns out big banks only lend to big firms. Medium-sized banks lend to medium-sized firms. Who's lending to small firms micro businesses ? Only small banks. So, in countries like the UK, where you have a very concentrated banking system, five big banks dominated banking. 90% of banking is these five big banks, in the UK, already for the last century. That's why we have no thriving SME, small medium-sized firm sector in the UK, because the banks don't lend to them. Big banks, it doesn't make sense for them. It's not rational, it's too costly, when you're big, and you need big returns and big results, to deal with small-fry. So, the conclusion was: well, we're gonna change the banking system by setting up new banks, grassroots local community banks, not-for-profit community banks, modeled on the successful German example. Do you realize that Germany has exports essentially as large as China ? China currently slightly ahead, for the last three years, but only slightly. But Germany is a fraction of China in terms of population. How is that possible... and then if you'd break down those exports, more than half of the German exports are from small and medium sized enterprises, not the big Siemens and BMW, and whatever you name it. No, it's these unknown small firms. They're known as the hidden champions, they are market leaders in their niches, market leader champions when you're number one two or three in terms of market share, and you're in your industry segment. Germany has the largest number, by far, of any country in the world, with a large number of these hidden champions small medium-sized enterprises that are world leaders in their market. Hidden champion because these are small firms nobody knows their name, but they're globally dominant in their market. Germany has almost 1500 of those, number two, in the ranking, is the U.S. as you might expect that they do well, although they're fraction of the German number: only 300 in the US. Why is that ? So, this is the secret of German economic success for the last 200 years, it's the small banks, the local banks. The large number of banks in Europe is in Germany, is the local community banks, 1500 of them. Unfortunately, at the moment, war is being made on those by the ECB. The ECB is out to kill them and this is happening so their numbers are shrinking, you know, it's official policy. Mario Draghi said that there's too many banks in the euro zone. Was he talking about Goldman Sachs ? I don't think so. He's talking about the large number of banks which are in Germany, and they are those not-for-profit community banks. That is the alternative, that's the future. There's also what delivers grassroots democracy, because they're locally accountable. Their stakeholder banks, cooperative banks, local public banks, where local opinions are being reflected, and they don't lend for speculative purposes, they don't lend for projects which are crazy and which lead to problems, because they're locally accountable, because they reaches only geographically within the local area. So, yes, we're setting this up in the UK.

We're starting it with Hampshire, where I live, the Hampshire community bank. We raise money from the local authorities, and the universities, because you don't need that much money to start a bank, and, in five years time, it will have a balance sheet… you raise fifteen million pounds as capital, and after five years you will have a balance sheet of over three hundred million pounds lend to local SMEs. This will start to change the economic landscape as credit creation is used for productive purposes, delivering stable and equitable economic growth without inflation, without crises.

Stefan: That might be a great project after Brexit. Now I want to make good on my promise that I made fifteen minutes ago, and let the audience ask some questions. I think the gentleman over here was the first. There is a microphone coming... thank you... yeah, you could just introduce yourself and...

Thank you Richard my name is Vyacheslav Ivanov and I'm from Moscow, from Russia. I've been working in energy and finance for more than 20 years but besides I'm teaching a course in a university in Moscow it's called Bayesian cases and mergers and acquisitions for my students, and the question we always debate is a question whether it's to let the regulator run the banks or give more power to the self regulatory agencies and like let the banks. You partially started us in this question but it would be interesting if you can elaborate on that a little bit more and as well as the the last point about the size of the bank and the small amount of smaller banks lending to SME companies whether it makes sense to economics and how'd you regulator, the regulator can impose their powers to a large amount of smaller banks whether it can lead to some abuse has been the case in many countries, thank you.

Werner: Thank you very much. There's an excellent question thank you for that. I appreciate it, yes, the banks of course have been arguing and these are many the big banks for self-regulation we don't need to be regulated we'll do this ourselves. In the UK in fact the regulation approach until the crisis was famously the soft-touch approach because the banks are quite self regulatory. In the U.S. as you know Alan Greenspan prevented regulation of credit derivatives because he was arguing, well, the markets are very self-regulating but this didn't work and so it's clear regulation is needed and we need regulatory agencies but it's the detail here really that's important and also the difference between big banks and small banks. So I think the regulations are required mainly for the big banks because they're systemically important as it's now recognized but we have too much regulation and too much regulatory burdens for the small banks, the local community banks, and therefore we need to have two types of regulatory approaches: one is for the big banks and internationally active banks, they need to follow one set of regulation which needs to be stricter, but then we need a separate set of regulations for domestically active local banks, community banks that are also not systemically relevant and they need to follow slightly different regulatory rules not quite as tough. That was the original idea actually even in Basel 1.

Basel 1 introduced in 1988-89 said that oh the Basel rules only apply to the internationally active banks, remember that, they did actually not apply to domestic banks. But then the EU for some reason decided whatever this BSBC Basel Committee decides we're gonna make EU law and force all banks to follow also only domestically active banks and that was true of Basel two and Basel three which are only adopted anyway by the EU, nobody else. Really, we should talk about the EU approach to bank regulation. Of course it's a Basel Committee International Committee America is a big influence on that too, but they never adopted, Basel two is not adopted in the U.S. Basel three is not gonna be adopted in the US ever. So it's a way for America to regulate Europe really in a way that is very costly and creates a lot of damage in Europe which seems to be attractive to those decision makers, but what we really need is regulation for the big banks and regulations separately for the small banks, and the regulation needs to recognize banks are the money creators. That's enormous power and that needs to be used wisely and it should also not be abused and you're the other aspect of your question which very good question was the recognition that, yes, this can be abused because we all know about the abuse at the big banks but it it can also be abused in small banks. When the small banks don't have the corporate governance structure to resist being taken over by a certain interest group so that the small bank then only works for this one interest group and then it can be exploited and that needs to be prevented. So I'm glad for there for this question because that is an issue that needs to be addressed. Now, how is it done in Germany. Well in Germany the regulators over 20 30 years ago may be introduced because of this issue, because they recognize this issue, they introduced the rule as a corporate governance rule that all banks, but of course the majority is small banks in Germany, must have a separation of front office and back office so the loan officers that go out and talk to the customers and they acquire business essentially in their lend, which is the main business of banks, but in so doing of course they get closer to the borrowers and they go out and they, you know, they have to have to get to know them, they have to meet them and maybe privately maybe for dinner, and so on, you know, it's almost unavoidable but in a way it's clear that they will be more enthusiastic about those borrowers and maybe a bit too over-enthusiasm. Maybe they get even captured by the borrowers so they alone should never be able to make the decision on the loan. So in Germany they introduced this regulation that this front office is one side they have to do their job and they have to file their loan application documents and get all their information from the applicant, do the credit analysis and come to a decision, a recommendation, but they can't make the decision because the whole back office which is not just audit and controlling but it's also in fact the whole credit risk assessment team, separate, they don't meet the customer but they don't hang out with the customer they look at the paperwork they also are supposed to essentially check separately all the data received on this company get new data separately, do their own research, and come to their own separate decision and only when front office and back office come to the same decision, yes, we recommend going ahead with this loan, would this loan go ahead.

This prevents for example a local authority which may be involved with the local bank to dominate it and influence the decision making on loans which is crucial, that's money creation, or any other interest group a local group or owner of a small bank so the corporate governments very important and we've adopted this in the UK we're introducing this in the UK that we have the separation of front office and back office which goes all the way up to the board you know front office back of us can't agree and then one can appeal to the higher level but then if again front office director and back office director on that level can't agree there can be appealed to the company board or supervisor and so on. We introduced that and we also designed the whole shareholder structure to prevent one group of shareholders that may try to influence the bank unduly of having too much power. So I think the answer there so it's regulation and the right type of mix-and-match of regulation big banks versus small banks appropriate regulation but in addition we need to be aware of the corporate governance issues and have rules about corporate governance separate front and back office and ensure that these banks are not captured because banks are public utilities, because they create money that affects us all, therefore we should have to have a right to say well no banks have to follow certain rules on all levels including corporate governance rules so that we can prevent excesses and problems.

Stefan: All right sir over here...microphone is on its way...

Thank you… I am Bankage Pachauri from Delhi, India. What are the dangers of a government taking over the regulation, regulatory system of a country central bank in a time of crisis or bad loans to the tune, do you know, for about 40 billion dollars. What are the dangers the government takes over the regulatory powers or the central bank.

Werner: Okay, thank you for this question I appreciate. I think there is a lot of dangers when the government does this as for example happen in Ireland but also in many European countries, governments were essentially encouraged by the central banks to step in and bail out banks, and then we have all the problems that you will have heard about, moral hazard, but in addition to that you've used fiscal money, taxpayers money, and you've indebted the whole country. Ireland being this great example because Ireland had a very strong fiscal position before the crisis but then essentially it felt compelled by the ECB to guarantee the entire banking system, that's a lot of money.

Ireland was bankrupted and had to call in the IMF and so, that's I'm entirely against that, it's not the way to do this. The way to do this is for the institution that's supposed to work in the public interest and is in charge of the banking system, and that is the central bank to do this job. They are really responsible for getting us there. Moral hazard says they got us into the trouble, they should get us out of it. Why should the taxpayer and the government bail us out ? It's the central bank that caused this problem, they should have not allowed 30 percent credit growth for 3-4 years creating an asset bubble and the banking crisis so and it turns out it is economically also most efficient for the central bank to do this. There's no cost to society. Let me give you an example. In fact Japan is a great example here. In the 90s Japan was facing the banking crisis which then dragged on for many years, but I estimated, I was chief economist in Tokyo at the time working for Jardine Fleming securities, and I calculated the total bad debts in the banking system in Japan which is very easy: you just need bank credit granted for non GDP transaction. So bank lending for property, real estate construction, for non-bank financial institutions, all that essentially went into the speculative bubble and if you assume that everything from 1986 onwards being lent to these three sectors was gonna go bust, you had your figure. It was 25% of bank balance sheets. A lot of money. 80 trillion yen was going to turn non-performing, and so that was pretty bad. It's clear that the banking system was bust, but compare this now to another situation in Japan in 1945. Here we are, 1945, the second world war in the Pacific is over, Japan lost and its banking system was now in dire straits.

If you look at the balance sheet of the bank's it consisted of two things: forced war bonds greater East Asia prosperity fear bonds and so on,, of a country just defeated and carpet bombed with incendiary bombs, you know, in all these wooden houses of course it's not much standing anymore in the cities, and most of in the second aspect the second part in their asset side of the balance sheet of the banks was lending to companies, of course, but mostly for the last previous seven years was munitions companies involved in the war effort and most of those were not even in japan anymore because Japan shrank in size drastically. As you may know, until forty five, Taiwan and Korea had been part of Japan and so many companies the Japanese banks had lent to, in Korea and Taiwan. Well, forget about that because these companies are not even in Japan anymore but many were in Manchuria, in China, and of course all that was non-performing to put it mildly. So, the balance sheets of the banks in 1945 were 100% bankrupt, 100% non-performing assets and in 1991, 25% non-performing assets. Second piece of information: how important was bank lending to the corporate sector. In 1945 ready for the previous 15 years stock market's capital markets had been closed as a matter of government policy, so banks were the only source and were the route of choice to get money to the corporate sector external funding. So the companies were 100% dependent on bank lending and there were 100 percent bust. In 1991 banks only had 25 percent non-performing assets and capital markets stock markets were all thriving. External funding from banks was only forty five percent of total external corporate funding. Is the quiz question: which of those two situations should lead to a longer recession ? What's gonna lead to a longer recession: 1945, where we have complete dependence on bank lending and banks completely and totally and utterly bust, or 1991, where we only have 25% non-performing assets and banks are less than half of corporate funding. I think it's fair to a rhetorical question. It's fair to say that, well, we should have a longer recession after 1945. But what was the result ? After the 90s banking crisis we had 20 years of recession, whereas after 1945, how long was the recession ? One year, that's it. Why ? The difference is central bank policy. What did the Bank of Japan do in 1945 which it didn't do in the 90s ? It went out and purchased the non-performing assets of the banks at face value and the problem is solved. Let's say, these loans, because the 90s there was some value, let's say then they're not worth zero, let's say they're worth twenty. They were used to be worth 100, they're now worth only twenty, that is: 80% non-performing. that's huge already. The central bank steps in and purchases these loans from the banks at face value for 100. The banks have strong balance sheets and they can lend again and the problem is solved, and the cost of the taxpayer is zero.

Hang on, what are the risks, that's your question. What are the risk ? Aren't we creating inflation here ? No, this doesn't create any money at all. Money creation is when the banks and the central bank create money injected into non banking sector by switching assets from the bank's to the central bank you're just doing something within the banking sector, this doesn't create money at all.

But aren't we creating inflation, are we creating losses on the bank balance sheet of the central bank ? Isn't the central bank now recording a loss of 80 ? It purchased something for 100 that's worth only 20 ? Surely, the central bank is a loss of 80, maybe the central bank is going bust, oh don't worry about that: the central bank doesn't have a loss of 80, the central bank has a gain of 20 !

Right ? Why ? Well, it now owns assets worth 20. Yes, it paid a little bit more, but if you have a license to print money does it matter if you go to Harrods instead of Aldi ? No, it doesn't. So, and central banks don't have to mark the market either. So you just buy it for 100, keep it on the books, there's no cost to society. Now, this may sound radical but that's what the Bank of Japan did in 1945 and that's what Bernanke did in September 2008, and that is why bank credit creation immediately recovered in the U.S. while we stayed in recession in Japan for 20 years and in Europe, many countries, we have been in the long recession Spain and Greece. So, there are risks but if you do it correctly they are very low risk. So we need to make sure that the central bank is using its powers cleverly recognising credit creation, and ensure stable economic growth and banks able to lend for productive purposes and then it can be done.

Stefan: I take another question. Just very very briefly you said earlier almost in passing that there are some central banks who are doing a good job. Now, that implies there are others who don't. You just say. What are the good central banks at the bad central banks, and just briefly...

Werner: You want me to name names. Actually, I do this in Princes of the yen. I name names even down to the central bankers and how they made their decisions and what was wrong with these decisions, particularly, in princes of the yen, the Bank of Japan is clearly identified as a central bank that in the 80s, from the 80s onwards, was not doing a good job because he was abusing its powers to create economic havoc instead of stable equitable economic growth.

Stefan: Japan is in the Bad column.

Werner: Yes, Bank of Japan for a long time, also there's a chapter on Asia, the Asian crisis in 97 onwards was similarly created by the central banks. I was actually on an official team, on an official mission from the Asian Development Bank centered Thailand, once the crisis started in Thailand, and they put me into the finance ministry and in the Bank of Thailand, and I quickly could get the evidence of what happened. In a nutshell, it was the Bank of Thailand that, in 1993, created this offshore international banking facility, it deregulated international capital flows, and so on. It had this following set of policies: fixed exchange rates, and constantly kept saying don't you worry about the exchange rate we fixed it will keep the the dollar peg fixed exchange rate. Then it used its guidance of bank credit which it was clandestinely running, I could also ascertain that, somebody lost his job over that, revealing this but, unfortunately, but so they forced the domestic banks in Thailand through critic guides to reduce their lending to Thai companies while they deregulated borrowing from abroad, and they were telling all the companies in Thailand: there's no currency risk, we're gonna keep the exchange rate. So, essentially Thai companies were forced to borrow in dollars from abroad, and they're creating this time bomb which created this very unsustainable situation: short-term dollar denominated borrowing was going up and up and up, could be pulled out any time, and while at the same time exports were going down for various other reasons, you know, Chinese devaluation and so on. So, you're creating this time bomb and when it went off what did the Bank of Thailand do at that moment ? Oh, because it still has substantial foreign exchange reserves, oh, let's make sure we waste every single dollar we have in FX reserves in trying to maintain this peg, which happened very quickly anyway so all that was blown, and then, well, then the peg goes and then of course the currency devalues massively. Now then, oh, then let's call in the IMF. What does the IMF say ? Oh, well, now we need austerity and you have to reduce bank credit creation even further and central bank credit expansion has to go down. The IMF by the way asks countries to implement free-market policies, except the IMF policies, themselves, are not free-market policies, they are credit guidance. You have forced to reduce your credit creation now turning this banking crisis into a massive recession. So, essentially, is this combination of IMF and central bank caused this so, that's another example, but there's others there's some good ones some good central banks...

Stefan: Yeah, in Europe… ECB, yes or no ?

Werner: Come on come on, it's a rhetorical question. The ECB has been a disaster from day one, it's created asset bubbles, banking crises, massive recessions, vast unemployment, large youth unemployment in Spain and Greece, left, right, and center, but it's a fair, it's a fair Central Bank. It wouldn't be, it wouldn't be enough, it would, it would be unfair just to create these massive economic pandemonium's in Ireland, Portugal, Spain, and Greece, and not in Germany, right ? Now it's Germany's turn, because the ECB is now creating a property bubble in Germany has been since 2009, while it's killing the community banks the good banks. They're all forced now to lend for property speculation, so, check me out in five years time, the property bubble will burst and the tired German banking system will be bust, and the ECB will be responsible, but it will use this as nog you know we need even more powers, and they will give them more powers this is what's gonna happen, so is this a good central bank ? I don't think so.

Stefan: Alright, on that optimistic note I take one more question. The gentlemen over here.

Hello my name is Barrows Garlicy working as a researcher in Dialogue of Civilization Research Institute, and thanks for the discussion. Richard, you earlier mentioned about the central bank independence and you say that central banks claiming more power, and if this is going to happen more and more, I mean, central banks get independence. What do you see the future of this phenomenon on a macro level, let's say on GDP, for example, or on inflation. Thank you so much.

Werner: Okay, thank you very much that's a great question, thanks for bringing it up. I have warned against too many powers for central bank's and for too much central bank independence. Essentially we suffer from regulatory moral hazard. We've given, each time there's been a banking crisis, we've given more powers to central bank's. As a result, we've given them the incentive to create more crises because they will get more powers. There is the so-called theory of bureaucracy which recognizes that, you know, bureaucracy is a group of humans who have interests and they would like to expand their interests. It's very understandable, can't blame them. But if you, essentially, if you don't recognize this, that particularly when it comes to money and creation and allocation of money, which is a very powerful tool, and you give so much power over this to a small group of people, and you do not have checks and balances and the right corporate governance to ensure good governance, and you do not give the right incentives but you reward failure. You reward and give more power for having another banking crisis in another boom and bust cycle, and so on, you are creating disaster and, unfortunately, that's the road we have been going and that's why we will, of course, get another financial crisis, another banking crisis, and in many countries, in fact. That's what we need to recognize, and we need to change this, and we can change it. Now, there is actually another trend going on and that has to do with. I started out talking about my test of how banks actually work, an empirical test, the only first empirical test in the 5,000 year history of banking, of how banks actually work, and they create money that's how they work, and once this information came out in 2014 the central bank's changed their attitude because now the knowledge of money and banking is spreading to even ordinary people. The central bankers have reacted and they've switched to plan B, I'm afraid, and Plan B is... suddenly we've got all these reform groups springing up, monetary reform groups, and they say: banks are creating money - that is shocking ! We need to abolish bank credit creation, we need to get rid of banks, and I found out that, in some countries, the central banks are supporting this. Central banks are now, in some countries, essentially betraying their constituency, the banks, and they are saying: let's get rid of banks now. What are these monetary reform groups say who should create money ? Oh, it should exclusively and only be done by the central bank ! Give even more powers to the central bankers by turning them into the only creators of the money supply and getting rid of banks, and let's have central bank's issues central bank digital currency and essentially every person will then directly have an account with a central bank, and oh, isn't this appealing we'll have universal basic income ? Everyone gets, you know, two thousand pounds, two thousand dollars, either euro, every month from the central bank in their account ? Isn't that a nice system very equitable and fair ? Hang on, this is a massive power grab by the central bankers. There, they're trying to get even more power, get rid of the decentralization that we have to some extent in the system with community banks and local banks making decisions about money creation, and they're trying to monopolize this and get digital central bank credit creation based on Bitcoin as their next power tool. They even talking about having this in a microchip that will be implanted under your skin. Oh, this is pretty scary stuff. That is. That's where the central banks are heading. They want even more power. Get rid of cash: this entire debate about we need to get rid of cash has to do with this power grab by some central banks that want more power and they want to get rid of all the competition. Cash is in your control: you've got it you can give it to somebody the central bank cannot control this. But if it's a digital currency then it's not only monitored it can also be controlled in certain transaction can be prevented and stopped, and can be, you know, the control powers are so enormous and to centralize that into one institution is extremely dangerous. I think the big lesson of the 20th century has been that, because the big overarching trend of the 20th century has been concentration of power in ever fewer hands, but that has been disastrous and that's the big lesson of the 20th century. We need not to centralize economic and political power, we need to decentralize, we need to decentralize to give power to local communities and give them more decision-making power even over economic decisions. That's why we need community banks, that's where we need the independence, we need it locally not in the hands of central banks and the historical record is very clear. It's not worked out well giving more powers to ever fewer players and to give too much power to central banks. We need to decentralize and have local community banks and create many more local banks in many countries which is what I'm trying to do and I hope you can help me and will support me in this venture to set up more community banks.

Stefan: Alright. Thank you very much, that was a wonderful conclusion. Thank you very much, thank you, thank you, it was a fascinating conversation Richard Werner, thank you so much for being here. Thank you all for coming out on a Saturday morning. I hope you're enjoying we'll be enjoying the rest of the forum and enjoy your weekend, take care, thank you very much.

Werner: And thank you to Stefan for being a fantastic moderator and host in each of you, thank you, round of applause to Stefan.