♪ francine: axel weber has held some of the most influential and important roles in european banking. he was the president of germany's bundesbank and a member of the ecb governing council, which included the early years of the global financial crisis. now he is chairman of ubs and a member of the group of 30, an international body that looks to deepen understanding of global economics and financial issues. today on "leaders with lacqua," we meet axel weber. axel weber, thank you for joining us.

you have a great global view of the main challenges facing financial institutions. what are they? how will this and astray be transformed in 10 years from now? be transformed in 10 years from now? axel: the industry is in the middle of a transformation. after the financial crisis, the reregulation of the industry, and many, including ubs, have changed their business model. we were among the first. now over the next 10 years, different trends will shape the industry. technology is one. the business model will be challenged by disruption. the question in the future will be, can incumbents like ubs rise to the challenge and transform themselves, rather than be disrupted? we have seen disruption in many industries. technology is the key driver for that. banks will continue to face those challenges. i think we will rise to the

challenge, adopt what is good through financial technology. the business model will change and become more technology driven, even more client-centric, because the main beneficiary of the technological disruptions will be the clients. francine: how will the big banks not be disrupted, left behind, become obsolete? axel: what will get disrupted are banks that have a core model that has no distinguishing -- many banks like ours focus on one business area -- we say niche, because we are the largest player in the world in wealth management where content matters. content will matter more in the future. the client experience will change through technology, but clients are getting more educated through technology, more risk-sensitive, a different interaction with the banks through technology, and banks that assimilate that into their business model will continue to provide content and be industry leaders. francine: do you think ubs is a

blueprint for european financials? axel: not necessarily. i would not want everyone to move into wealth management. nobody has the core strength in the home market that we have. it is small, but lucrative. also because of the small size , of our home market, we are a very early force at swiss banks to be very international. this helps ubs. francine: what are the risks associated with wealth management, especially high net worth individuals? axel: we are seeing an opportunity for them. if you look at what we announced with our investor day, we think the current trends in the markets will continue to produce one byproduct of qe and monetary policy easing that is unwarranted, in my view undesirable. that is an increasing difference between the best performing in the economy, and the least performing, so inequality will rise. it will continue to produce very high income and very high wealth

in many affluent parts of our societies, and the middleman will continue to feel left on the side, and that will offer opportunities for large banks who can focus on the wealthiest of their clients and the most affluent in the society, and ubs is one of those banks with a long track record in that and continues to work with these banks. francine: don't you service the globalists? if wealth inequality is increasing, there may be more populism and an anti-globalization sentiment that hurts clients? axel: it hurts your clients, but if you look at the potential of top clients in china, almost every day a new billionaire emerges in asia-pacific, so, yes, there is disruption for the average economy, but for the most affluent parts of our societies and dynamic parts of our society -- economy,

globalization will continue. there will be challenges, headwinds, but 10 years after the crisis, usually these populist arguments are getting more headwinds as the economy emerges from the crisis, and i think that is what we are starting to see. if you look at the french election or some others yes, , there are nationalist movements and populism, but international is an has scored some points recently. but i expect as the economy continues to heal from the crisis, many angry voters who look at the crisis and how they have been hurt will feel the new developments in the economy work for them and are starting to feel less angry about the crisis. francine: what do you think the future for these big european, , global banks is? will some fold, a consolidation? axel: you will see consolidation of the industry. you will still have calls for a national champion. i don't think that will work. what europe needs to catch up

with american firms is european champions, banks larger in size. francine: cross-border. axel: cross-border banks, pan-european consolidation, and a bit against the sentiment over what regulators were engineering as too big to fail, has led to a lot of regulation for the largest financial institutions. we are seeing in the u.s. that the trend gets slightly reversed. there are still regulations for top banks, but midsized banks find it easier to get regulatory breaks and that will enable them europeart merging and will see the same. francine: in 10 years, five big european banks or more? axel: you will still have quite a few more banks, but at the moment, you don't have any pan-european bank. we would see three or four pan european banks that would cover the entire area, and being a swiss bank and global, we will continue to be a competitor in these pan-european markets and

in the global markets, so you will see not just domestic markets become more pan-european you also see u.s. banks taking a , bigger stake in europe and asia because their clients will want exposure to global banking as well. francine: i don't know whether it is automatization, globalization, or finding a different language to speak to millennials that will be your biggest challenge? axel: banks have tried to drive digitalization themselves. at the core, banks are technology companies, but this disruption, banks will monitor the successful in the market of fintech and will basically integrate them into their value chain and become better banks, with the same client experience that the client is looking for outside. plus they bring the scope, size, and the globality that many fintechs would work decades to get it.

you will see the most successful syntax become part of the establishment in banking through mergers, acquisitions, collaboration, and that will give them an incentive to be successful fast, because they can work with the incumbents for better banking solutions. francine: coming up, we talk political risk and what the biggest global flashpoints are. more with axel weber next. ♪

♪ francine: there is no shortage of flashpoints in european banks to contend with. political risk is big in italy, germany, and the u.k. central banks were unwinding from their decade-long emergency monetary policy, and the world's two biggest economies, u.s. and china are involved in the trade , spat that does not seem close to resolution. how do bankers contend with these risks?

axel weber is still with us. you were pivotal in dealing with the financial crisis as the head of the bundesbank. what did you wish you knew then that you know thou? axel: i think at the time what we experience -- what we experienced it looked like a , cardiac arrest. arrests,t of cardiac it takes a long time to heal, a long time to recover. the expectation was if we fix these problems, we can go back to normal. we have not gone back to normal. we will not go back to the old normal. the world has moved on. markets are different now. some product's are gone, i think for the better. in the future, it will all be about how we can navigate this more complex world where complexity is ever increasing. that is the challenge in financial markets. central banks are only providing liquidity to banks. what you see now with

market-based finance increasing with risks migrating away from banking, which is better regulated into market-based finance, central banks will find it harder to provide liquidity to problem areas because they , will not be the core counterparties like banks with access to central banking. you need to rewrite the rules, regulation on banking and central banking for more complex financial markets, including capital markets. the capital market union is a project. it is not there. capital markets will become a reality in europe. central banks are not equipped for that reality. francine: the banking union, the rules will be obsolete by the time we have a banking union. axel: i am concerned we know how to deal with failing institutions if they were banks, too big to fail, resolution, recovery, liquidity planning, capital planning. what do you do when the risks migrate to the non-bank financial segments?

central banks are still the core institutions that need to stabilize the financial system, but they have much less information day to day from the nonbanking world than they do from banks. we see it in some markets. credit risk is migrating to insurance companies, pension funds, market-based finance. a central bank that wants to regulate banks cannot really start of boom in credit markets just by tightening conditions. liquidity matters and markets matter more. central banks have to become more market focused on what they are doing. at this moment, many central banks have not gotten that experience. francine: where do you see the next crisis coming from? shadow banking in the u.s., china? is china pivotal? a lot of policymakers can't regulate. axel: i am not that concerned about china, because china in always been able with the central bank to focus on problem areas emerging.

it is a centrally run economy. financial markets are just starting to develop. they are massive but have not got the complexity. regulating non-complex financial markets and stabilizing them is easier than doing the same with a complex or sophisticated financial system. i'm not concerned about china. yes, there are some headwinds, but authorities are focused on already we have seen some anti-cyclical stabilization measures that will continue to be used to stabilize the chinese markets. where i see headwinds is in non-market-based finance. in more complex systems like the united states. at the end of a long cycle with a lot of distortion in risk-taking through monetary policy, there will be some risks that have been taken that as monetary policy continues to normalize will come to the fore, and that is where we need to be prepared. francine: we understand the linkage, which we did not in 2008. if there is something ugly

happening will we be able to , intervene quicker? axel: we just wrote a report in the group of 30 and we said yes, , in principle we understand the linkages, but some of these early measures in central banking have by now been much more restricted. for example, require parliamentary approval. if you remember, one that was discussed was not passed by the u.s. congress, and had to go back a second time to be passed. we know what to do, but it is master getting parliaments behind these measures if we were it does if we were to embark on them again. the financial crisis has shown the early intervention was unpopular, and now central banks would be less able to do it as quickly and as uninfluenced by parliamentary processes been in the past. things will be discussed between policymakers and central banks. francine: is populism a sideshow or consequence of the financial crisis? axel: i think to some degree it

is a consequence, because as i said before a lot of inequality , emerged. if you focus on the policy that basically supports equity markets and risk taking, by design, the qe was designed to improve risk-taking capacity, and the ones able to take risk are better endowed financially, and that has created huge returns for those who invested in equity markets, but fixed income, which many european citizens are invested in, has really been having depressed returns over the recent decade, and so some of the side effects of monetary policy is contributing to the inequality. i'm not saying it is causing it, but it is contributing to it, and that is something that will make a similar set of policies more difficult to master next time around. francine: coming up, leading in trying times. we talked to axel weber about the financial crisis a decade on

and the hardest decisions he had to make. ♪

♪ francine: axel weber has led in turbulent times for europe. being at the helm of the bundesbank at the start of the financial crisis, he has moved from central banking to the private sector, taking over as chairman of the swiss banking giant ubs in 2012. so, what kind of leadership style does it take? we are back with axel weber. axel weber, what does it mean being a leader today? axel: sometimes it means taking difficult decisions, taking

decisions where you are unable to consult with a lot of people around you, where you have to show leadership. my experience was in the financial crisis, we had to do that. very often, i saw the role of the central banks as providing rationale where the individual rationale to lead to -- where the individual rationale would not lead to a solution of the problem. in the financial crisis, all leaders of financial institutions behaved individually, rationally, but the sum of these behaviors would amount to a major financial crisis governments, so the central banks had to come in as the provider of a collective rationale that led to a better outcome, and that is leadership where i feel providing that collective rationale was something many of the central banks and political leaders did at the time, and in my view, that was key for resolving the crisis. francine: do you remember a

particular day, hour, phone call in 2008 where you thought, oh, this is ugly? axel: 2008, we were in crisis mode. i remember july 2007, we had the first bank globally get into trouble, a aa bank, and we had to provide a solution for that bank in a short time over the , weekend before the markets opened in japan. that was bringing everyone to the table and recognizing that the group of banks that had exposures to that single player were better off supporting the bank than insisting on the bank going it alone. we have had many repercussions like that in financial markets. 2008 was the time where we went -- ran out of individual solutions, where you gather people around the table that were banks or financial market players. at that time we needed outside money, taxpayer money,

politicians to come up with the solutions for these problems. in germany, for example all, we had a 500 billion program that helped us to solve these problems. it was unpopular, but within a few days, chancellor merkel and minister steinberg went through all the parties to get this going. that was, in my view, the most difficult time we had. francine: was it your most difficult day, or the day you decided not to run for ecb president? axel: that was a difficult day. that was much later. the reaction of the ecb to the crisis -- the ecb became the repair shop for a lot of bad banking decisions, fiscal decisions by central -- member states. francine: that is a central bank, isn't it? axel: for fiscal decisions by

member states, you can argue that. there was a tried and tested avenue at the time. member states of the eu, if they run into trouble, the imf could have been brought in to help. there programs are tried and tested for solvency issues of estate. -- of a state. the europeans decided to not bring the imf in, but basically to escalate the problem to the ecb and brussels, and that is where it became difficult, because the resolution that was asked for involved more european money at the table than the collective rationale of the imf. i was never a fan of that solution. sometimes in life things bifurcate. since we have been down that road and europe tried to solve deeperblem alone, we got problems. the ecb is to to some degree still the repair shop. francine: you decided you could not be ecb president. was that a tough decision? axel: no, i have always been somebody who felt if i'm doing a

job, i am convinced about what i'm doing, and if i'm not convinced about what i am doing, i do something else. i have been an academic for many years. i love being an academic, but i felt's i wanted to have some different challenges in the future -- i felt i wanted to have some different challenges in the future so i became a , policy advisor, policymaker, and central banker. now i run a private organization. i like these challenges. it is something i like doing. i never tie myself down to a single job for the rest of my life. francine: what is the piece of advice you give to interns? somebody wide eyed and bushy tailed says what is your secret , sauce to a lifelong career? academic ii was an , was fascinated meeting 19-year-olds to 24-year-olds, who then decide how they want to have their life, job, time to invest, education to invest. you see that less if you are at

the top of financial institutions. i go out deliberately to younger leader clubs and branches where we have young people, and i tell them they have to invest in training, invest in education, and basically invest in being at a good company and getting to the top by commitment, looking at what we call in ubs behaviors and principles, so focus on what you're doing, be long-term oriented, and if you are in the financial services, focus on the clients, try and look at sustainability and challenge. if you see something that is a problem, challenge. have the self-confidence to go it your own way. francine: are you born a leader or can you become a leader? axel: i think you become a leader. people are born with a set of natural instincts and some curiosity, but it depends on what you do with these natural instincts and how you develop your curiosity.

my sense has always been, you have to know, have an inner compass, and for me, what mattered all my life was that inner compass. i don't mind if people disagree as long as i am convinced i am still going in the right direction. that is what matters. when i ended my career in central banking, there was a deep conviction that the direction we were traveling was the wrong direction for me. i am not saying it was the wrong direction, it was the wrong direction for me. now in banking, when i came to banking, i did not have a life-long career in banking, it was knowing where you want to go to, focus on the long-term sustainable business parts of your business move away from , high volatility in market-based finance, and focus on things like wealth management and retail banking as core. it has to come with some convictions that either you go for short term profit or long-term gains. going for long-term gains requires a lot more commitment. it is a tougher road.

it has setbacks. you have to live through those setbacks. i am still committed to that longevity in everything i do. francine: what was the best piece of advice you were given throughout your career, either young or less young, and who gave it to you? axel: i think i was given that by my parents. trust in yourself, because in the end, it has to be right for you. that is what i always ask myself. i do not want to please anybody if i do not think that is the right thing to do. i have some confidence in the fact that i believe what i want to achieve, and if there are things i see that i don't like, i say it, and if i want to move a bank in a certain direction, i only do that if it is right for me. being a leader you have the , advantage of shaping that direction. if you have the compass at the steering wheel you can determine , the direction of your institutions. a great team, a

dedicated group of people that want to do the same thing, focus on longevity, sustainability, and making banking better. francine: axel weber, thank you very much. axel: thank you. ♪

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