MARIA BARTIROMO, FOX HOST:  Thank you so much.

And we are looking ahead to this upcoming week, when the major banks will report earnings.  Citi out on Monday.  Bank of America later in the week.  After mixed performances from JPMorgan and Wells Fargo on Friday.

Joining me now, someone who has been leading a global bank out of the depths of that recession back in 2008, to today, where the business mix is totally different, with an emphasis on wealth management.

He is the chairman of UBS, the leading global wealth manager, uh, Mr. Axel Weber, also the former president of the German central bank, the Bundesbank.

Axel, it is great to have you on the program.

AXEL WEBER, CEO, USB:  Maria, thanks for having me.

BARTIROMO:  Thank you so much for joining us.

I want to get your take on some things, from the global economy to the new banking rules, uh, that we see, uh, being implemented and -- and put in place right now to the business climate.

So let me open it up right there.

How would you characterize the business climate today?

WEBER:  I think the business climate is improving, uh, definitely here in the United States.  I do see the United States in a cyclical lead position of all the industrial countries.

So things are a lot better here than they are in Europe and a lot better than in many other established economies.

BARTIROMO:  Of course, we still have Europe under pressure, Japan trying to stabilize and a lot of debate about Japan and its monetary policy.

Let me go to Europe for a moment.

How are things in Europe and what would you say about Mario Draghi and the European Central Bank's approach to the recovery?

WEBER:  So the first thing, I think Europe has come out of the recession.  Uh, growth is stabilizing and it's come back to positive territory.  We expect this year just below 1 percent growth in Europe.

But 1 percent is not enough growth to create jobs.

And there's very little the central bank can do to create jobs.  The central bank has done the right thing, to stabilize the situation on financial markets and they're now working with banks in the asset quality review to bring more transparency and credibility to the European financial system.

But what we need in Europe is reforms by governments to enhance long-term growth perspectives.  And that's not happened yet and it needs to happen.

BARTIROMO:  Well, last week, we had Christine Lagarde on.  I know you're seeing her this upcoming week, uh, at the IMF meetings.  And she was somewhat critical, basically saying the ECB needs to do more, Mario Draghi should probably lower interest rates further, do more stimulus, maybe something innovative like the Fed did here.

What's your take?

Do we need to see further stimulus in the -- in -- in Europe?

WEBER:  I think if the ECB were to lower rates, deposit rates slightly into negative territory or move the main refinancing rate further down, there's not a lot that would happen as a result of that.

Uh, I think the ECB has done the right thing in providing a backup to the system, but what you -- what the expectation in financial markets is is that the ECB would embark on a type of QE operation.  I think you would have to see first a real disinflationary shock, much lower inflation.  Actually, the whole projection of the ECB, the FEN chart, moving well into negative territory.  And that's not the case at the moment.

So at the moment, I would say inflation is Europe -- in Europe is below target.  It is sup optimally low.  But I don't see a lot of auction coming out, because any action they're about to take is pretty controversial.  And it's unclear whether it will deliver on what the market expects from it.

BARTIROMO:  And -- and -- and whether it be Europe or the U.S., most people will say, we're looking at some improvement, but we should be at much better levels at this point in the cycle.

For example, in the U.S., we only saw, you know, under 200,000 new jobs created in the last month.  People were looking for much better.

What is it going to take, do you think, to move the needle in the U.S.?

WEBER:  I think in the U.S., you're still suffering from the fact that the data that now come out, month to month comparison, are actually not giving you a great picture, because, uh, you had a very hard winter.  It impacted on numbers over the wintertime.

As for coming out of winter, we'll probably see some pay back from that.  So there's going to be distorted numbers coming out of winter.

I think the Fed will try and look through those monthly variations in numbers to get a medium to long-term perspective and remind you, the medium to a long-term perspective for the UBS is -- is -- for -- for the U.S. is actually quite good.

Uh, I think we are -- we are expecting, at the moment, a 3 percent growth in the U.S., actually, almost 3.5 percent next year, in my reading, because the shift in the energy balance, the fact that the U.S., on shale gas will become an exporter rather than an importer of energy will reindustrialize and help reindustrialize the United States.

So cyclically, they're in a very good position, uh, in the United States.  And you will see that in the coming -- in the data, maybe not immediately¸ but as more medium-term data come out, you will see that.

BARTIROMO:  I'm really glad you mentioned shale.  This is sort of a game-changer to -- to a lot of people, feeling like...

WEBER:  It really is.

BARTIROMO:  -- this is really getting to be one of the low-hanging fruits in terms of creating jobs.

OK, I want to get to Japan and I want to get to China and the emerging markets in a moment.

But let me turn to UBS for a moment.  Of course, you made the decision, and your colleagues at UBS, to emphasize wealth management and deemphasize things like trading or certainly fixed income trading, uh, and deemphasize a little on the investment bank.  I -- I recognize that you've got a very vibrant investment bank still.

But -- but let me ask you about that.  Is $2.5 trillion AUM overall at UBS, that's -- that's the right number, correct?

WEBER:  Right.

BARTIROMO:  $2.5 trillion.

WEBER:  If you look at all the asset gathering business.

BARTIROMO:  With all the asset gathering, exactly.

So what has happened as a result of this change that you've made?

What are you seeing from your clients today in an environment where we have real disruption in the stock market?

WEBER:  Right.  So clients are, again, gaining confidence in UBS.  We're seeing that in the net new money figures.  Last year, we had about $58 billion net new money.  That's actually more than some of our competitors, number two, three and four together.

So UBS is growing strongly, again, back to its (INAUDIBLE) position it had on wealth management.

We're the largest wealth manager, as you manage globally already, and we do get credit by many investor relations and by investors and by clients that we're actually doing a good job on it.

So UBS's core, 50 percent of our profitability, will come out of wealth management globally.

Only 30 to 40 -- 30 -- 20 to 30 percent is roughly retail and corporate business. And the investment bank will contribute around 20 percent to the overall profitability.  That shows you that the bank has made a big change from actually allocating 60 percent of its capital to the investment bank to now, actually, only 20 to 30 percent.  And we are putting at the core of what UBS is known for and is good at, namely wealth management globally.

And we're the strongest bank in Switzerland, so my understanding always has been you cannot be a good and strong international bank if you're not a dominant player and a good player in the whole market.

And so for us, the -- the duality of being a global wealth management franchise and market leader in Switzerland, supported by an asset management business globally and supported by an investment bank is the right business mix that we want to pursue.  And it's paying off.

All of our businesses, in each division, has been profitable in every quarter last year and the investment bank had a return on equity that was around 31 percent

last year.

So we did really well in a different set of market environments over the last year, which shows the robustness of our new business model in the investment bank. And very few other banks have a -- a similar robustness to show for in the last difficult year.

BARTIROMO:  You're absolutely right.  And a number of banks are following suit and emphasizing wealth management and trying to become, as one analyst said to me earlier, trying to pull a UBS, uh, trying to do what you're -- what you're trying to do.

How do you get margins up in wealth management?

WEBER:  Well, so one thing we need to understand is that as the banking business in general will be less profitable, one way to get profitability up is to actually be pretty stringent on cost cutting.  So we need to get costs under control.  And while it's basically moving business out and focusing on what you're good at and competing where you can actually be among the top three players, it is getting control of the cost.

And that takes a variety of, uh, as I mentioned, it basically means back office jobs need to be aligned with front office jobs.  It means avoiding mistakes and avoiding penalties.  It means changing the culture in the bank to a better culture. And it also means that we need to have, in particular, technology as an enabling factor in banks rather than looking at is as a cost factor only, because technology is going to be the key driver for successful banks in the future.

You've got to be on top of technology.  It's a major risk if you're not.  And we're putting technology and improving on technology at the core of our cost driving programs.

BARTIROMO:  Does that require big outlays, the technology?

You know, we've been talking about CAPEX a lot in terms of, uh, its impact on the economy.

Are you expecting to increase money toward CAPEX as a result of improving technology?

WEBER:  It requires investment.

BARTIROMO:  Yes.

WEBER:  Yes, it clearly requires investment and, you know, in wealth management, since it's a people business, it also requires hiring people.  We just

hired 88 new advisers in the Asias.  We're one of the market leaders globally, but in Asia, we're the undisputed market leader.  And there, really, since it's a people business, you need technology and people.  You need to focus on both.

BARTIROMO:  Where are you in the cost cutting efforts?

I recognize you're -- you're hiring in one area of the business, but in terms of the cost cuts, if you were in a baseball game, are we in the seventh inning, the ninth inning or the second inning?

WEBER:  We're on track.

BARTIROMO:  Yes.

WEBER:  But I would say, you know, we're in the sixth inning.  Uh, we still have further cost cuts ahead of us.  We made some announcement of programs over the next two years and the transformation on the bank.  So we're delivering on those, but only when we've actually moved to the end point of that.

If you look at where the costs are coming down, first of all, you need to downsize the front office jobs, so the trading jobs.  It's only once you've done that, you can actually then start cutting on back office jobs.  You cannot do it the other way around.

So what we're trying to do is exit from non-core and legacy portfolios, wind down some of these trading activities and then basically move to sustained, long-term cost cutting.

BARTIROMO:  Understood.

WEBER:  It's got to be that sequence.

BARTIROMO:  Absolutely.

All right, let's talk about regulation for a moment, Axel.

There's been so many charges, I feel like there are charges constantly in this industry.  And, you know, they are billed as one time charges, but it almost feels like this is the new normal.

Tell us about the regulatory changes that we have seen, more changes that were beginning to get implemented last week on the major banks.  And they are different, because you've got regulators in Switzerland, you've got regulators in the US.

So how does this shake out?

What are the most onerous and -- and how do you think the industry looks different as a result of regulation in the coming three to five years?

WEBER:  So, basically, the whole new regulation for global systemic banks means that they have to carry an extra safety buffer on capital, on liquidity planning, on many areas.

In Switzerland, they've actually gone one step further.  Uh, whilst the global international systematical banks have to hold 10 percent of common tangible equity, in Switzerland, it's up to 19.  The Swiss like alpine regions.  And so on capital, they move to alpine regions.  And therefore...

BARTIROMO:  I guess so.

WEBER:  -- therefore, what we do is more than everyone else, we've moved now to roughly 13 percent of common tangible equity, which is a pretty high capital number.  We're improving our leverage ratio number.  We're improving our liquidity planning.  But ultimately, this round of making banks safer is just the first round of what we're seeing.

Actually, banks need to move a lot further.  They need to move to be more resolvable.  They've got to focus really on doing what they're good at, when at -- actually, at the core, they've got to go back to ask themselves, what are we all about?

And banks are about satisfying clients.  So clients really have to be brought back into the picture.

I think banks should stop talking about product lines, for example, in the investment bank, and really ask themself, who are the clients we are serving?

And for us, we made a clear choice.  It's corporate clients and it's wealth management clients.  For those clients, the investment bank will deliver a holistic set of services that these clients need.

Outside that, I think we decided not to go in areas where we don't serve our core client base.  And I think that's been a mind change from putting product and activities, like trading, at the core, to putting clients back in the core and saying, what can we do to service these clients?

And I think that will ultimately change the mind set, also, of traders, of people that deal with clients, and it will change the control environment.

BARTIROMO:  And that's a very good way to put it, really a great analysis.  Look, I recognize that UBS is one of the best capitalized banks in the world right now.

But the question always comes up, do you need more capital, because all of these stringent rules by the Fed and -- and other regulators?

So where are you on capital?

Are you comfortable with the bank's capital right now?

Or are you expecting an opportunity to raise capital?

WEBER:  No, we have been raising capital by deleveraging the bank.  Uh, we are continuing to improve our leverage ratio.  Uh, I think the Swiss finish (ph), which will basically, for leverage ratio, require a 4.2 leverage ratio for a bank like us, instead of the international relevant 3 percent, again, it's a Swiss add-on to the international standard.  I expect that to gradually increase even, uh, the U.S. has just put out 5 percent leverage ratio for the major systemic banks.  And I do expect that to become kind of the new norm for all the global banks, because it's hard for me to perceive that if it becomes the standard in the U.S., you would see another constituency, the acceptance of a subpar standard on that.

So ultimately, whether we do move to 4.5 or 5, for us, as UBS, won't make a big difference.  But I think it's a journey that really is now more or less clear on the horizon, because the U.S. has done it.  We're a bank that operates in the United States, so we want to fulfill those requirements that U.S. peers have to fulfill just out of self-interest that we wouldn't be seen as weaker (INAUDIBLE) than our U.S. peers.

So that's, in my view, now, set into the regulatory debate.  And I think the FSB and the international constituency will have to go back and probably will revisit the 3 percent.  Uh, for us, as a bank, it is important to really apply to the best standards.

BARTIROMO:  So -- so this is the new normal?

WEBER:  It's becoming the new normal.  It won't be immediately the new normal. If you look at banking regulation, actually, it's going to be phased in through 2019.  But as soon as a number like that is out and a major constituency adopts this, there's pressure on everyone else to follow.

BARTIROMO:  Absolutely.

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BARTIROMO:  So much discussion on high frequency trading, OK.  The last couple of weeks, you know, Michael Lewis out.  You know, we had Larry Summers reacting to Michael Lewis' comment that the stock market is rigged. And he said it's obviously staggeringly exaggerated and in -- and inaccurate.

But let me ask you about the ramifications of that book, because Goldman Sachs is saying, oh, we're going to look at our dark pools.  We are going to consider selling them.

Is there discussion within UBS to sell the dark pools?

WEBER:  Well, look, I would echo what -- what you just said from other banks. We're all looking into these issues.  The real issue is, can we make sure that in the business that we're in, we're conducting it in a way that is complying with regulations and doesn't actually entail problems?

We don't want to run business that entails problems.  So we've got to look at this very carefully, do our own analysis and then take a decision.

We're looking into it, but we're not taking decisions yet.

BARTIROMO:  And, of course, I would only anticipate what you would say if someone said to you, Axel Weber is the market (INAUDIBLE).

WEBER:  Sorry?

(CROSSTALK)

BARTIROMO:  I mean if -- if someone were to say to you, is the market rigged because of high frequency trading, the answer is?

WEBER:  No.  I mean the -- the market rigged -- look, the market is not performing to the same standards in each and every part.  There is, I would say, an equity environment where it's very clear you have an SEC set of rules, uh, it is very clear what it -- what are the dos and what are the don'ts and there is a very strict coverage of that market.  Compliance is enforced.

There are other market areas that are more opaque.  They will be brought into a much more equity like environment over time, because we're seeing problems on the trading floor in some of these areas.

So the standards of what used to be acceptable standards in the past, in opaque OTC markets, are going to be moving much more to an equity-like environment. It's clearly something where there is a high public pressure to bring transparency and high standards to the trading floor in those areas. So that's a process.

Now, that process needs to be done.  And I think regulators need to embrace that process.  If you ask regulators what about OTC markets, what are you going to do to stabilize them, they would have told you, we need a central counter party (ph) for clearing.

I think we need a lot more than a central counter party for clearing.  If you ask regulators now, they feel that you need to enhance the trading, uh, culture, you need to really have a protocol on what is compliance, you need to have a series of do and don'ts and you need enforcements of these do and don'ts by risk control, by compliance and by audit.

And that's where the market is moving.

BARTIROMO:  Now, I -- I ask you this, because I know you've thought about market structure a lot over your career.  And unfortunately, market structure has not been looked at in a long time, certainly in the US.  Uh, and that's one of the issues here.  And that's why some people think, uh, that the market is not working for them.

But that's -- that -- I just wanted to make sure you agreed with me and I totally agree with you on terms of market structure.

Let me ask you about litigation and the fines that have been so prevalent in the banking system, another new normal, unfortunately.

UBS is among the first to -- to settle, uh, on tax evasion, back in 2009.  You're now looking at foreign exchange issues.

Where are we in this?

I mean should investors believe that there worst has been done -- we've seen the worst?

Or are we still looking at regulation, litigation, fines and outlays of money as a result of, uh, you know, misguided individuals or -- or -- or poor behavior in some corners of the industry?

WEBER:  We're dealing very -- and I can only speak for UBS.  We're dealing very proactively with all these issues.  We have been endorsing the process of changing the bank and we are delivering on that promise.

So every area that we are looking at is going through with a very fine comb.

We have, uh, settled issues in the past.  We've actually been cre -- given credit. You might have seen that, from the European Commission...

BARTIROMO:  Yes, absolutely.

WEBER:  They waived a fine for UBS, largely because of our good collaboration with the authorities in (INAUDIBLE)...

BARTIROMO:  Very early on.

WEBER:  Very early on.

BARTIROMO:  You see an issue, you attack it.

WEBER:  Well, we basically go through all parts of the bank and try and remediate these issues, because the past is what it is.  You know, the new team came in roughly two years ago, the new CEO and myself.  We can't change the past.

But we can try and improve on the past and change the bank.  And that's what we embark to do.  Of course, if you have 20 years of problems in the financial industry, you cannot tidy that up in 20 months.  But it's a process.

But we're very clearly committed to changing the bank.  We have nothing to hide. We have a very clear agenda of every issue needs to be dealt with and put behind us.

And I think only that determination, cleaning up issues, can actually provide a good future for the banks.

Take the -- you know, one example that I always take was the pharmaceutical industry.  If you go back 20 years, the pharmaceutical industry didn't have a very good reputation.  They suffered the same public perception and image problems that the banks now have.

They made it back in public perception because they suddenly came back with the people because they invented products that helped people age in grace, that helped people deal with issues about, uh, you know, health care and other issues that...

BARTIROMO:  Longevity.

WEBER:  -- longevity, uh, that make people's lives better.

I don't think if you ask -- longevity, uh, that make people's lives better.

I don't think if you ask -- you know, and a lot of people go to the pharma store every day.  And when they come back, they will tell you, using these drugs makes my life better.

I don't think you have a lot of people that go to a bank and saying, having been at the bank makes my life better at the moment.

So -- but that's where we need to go.

BARTIROMO:  Yes.

WEBER:  We need to really come back with people and people understanding that banks can help them have a better life.  Banks can help them deal with complicated financial issues to the advantage of the customer and not to the advantage of the bank.

So banks need to change and come back in public perception with the clients. It's something that is frequently forgotten, but, you know, other industries had these issues, as well.  We just need the time to work it out, because it doesn't ever happen instantaneously.  But I think ultimately, banks need to prove that they got an existence with the people because they help people deal with issues that other institutions cannot deal with better.

BARTIROMO:  Yes.

WEBER:  And that's -- that's where we need to go.

BARTIROMO:  And -- and this takes time.

WEBER:  It takes time.

BARTIROMO:  It just doesn't happen overnight.  I -- I (INAUDIBLE)...

WEBER:  It takes time and determination.  So, you know, you really have to understand that the world needs to change, because people want banks to change.  And we've got to hear that message.  And we've got to internally give that message loud and clear, yes, we do need to transform ourself because we're not perceived as being, you know, where we should be.

BARTIROMO:  Yes.

Let me ask you about your discussions in the next couple of days about the Ukraine situation, uh, and the IMF, uh, package.  The latest on -- on Ukraine aid, finance minsters are pressing the U.S. to allow an increase in the financial resources of -- of the IMF as they are -- they're saying that Ukraine needs help.

Um, $18 billion in aid, is that what it should be?

Where are you on this?

WEBER:  Well, I think the Ukraine clearly needs help, uh, international financial help.  And I think the IMF probably is best placed to really estimate what the amount should be for at least the core project to go ahead.

They need to fund in the market.  They need to build infrastructure.  So I'm -- I'm where the IMF is.  Uh, they need international help.

The international community needs to exercise solidarity now with the region in order to help them pull through and move closer to Europe, because, remember, they've just had one part of the region cut off from Europe, and, therefore, the rest of the region needs to be re-ensured that their Western orientation is actually supported by the West and we see them as a welcome addition to the countries that are making up Europe and are making up the western part of Europe.

BARTIROMO:  But what are the implications, Axel?

I mean we see the U.S. pressing for, you know, threatening to impose even deeper sanctions on Russia, the G20 focused on the economic fallout of the crisis, Europe getting 30 percent of its gas from Russia.

Does Europe get hurt if we see further sanctions on Russia?

WEBER:  I think both are two different topics.  So one thing, yes, clearly, Ukraine needs help, and that should be done.  The other one is how you deal with Russia and how you deal with that.

I think what we're seeing there is that -- a different set of attitude -- (INAUDIBLE) attitudes depending on how close people are in the proximity of Russia.  Yes, to some degree, Europe is dependent on energy resources, including from Russia. But I think over medium-term, we can divert that.  We can basically make up for that.

German industry is particularly exposed, uh, to basically having good connections with Russia and, therefore, the German government will look at a balanced approach in order to, yes, at the same time, send the right message, but to do it in a way that does not undermine the economic relationships.

So I think we will see a more balanced approach in Europe, uh, in -- in terms of how we deal with the Russian issue.  But I think one thing is very clear, forget the financial sanctions, the message that needs to be sent has to be a very clear one, whether that's backed up by sanction action is a different issue.

But once you're clear on the message, then you can deliberate how balanced you can be on the regime in which you reinforce that message.

But the message needs to be sent out first.  And that's where I think I -- I still see some need for action.  The message is not yet -- not yet been delivered very clearly.  And then once you have a clear message out there, you need to think about how you support that.

BARTIROMO:  I think that's a really important point, particularly given you've got different players who may not want to deliver that message, OK.

So I mean, are we going to be able to have these economic sanctions stick when you've got companies, all -- global companies doing business in Russia?

I mean UBS is a Swiss company.

Are you going to be not doing business in Russia?

I mean the -- this is not what the sanction is, but...

WEBER:  Sure.

BARTIROMO:  -- how are we going to ensure that these sanctions actually stick and that that message is being communicated?

WEBER:  Well, we're not a big player in, uh, we don't have a lot of business in Russia, but clearly, if there is a sanction regime, uh, that sanction regime needs to be enforced by everyone.  Uh, and as far as Switzerland is concerned, I can't speak for the country, but in the past, whenever there were European sanction regimes in place, Switzerland joined forces and basically embarked on the same, uh, on the -- on the same set of sanctions.

So my expectation is that Europe, in its totality, needs to agree to a regime.  And we have -- see different discussions over there.

And then the second thing is whether Europe would want to go quite as far as the United States wants to go or whether they could find a mu -- a common ground. That's another debate.

Again, I see some more need for discussion there.

But ultimately, I expect that once the message is clear, there will be a joint set of sanctions, because it makes no sense to have differential sanctions and then you can talk, uh, about sanction (INAUDIBLE) in a totally different way.

I think it needs to be a clear, common ground and then that should be embarked.

BARTIROMO:  All right, let me -- let me conclude here on Asia.  Japan, China and, of course, the emerging markets, as well, I want to talk about.

Um, in Japan, a bit of a debate going on about Abenomics, about the approach to getting that economy stabilized.

What's your take on what's going on so far?

Larry Riska (ph) -- Larry Summers, the other day, on this program, said it was the biggest underestimated risk for the global economy.

WEBER:  Well, there are a lot of risks out there and I would like to maybe make a slightly different point to what Larry said.

If you look back in 2012, there was just one big risk in the global economy and it was the risk that a lot of people felt there was a breakup risk, a tail risk in Europe.

I always felt it was exaggerated at the time, because I knew that Europe was very determined not to let that happen.

BARTIROMO:  You said that.

WEBER:  And it hasn't happened.  And where we're now is that one single big risk has been replaced by a number of risks.  And markets usually feel much better if there is a number of risks out there rather than just one big one.

And the problem is that some of these risks are so correlated that if you have one bad risk materialize, then they all could become correlated and actually turn out to be as big a risk as a single tail risk has been.

So what are these correlated risks?

There is a risk of a hard landing in China.  I don't think it's a big risk, but it's definitely a risk that needs attention.

There is the risk that despite fiscal and monetary stimulus, the long-term pick-up in the Japanese economy will not be what it should be and, therefore, this will not lead to the expected pick-up in growth and a lot of the short-term effect will simply be on -- on the exchange rate, so it will be a short-term stimulus but no long-term growth program.

Again, that would pull back growth globally and it would be a negative for global growth, as would be a hard landing in China.

There's the risk that a lot of people in the market underestimate what is the risk in Europe.  Now, the market always overreacts.  So when -- when -- when Greece happened, the market was kind of pricing in very bad things.  Now that the things are improving, the market is pricing in very great things, you know.

BARTIROMO:  Right.

WEBER:  Spain can fund at a lower rate than the United States.  Clearly, any

fundamental analysis comparing the U.S. economy and the Spanish economy would not lead you to such a conclusion.

So if it can't be true, it probably isn't true.  And the market is exaggerating and, therefore, there will be some re-pricing of the problems in Europe over the years. And there are many areas where this could be ignited by.

Uh, there is the whole issue about the European elections.  You will have anti-European or non- not pro-European forces in the European Parliament, which is something we've never seen.  And they'd be a major force.

You will have a European bank stress test, an asset quality review, that might shine the torch again on the weakness of some of the European banks.

So there are a number of issues out there, risks, that could suddenly change the mood in the market and then lead to Europe being, again, one of the risks.

It won't be a tail risk, but it clearly will add to the perception that there are a number of problems that will take a toll on global growth and, therefore, since we're all in this boat together, might bring the economy into a much less favorable situation than it is now.

BARTIROMO:  Interesting to note the last week or so, the last couple of weeks, actually, emerging markets have been trading better.

Is there any evidence to conclude that the emerging market weakness has bottomed, in your view?

WEBER:  I think there were -- there was, again, an exaggeration.  So the first victims of the U.S. discussion about tapering and tightening monetary policy was the direct fallout in emerging markets, because people felt there was a parallel to the '97 Asian financial crisis or the emerging market crisis.

But the emerging markets have really moved on from there.  They now use flexible exchange rates a lot more to isolate themselves from international shocks.  The banking system is much better capitalized, much more stable. There's muss -- much less currency mismatch in lending and borrowing, uh, so banks are actually borrowing internationally but a lot of the borrowing also comp -- occurs domestically.

So the whole situation in emerging markets is, in my view, not as fragile as markets initially feared.

But the whole -- the top issue that I see for the world economy is the world is normalizing.  And the world is normalizing because the U.S. is normalizing.  The U.S. has been a weak economy with a deep financial crisis at the heart of our

financial system, at Wall Street.

We're now coming out of that.  U.S. banks are -- are better.  They're better capitalized.  The U.S. is growing again at a pace that is faster than most other industrial countries.

And so the world is normalizing.  Part of that normalization is that emerging markets' growth is normalizing, too, because the U.S. is doing better, capital is flowing back to the U.S., and financial markets in emerging markets have to pay a higher price for what is usually a more volatile environment.

And a lot of people are forgetting that in this normalization process, we used to have emerging markets equated with higher volatility.

BARTIROMO:  Yes.

WEBER:  So the volatility we're seeing now is just a reemergence of the type of volatility you would expect in a set of markets that are more fragile.

And I don't think that that is something to worry about.  Actually, I take it as a sign that the world is moving back to a more normal modus operandi.

BARTIROMO:  Axel, did I miss anything that you'd like to add?

WEBER:  I think you covered everything.

BARTIROMO:  Axel Weber, great insights from you, as usual.

Thank you so much for joining us today.

WEBER:  Thank you for having me.

BARTIROMO:  Axel Weber is the chairman of UBS and a former president of the Bundesbank.

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