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by Jason Webb
LONDON (MNI) - The European Central Bank has not discussed the effects of
negative interest rates on bank profitability at the level of the Governing
Council or board, ECB Vice-President Luis de Guindos said on Wednesday, adding
that the main drag on banking profits came from structural factors such as
excess capacity and cost inefficiency.
Here are main points of a speech and question-and-answer session by De
Guindos at an OMFIF event in London:
--"We have not had any discussion in the board or the Governing Council
about the side effects of negative interest rates," De Guindos said, in response
to a question referring to comments by President Mario Draghi which prompted
speculation the ECB could tier its deposit rate. Overall, the positive effects
of negative interest rates on banking profits, via stimulating the economy,
outweigh the negative impact on net interest margins, De Guindos said.
--Low banking profits represent a threat to financial stability and impede
the efficient transmission of monetary policy.
--Banking profits are depressed more by structural factors such as excess
capacity, insufficient IT investment, and the additional cost of post-crisis
regulatory reforms. Eurozone banks would benefit from consolidation both within
individual eurozone countries and across borders, De Guindos said, although he
added that he did not want to see the creation of national champions. Some
countries, such as France and Spain, have already seen consolidation, but this
is not the case elsewhere, he said.
--Key to cross-border consolidation will be the implementation of a
eurozone-wide deposit insurance scheme. This would reduce the need for
individual countries to insist their banks are more highly capitalised than
might be necessary if resolution costs were shared throughout the currency bloc.
--The ECB has not discussed any changes to its definition of price
stability, but historically low interest rates will persist even after policy
normalisation. Meanwhile, Europe has space for fiscal stimulus.
--Responding to a question, de Guindos noted that Tuesday's eurozone data
was "the first positive surprise...after a number of negative surprises, since
the beginning of 2019". Growth across the bloc came in slightly above
expectations, with GDP up 0.4% q/q versus a rise of just 0.2% in Q4 2018, the
latest Eurostat release showed. Some national inflation data also came in
stronger than expectations, with German April harmonised inflation up 2.1% y/y
vs 1.4% in March.
--MNI London Bureau; tel: +44 203-586-2225; email: firstname.lastname@example.org
--MNI London Bureau; +44 203 865 3829; email: email@example.com