the president of European Central Bank (ECB), Christine Lagardehas been repeating since last week that the next monetary policy decisions (changes in interest rates) will depend both on the progress of the inflationspecificespecially the evolution of underlyingas well as the transmission of monetary policy to the economy as a whole.
In other words, if the expected credit contraction (due to previous rate hikes and the continuation of the ECB’s balance sheet reduction policy) remains within expectations or is negatively influenced by internal tensions in the financial system arising from the loss of confidence due to liquidation of two US regional banks and the Forced sale of Credit Suisse to UBS to avoid the total collapse of the former, despite the help that the Swiss authorities were willing to provide.
At the same time, the monetary authorities of the euro zone, from the president of the ECB to several of the heads of the main national central banks of the euro zone and several senior officials of supervisory and regulatory bodies, have made it clear that, in their opinion, European banks run any risk of contagion in view of what has happened so far.
Another thing would be, say financial sector sources, if new problems finally arose in the medium banks of the United States that would end up affecting the large entities of that country and this somehow had repercussions on the European groups based on the relationships they maintained with the former. But it is a panorama that is not contemplated at the moment.
Both the president of Banco Sabadell, Josep Olíuas CEO, Cesar Gonzalez-Buenodeclared, on the occasion of the bank’s general meeting, their opinion that this is a financial turbulence (caused by management errors in all cases, although for very different reasons) which they do not believe will ultimately have a significant impact on the European economic activity and, more specifically, in Spain.
In fact, they understand that the practical expression of all these days is that the stock market Contingent Convertible Bonds (CoCos) for the banks, but that even this market is slowly returning to normal because prices, which initially skyrocketed after the Credit Suisse rescue operationclearly return to their previous level.
To justify their relative optimism, they rely on the fact that The European authority indicated that it does not envisage any limitation on dividend and share repurchase policies. raised by the heads of European banks, precisely because they consider that the entities are solid, with growing profitability and a reasonable capital reinforcement program, although they do not exclude that in the future the capital and liquidity requirements will be tighter to avoid new tensions.
but at the moment they don’t see liquidity strains on the horizonfirst because demand for credit is “very lenient” (the demand for working capital remains firm, but the demand for investment is very low in the case of companies and in the case of families, the request for real estate financing has been slowing down for months) and because the banks are in a comfortable position in the relationship between credit and customer deposits.
While in the previous crisis loans represented much higher percentages than all deposits, Currently, this ratio is less than 100%, which allows banks a margin of manoeuvre.
Margin that allows, on the one hand, there is no significant pressure to attract new depositshence the the slowness with which the cost of bank liabilities is risingand, on the other hand, that entities propose to their private customers (companies or families) put your surplus funds into products other than traditional deposits.
In this way, they transfer the risk, limited in any case, to the clients themselves and, at the same time, earn revenue from management commissions. which offset the decrease in current account maintenance fees that banks have been paying to attract or retain customers.