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19 September 2016

ECB: Banks adapting to the new normal: Striking a balance between prudence and pragmatism


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In his speech, Mr. Yves Mersch considered how the economic environment has made it more difficult for banks in some countries to lend and he took a look at the financial regulation and the changes that are still being implemented.


Adapting to the new operating environment has not been easy. Banks have been very vocal critics of tighter regulation and low interest rates, particularly here in Germany.

The ECB is aware of this criticism, and of the crucial role banks play in transmitting our accommodative monetary policy stance to the real economy. At the same time, the financial crisis has taught us that banks’ capital and risk buffers were too low and regulation of certain markets needed to be tightened.

Eight years after the collapse of Lehman Brothers sparked the global financial crisis, banks are still adapting to the “new normal” – an environment defined by low growth, low interest rates and stricter financial regulation worldwide.

While it is important to be prudent and learn from past experience, there is need to apply the lessons learnd in a measured way. The regulatory requirements need to be properly calibrated.

M. Mersch said: “Amid all the regulatory changes that seek to strengthen our financial system we must remember to leave banks room for manoeuvre. Banks are crucial: they ensure that our accommodative monetary policy reaches the real economy as they translate lower refinancing costs into more favourable lending conditions for euro area households and companies.

“As much as possible, we should aim for European standards rather than national solutions. That way, we can avoid returning to a fragmented set-up prone to arbitrage that provided fertile ground for the financial crisis.

“We need to be prudent when learning from the past yet pragmatic when applying such lessons if we are to shape the future in a judicious way.” 

Full speech

 



© ECB - European Central Bank


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