Follow Us

Follow us on Twitter  Follow us on LinkedIn

03 April 2015

ECB: Interview with Sabine Lautenschläger

Default: Change to:

Interview with Wirtschaftswoche covering bank lending, capital requirements, stress test and QE.

Are the banks in the euro area stable enough to issue sufficient credit to businesses?

The vast majority of European banks have enough capital and liquidity to enable them to expand their lending activities. But that in itself does not suffice. If we want to see sustainable and sound credit growth, banks will have to take a positive view of their customers’ creditworthiness and thereby of their future prospects. And, as a rule, that is closely linked to the economic growth of the customers’ region, of their home country. But politicians are the only ones who can bring about lasting economic growth, namely by implementing structural reforms.

What is your view of demands that banks should top up their capital to 30% of their balance sheet total, as is the case at many enterprises outside the financial sector?

I am in favour of banks holding adequate and, above all, high-quality capital. But that has little to do with the demand you are referring to. I find that too sweeping; it ignores the risks inherent in a capital calculation that is geared to the balance sheet total rather than to the bank’s risk. Investors want to see returns and, unfortunately, often take a very short-term view. If the capital share was too high, banks could be forced to invest in especially high-return, and thus particularly high-risk, projects, in order to generate the required returns. In this way we would indeed boost the banks’ risk-bearing capacity, but also their risks. Nothing would have been gained.

Low interest rates alone are driving banks to enter into ever more risky commitments. At the current level of interest rates, does the business model with deposits and credits still work at all?

The low interest rate environment is certainly a challenge for the banks. On top of that, in particular the German banking sector is marked by strong competitive and price pressure. This means that some business models will drift into a precarious situation over the medium and long term.

What are you doing to counter that?

We must prevent banks from responding to the low interest rates purely by engaging in riskier transactions or by making savings such as job cuts in risk management. We respond to a heightened risk on a balance sheet by requiring additional write-downs or more capital. Moreover, we ask banks to improve their internal controls and their risk management by, for example, employing more staff for these tasks.

But banks are now more concerned with reducing headcount.

What matters for us supervisors is that the institutions not only attract business, but that they adequately monitor the accompanying risks. I can well remember times in which I left the banks to choose – to either make job cuts in trading or hire more staff for risk management.

How happy are you with the capital raising prescribed by the ECB for those banks that failed the stress test last autumn?

On the whole, I am pleased. For me, it’s not so much about the need for capital that we found during the health check of more than 120 of the largest banking groups in the euro area. The success of the health check was that the institutions prepared themselves for this test, also by indeed strengthening their balance sheets by around €200 billion. That has brought stability; now we need to turn to the many national transitional rules, that do not have a positive effect on the quality of capital.

For some weeks now the ECB has been buying large quantities of government bonds. However, the euro area economy has long since stabilised and no longer actually needs any monetary stimulus. Is the purchase programme a mistake?

Economic prospects have indeed improved. Besides the fall in oil prices, the ECB’s previous monetary loosening was a contributory factor. Just think of the reductions of the key interest rates and the additional liquidity injections for the banks offered at favourable conditions. Sometimes more patience is called for. Especially when we’re talking about large-scale purchase programmes for government bonds, which in my view can only ever be a last resort, namely because of their side-effects.

But consumer prices in the euro area are nonetheless falling…

...which is not yet deflation. Deflation exists when citizens expect a long-lasting fall in prices and adapt their behaviour accordingly, e.g. by postponing purchases or being prepared to work for lower wages. A downward spiral then looms of falling prices, lower demand and declining wages. There are no indications of this at present. The current slowdown in the rate of inflation is largely attributable to the fall in energy prices. Moreover, the crisis countries of the Monetary Union have introduced essential corrections in wages and prices in order to improve their competitiveness.

Full interview

© ECB - European Central Bank

< Next Previous >
 Hover over the blue highlighted text to view the acronym meaning
Hover over these icons for more information

Add new comment