European bank´s Resilience to new interest rate cycle
Luis de Guindos, Vice-President of the European Central Bank (ECB) and Andrea Enria, Chair of the Supervisory Board of the ECB released an article jointly, on the results of the recent ECB´s assessment of European Banks’s resilience in the new phase of monetary policy normalization and the impact of interest rate raises on bank’s balance sheets, profitability, and ability to provide credit to households, small businesses and corporates.
Main takeaways:
- ECB´s assessment under different macroeconomic scenarios shows that the banking sector is sound enough to handle the effects of rising rates on their balance sheets.
- Banks must prepare for potential longer-term effects related to monetary policy normalisation:
- They should pay special attention to interest rate risk in their asset and liability management. The assessment shows how banks’ monitoring of this risk have deficiencies that can be translated into potential incorrect attribution of risks impacting the P&L.
- Profitability would increase overall, driven by net interest income but interest rates raise have a negative impact on the economic value of equity in the medium term.
- Provisions would also increase, reflecting potential difficulties for the most fragile households and firms in coping with the increase in their debt servicing cost.
- Results for the overall impact on solvency remain on average fairly muted with great heterogeneity across banks. Only a few banks, representing 0.1% of the sector’s assets, might react to solvency negative impacts by deleveraging their balance sheet and retracting their support to the economy.
- They should pay special attention to interest rate risk in their asset and liability management. The assessment shows how banks’ monitoring of this risk have deficiencies that can be translated into potential incorrect attribution of risks impacting the P&L.
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Según Ramón Casilda, “ya no se trata únicamente de capital español invirtiendo en América Latina, sino también de capital latinoamericano utilizando España como base europea”, reforzando un espacio económico transatlántico más equilibrado.
Según José Carlos Díez, Profesor de economía de la Universidad de Alcalá, los españoles accedemos a algunas de las hipotecas más baratas de Europa con tipos de interés inferiores al Euribor y a la deuda pública a largo plazo.
According to Ramón Casilda, “it is no longer just a matter of Spanish capital investing in Latin America, but also of Latin American capital using Spain as a European base,” reinforcing a more balanced transatlantic economic space.
Según el IEE, España presenta una presión fiscal empresarial superior a la media de la Unión Europea tanto en porcentaje sobre la recaudación total como en porcentaje del PIB.
According to José Carlos Díez, Professor of Economics at the University of Alcalá, Spanish households have access to some of the cheapest mortgages in Europe, with interest rates below both Euribor and long-term government bond yields.
AEB, CECA y UNACC proponen medidas para aumentar la capacidad de financiación de la banca en más de 2 billones de euros en la eurozona, de los que más de 250.000 millones corresponderían a España, reforzando la inversión y la financiación de la economía.
According to the IEE, Spain's business tax burden exceeds the European Union average, both as a share of total tax revenues and as a percentage of GDP.
Según Boston Consulting Group, la nueva regulación posterior a la crisis financiera global (GFC) reforzó la resiliencia del sector, pero institucionalizó un sesgo orientado a eliminar cualquier riesgo en detrimento del crecimiento económico.
AEB, CECA and UNACC propose measures to increase banks' lending capacity by more than €2 trillion in the euro area, including over €250 billion in Spain, providing additional resources to strengthen banks and finance new investment.
Según Ramón Casilda el acuerdo UE Mercosur permitirá un ahorro arancelario de aproximadamente 4.000 millones de euros anuales, una cifra muy superior a lo esperado en los acuerdos con Canadá y Japón.
According to Boston Consulting Group, regulation brought in after the GFC strengthened the financial sector’s resilience but institutionalized bias towards removing all risk over economic growth.
Según el economista José Carlos Diez, la banca española tiene un exceso de depósitos y liquidez disponible para atender la demanda de crédito de empresas y familias, y además lo hace con los tipos más bajos de Europa, según el BCE.
According to Ramón Casilda, the EU–Mercosur agreement will generate annual tariff savings of around €4 billion, which is significantly higher than the savings expected under the agreements with Canada and Japan.
Según CEPS, la complejidad regulatoria y supervisora de la UE supone un freno estructural a la integración, inversión y profundidad del mercado, con costes que recaen especialmente en pequeñas empresas nuevos entrantes y modelos de negocio transfronterizos.
Economist José Carlos Díez notes that Spain’s banking sector has an excess of deposits and sufficient liquidity to meet the credit demand of companies and households, and does so at the lowest interest rates in Europe, according to the ECB.
Según el BCE, un sistema de pagos eficiente, seguro e integrado reforzaría el papel internacional del euro y aportaría beneficios como menores costes de financiación, menor exposición a fluctuaciones cambiarias y mayor protección frente a sanciones.
According to CEPS, regulatory and supervisory complexity acts as a structural constraint on integration, investment and market depth, with costs that weigh most heavily on smaller institutions, new entrants and cross-border business models.
Según el IEA, uno de los debates clave en la UE sobre simplificación de la regulación financiera es si incluir explícitamente la competitividad, eficiencia o crecimiento como objetivos de las autoridades regulatorias, siguiendo el modelo del Reino Unido.
According to the ECB, an efficient, secure and integrated payment system would strengthen the international role of the euro and deliver benefits such as lower financing costs, reduced exposure to exchange rate fluctuations and greater protection against sanctions.
Según el Center for the Governance of Change de IE University, unos mercados financieros más profundos e integrados reforzarían el papel global del euro. Esto requiere, entre otros elementos, sistemas de pago resilientes e interoperables y completar la unión bancaria.
According to the IEA one key debate in the EU on financial regulation simplification is whether to explicitly include competitiveness, efficiency or contribution to growth as objectives of the regulatory agencies, following the UK example.
Alianzas banca–crédito privado: según Oliver Wyman, los ganadores serán quienes combinen la disciplina de análisis y estructuración bancaria, su capacidad de distribución y acceso a clientes, con el apetito del capital privado por riesgo ilíquido y de largo plazo.
According to IE University’s Center for the Governance of Change, deeper and more integrated financial markets would strengthen the euro’s global role. This requires, among other elements, resilient and interoperable payment systems and completing the banking union.
Partnerships between banks and private credit: The winners will be those that combine bank underwriting discipline, distribution, and customer access with private capital’s appetite for long-dated, illiquid risk, according to Oliver Wyman.