independent

Friday 18 April 2014

ECB rates not always passed on to borrowers – Honohan

Interest rates set in Frankfurt are no longer reliably transmitted to business borrowers and consumers across the euro area, the governor of the Central Bank has admitted.

Fears that one or more countries could drop out of the euro has damaged the transition mechanism by making markets more volatile and less predictable, he said.

"The emergence of redenomination risk in market perceptions and its disruptive influence have generated undesired and damaging yield volatility," Patrick Honohan said in speech to the David Hume Institute in Edinburgh last night.

"Additional corrective action, as recently announced, is clearly necessary."

Before the euro crisis "there was no great difficulty" in ensuring that the interest rate levels could be transmitted by market forces across the the euro area.

"That can no longer be taken for granted," he said.

In his prepared speech, Mr Honohan also warned that there were conflicting expectations of what might be achieved by the planned European Banking Union.

The plan should lead to more peace of mind for ordinary people about the safety of their bank deposits, but could not completely end the risk banks could be hit by "runs" – especially by larger customers pulling out their cash, he admitted.

"Greater private sector involvement in burden-sharing of future banking failures is envisaged, and if the single supervisory mechanism is sufficiently proactive and prompt, then it will not use substantial public funds," he said.

Irish Independent

Also in this Section

Classifieds

CarsIreland

Independent Shopping.ie

Meet, chat and connect with
singles in your area

Independent Shopping.ie

Meet Singles Now

Findajob

Apps

Now available on

Top Stories

Most Read

Independent Gallery

Your photos

Send us your weather photos promo

Celebrity News