Friday 18 October 2019

Banking supervisor says eurozone banks are not borrowing fast enough

European Central Bank (ECB) supervisory chief Andrea Enria. Photo: AFP/Getty Images
European Central Bank (ECB) supervisory chief Andrea Enria. Photo: AFP/Getty Images

The European Central Bank's (ECB) chief supervisor expressed concern yesterday that banks were not taking full advantage of favourable markets to issue more debt, especially the type that can be used to soak up losses.

Speaking at the analysis forum in Milan, Andrea Enria warned that banks may be caught unprepared when the ecb starts unwinding its ultra-loose monetary policy.

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"Market conditions are now very favourable ... Banks are not paying sufficient attention to this," Mr Enria said. "To see that banks are not yet issuing massively worries me a little."

Under rules introduced after the 2008/09 financial crisis to avoid a repeat of costly bank bailouts, lenders are being required to issue debt that can be written down in the event of losses.

Mr Enria said last year's spike in risk premiums on Italian assets was a stark reminder that market conditions could change suddenly. Italian banks were shut out of funding markets after an anti-european government came to power, reigniting euro break-up fears and driving up Rome's borrowing costs.

"That should teach banks that market windows must be rapidly seized," he said.

On the possibility of scrapping the risk-free status enjoyed by banks' government bond holdings, Mr Enria said there was "little desire on global tables to push forward".

At the European level, he said, discussions should go hand-in-hand with those on the creation of safe eurozone assets.

The head of eurozone finance ministers is seeking to revive talks on a plan to pool the debt of the bloc's countries, in a bid to reduce the shortage of triple-A rated bonds in the area.

The plan aims to overcome opposition to the idea of a eurozone safe asset by offering reluctant states the prospect of making government bond holdings more expensive for banks - thus limiting their exposure.

Reuters

Irish Independent

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