Tuesday 15 October 2019

ECB urged to focus on bank liquidity

Michael Shields and Eva Kuehnen

The European Central Bank is looking for ways to boost banks' lending to SMEs other than just cutting interest rates, ECB policymaker Ewald Nowotny said in an interview with Reuters.

The Austrian member of the ECB's governing council said he did not see any point in cutting interest rates further below their already low levels.

The focus should be on giving banks easier access to liquidity, for example by reviving the asset-backed securities (ABS) market in Europe and making it more attractive for banks to use business loans as collateral at the ECB, he said.

It could help unblock lending to small- and medium-sized enterprises (SMEs), he said.

"One should not overestimate the effects of interest rates at the low level that we have," Mr Nowotny said.

It is the latest sign that the ECB has accepted that traditional rate cuts have failed to get credit flowing to SMEs and is actively looking at alternatives.

ECB policymakers Peter Praet and Christian Noyer said last week the ECB was looking at expanding its policy toolbox to tackle differences in financing conditions across the euro area.

But he made clear the ECB was prepared to keep rates low for some time. Meanwhile, the European regulatory review of the quality of bank assets could throw up questions about how well the lenders are capitalised and how potential shortfalls can be handled, he said.

Supervisors across the European Union will examine the way that top banks classify and value loans and other assets to ensure that the stress tests they conduct do a better job of finding any problems.

The European Banking Authority said this month it will set out guidelines for the review, which will delay the bloc's next round of stress tests until 2014.

(Reuters)

Irish Independent

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