Thursday 14 November 2019

Europe's banks face tech crunch just as economic slump hits

Germany's nominee to the board of the European Central Bank Isabel Schnabel. Photo: AFP/Getty
Germany's nominee to the board of the European Central Bank Isabel Schnabel. Photo: AFP/Getty
Donal O'Donovan

Donal O'Donovan

Low profitability at European banks just when they need to invest in their digital infrastructure risks triggering a vicious circle of underinvestment and further poor performance, Germany's nominee to the board of the European Central Bank warned yesterday.

Isabel Schnabel's comments came as the International Monetary Fund (IMF) warned Europe to prepare emergency plans to cope with an economic slump.

"Given elevated downside risks, contingency plans should be at the ready for implementation in case these risks materialise, not least because the scope for effective monetary policy action has diminished," the IMF said in its Regional Economic Outlook for Europe.

The report highlighted the dangers from trade protectionism, a chaotic Brexit and geopolitics.

Ms Schnabel, a prominent economist, is set to take Germany's slot on the board of the European Central Bank (ECB). She will succeed Sabine Lautenschlaeger, who resigned amid discord over the ECB's dovish fiscal policy.

Speaking in Berlin yesterday, Ms Schnabel warned that low profitability could end up becoming a financial stability issue for the eurozone. Though she has yet to be formally confirmed for the board seat, Ms Schnabel is the only candidate.

"The situation with European banks is very tense," she told Reuters. "If banks have low profits, then it is hard for them to build up capital, strengthening their resilience. That is a problem for financial stability."

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