The vice-president of the European Central Bank (ECB), Luis de Guindos, has asked this Wednesday “a lot of prudence” to the bank in the distribution of dividends, as well as in the levels of capital and liquidity because the future is uncertain and “the circumstances are not going to be easy.” De Guindos has announced that the European economy, even if it does not go into recession, will have moderate growth, underlying inflation remains high, liquidity will be reduced and any “accident” may occur, such as the recent bankruptcy of Silicon Valley Bank (SVB) in the United States. States or the Credit Suisse crisis.
For this reason, during his participation in the closing ceremony of the 18th Banking Meeting, organized by IESE, the vice president of the ECB recommended great prudence to the banks in their actions and assured that, in terms of supervision, the institution will be “very attentive”. Even so, he has marked distances between the situation of European and American banks. The profitability of the sector in the Old Continent, he recalled, improved in 2022, with higher income, dividend payments, CET1 capital levels above 15%, a stable NPL rate and a good liquidity position.
“European banks are weathering the storm well”, but De Guindos has insisted that there is no need to be complacent because financing is becoming more expensive and credit demand is slowing down. At this juncture, De Guindos continues to think that the European Union must fully implement the pending aspects of Basel III, “without the slightest delay”, and complete the banking union, in addition to the fact that the capital market union must be one of the priorities .
Expect more rate hikes
Regarding interest rates, it has made it clear that there will foreseeably be more increases and they thought about the data at any given time, since inflation continues at high levels. “We still have part of the journey to make”, she said, while encouraging the withdrawal of the measures and aid adopted in the different countries to deal with the shock of energy prices. His thesis is that fiscal policy has to be compatible with monetary policy. Regarding the fall of the SVB, although De Guindos rules out that something similar could happen in European banks, he did consider it important to reflect on technology and the scope of social networks to consider how quickly a bank can be “emptied” today , alluding to a possible massive withdrawal of deposits.
And speaking of the development of technology, De Guindos has made it clear that physical money is not going to disappear and continues to be the main means of payment in Europe, which is compatible with exploring the possibility of introducing a digital euro. However, he “has implications for the impact on the European banking system where deposits are key.” Lastly, when asked about the extraordinary tax on banks approved in Spain, the ECB vice-president limited himself to recalling that the general opinion of the central bank is that this type of tax should not affect the solvency of entities or the granting of credit.