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The bank asks that the new liquidity requirements do not interfere with the credits

Date: June 17, 2024 Time: 03:35:11

The near financial crisis experienced in March and which affected both the United States and Europe put the focus on liquidity. In those fateful days of March, the weakness of a banking business model, the loss of confidence and the massive outflow of deposits that ended in a rather aggressive response from the authorities were revealed. In fact, the events of March have led the head of banking supervision of the European Central Bank (ECB), Andrea Enria, to admit the possibility of reviewing liquidity requirements, adopting a stricter stance for some entities in this section. But the new demands must maintain a balance that does not jeopardize the granting of credit. This was defended this Monday by industry experts at the APIE summer courses at the Menéndez Pelayo International University in Santander, sponsored by BBVA.

The planned review would also coincide with the return of a first window of liquidity injections to the ECB through the TLTROS, which could be around 500,000 million euros. In this regard, Fernando Restoy, president of the Financial Stability Institute, explained, during his speech on the first day of the courses of the Association of Economic Information Journalists (APIE), that these bank liquidity requirements can be supported with the in order to maintain the stability of the deposits and avoid any leakage.

To date, the ECB maintains 100% as a minimum requirement for the LCR (liquidity coverage ratio), a percentage that all Spanish banks easily meet, with Banco Santander at 152% and BBVA at 162%, although there are other banks that aim for a metric that is close to 200%. In fact, on the same day on Monday, the president of BBVA, Carlos Torres, relied on the excessive liquidity of the banks, which will gradually drain away, to avoid remunerating fixed-term deposits.

But despite these levels, Enria’s words clearly indicate that there will be an endurance of these demands. However, the Institute for Financial Stability recalls that the economy is supposed to be an intermediary and that this should not “end to credit”. “If we assume that banks have to have more liquidity, we have to start thinking about the balances that have to be drawn,” Restoy assured during his speech. The president of the Institute for Financial Stability believes that the first step is to strengthen supervision.

Rest and has recognized that the regulatory framework of banking supervision in the Old Continent may require more capital or liquidity from entities. In addition, the European deposit protection model is also different. “The protected volume of covered deposits in Europe is lower than in the United States, but the proportion of the rest that is not covered is lower in the United States and hence the differences.” And it is that the massive outflow of deposits from an entity it is already cause for resolution, Restoy insisted.

Another lesson that can be drawn from the March crisis is related to the huge flight of live deposits. “The novelty was the enormous intensity of the outflow of deposits, especially in the case of Credit Suisse,” said the former governor of the Bank of Spain. For Restoy it was a failure on the part of supervision, but he wanted to mark the distance between the US and Europe, considering that “the fall of SVB was due to the fact that it was not subject to international standards”.

In July, stress tests

The March financial crisis occurred in the same year that banks will undergo stress tests, the results of which will be announced in July. For the president of BBVA, these will highlight “the strength and solvency of Spanish banks, which should be extended to European banks.” It should not be forgotten that the search for exercises that really stress only reinforce the solvency of the bank.

And here for the banks, the pandemic has been the great stress exercise since it was shocked that the situation in the financial sector was solid and was part of the solution for the real economy.

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.
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