“There will be no Basel 4”. This was assured by the president of the ECB, Mario Draghi, during the quarterly hearing in Brussels before the Economic and Monetary Affairs Committee of the European Parliament. Draghi then decisively denied the rumors circulated in recent days on the possibility that the central community institution would buy the non-performing loans of Italian banks.
“Since December the market sentiment has worsened – continued the Eurotower number one – and the situation has worsened in recent weeks. Against this backdrop, share prices fell significantly and banks were hit the hardest. This slump reflects greater sensitivity to the global economic outlook: most listed banks in the Eurozone have little exposure to commodity-related sectors, but the stock market slump was magnified by the perception that lenders should do more to adapt their business models to a low interest rate environment”.
However, Draghi stressed that “European banks have improved their accounts and decreased their leverage. In the Eurozone, the situation of the banking sector has strengthened in recent years and institutions are now better able to withstand shocks. For significant institutions, the Cet1 increased from 9 to 13%. Furthermore, the quality of banks' capital has improved substantially”, therefore “capital requirements will not be further increased. In 2015, the banks covered by ECB supervision increased their profits compared to 2014, while managing to support the increase in the demand for loans from the economy”.
However, the President of the ECB admitted that "some parts of the banking sector are facing a series of challenges": for example, "some banks have very high NPLs (this is the case in Italy, ed.) but these loans are have already been identified and therefore measures have been envisaged to deal with them and we are in a position to be able to absorb these NPLs in the coming years. The ECB is working with the authorities of the individual countries to ensure that the interventions are also accompanied by a series of measures at the national level".
As for the global economic situation, “the first weeks of this year have shown that the Eurozone is facing major challenges – continued Draghi -. We have seen increased concerns about the outlook for the global economy and the slowdown in emerging economies is the focal point of this uncertainty. The weakening of global demand has contributed to the collapse in the price of oil and other commodities which has weighed heavily on economies that are mainly based on exports of these products”.
The recovery, according to the central banker, “is advancing at a moderate pace, supported by monetary policy and low energy prices. Investment remains low, and the construction sector has not yet recovered. Contributions from all political spheres need to arrive: as far as the board of the ECB is concerned, we will review monetary policy at the beginning of March. We will review the strength of inflation on domestic wage and price inflation and analyze the level of transmission of monetary impulses by banks. If any of these factors pose a negative risk to price stability, we will not hesitate to intervene."
At the same time, however, "it is increasingly evident that national fiscal policies should support the recovery through public investments and the reduction of the tax burden", without forgetting "compliance with the rules of the Stability Pact", which "remains crucial to protect growth prospects".
