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Tag Archives: Banks

What impact does the ECB’s quantitative easing policy have on bank profitability?

This Policy Contribution shows that the effect of the ECB’s QE programme on bank profitability has not yet had a dramatically negative effect on bank operations. Quantitative easing (QE) affects banks’ profitability in three main ways. First, as QE drives up bond prices, banks holding such bonds see their balance sheets strengthened. Second, QE reduces long-term yields and thereby reduces term spreads. With this, the lending-deposit ratio spread falls, making it harder for banks to...

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Can public support help Europe build distressed asset markets?

Distressed asset investors can relieve banks of their NPL overhang and offer valuable restructuring expertise, although banks will need to realise a further valuation loss. Regulators could do a lot to support the growth of this market. Over the coming months the European financial sector will need to digest a whole spate of bank restructurings. The sale of distressed loans will be a key element in recovery plans, such as we see in the recently-approved sale of a portfolio of EUR 27...

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Stealing London’s financial crown would bring both benefits and responsibilities

After Brexit, several major cities across the EU27 are looking to take over London's financial activity. While there are plenty of benefits in hosting a major financial centre, it also comes with significant risks and responsibilities. Several major cities across the EU27 (the EU28 minus the UK) are eagerly looking at the financial sector in the City of London. Some are even putting together incentive packages to lure business away from London after Brexit. The potential benefits are...

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What role for the financial markets in Europe?

The European European financial system is too strongly bank-based. How can it be rebalanced to become favourable to growth and employment again? (This paper is only available in French). This paper is published in Revue trimestrielle de l’association d’économie financière, no. 123, October 2016. Please note that this paper is only available in French. An efficient financial system is essential to the good functioning of the economy. The various functions of the financial system...

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An Italian take on banking crisis

The year 2016 has not been good to Italian banks. While resilient to the first wave of financial crisis in 2008, due to their low exposure to US sub-prime products and to the fact that Italy did not have a pre-crisis housing bubble, they have been suffering much from the euro sovereign crisis and the ensuing deteriorating economic conditions. Italian banks were among the worst performers in the 2014 ECB/EBA comprehensive assessment of banks’ balance sheets. Banca Monte dei Paschi di...

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Breaking the vicious circle

Nicolas Véron argues that EU banking union can only be complete if the vast amounts of domestic sovereign debt held by many banks are reduced This op-ed was originally published in the October / November issue of Financial World. The eurozone’s banking union has moved from vision to reality in a short period of time, with the European Central Bank now an established supervisory authority for the area’s large banks. This has already made a big difference to the many national banking...

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A framework for thinking about bad loans

An important guiding principle in resolving non-performing loans (NPLs) should be to ensure that viable debt remains serviced, while non-viable debt gets resolved. We present here a framework to approach the issue. The attempt to address the problem of non-performing loans in the EU should tackle both sides of credit creation at once.  On the demand side, new credit is not picking up as long as the problem of the debt overhang, namely the disincentive of undertaking new investments and...

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The Deutsche Bank Frenzy and what it says about European banks

What’s at stake: The IMF recently published its Fall Global Financial Stability Report, which points to a decrease in short-term risk but building of medium-term ones. At the same time, European market has been nervous last week on the news that Deutsche Bank (Germany’s biggest bank) has been demanded USD14bn by the US Department of Justice to settle allegations that the bank mis-sold mortgage-backed securities before the financial crisis. While reports point to a possible USD5.4bn...

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Fiscal capacity to support large banks

This Policy Contribution outlines a fiscal cost scenario for the recapitalisation of large banks during a severe systemic crisis. During the global financial crisis and subsequent euro-debt crisis, the fiscal resources of some countries appeared to be insufficient to support their banking systems. These countries needed outside support to stabilise their banking systems and thereby their wider economies. This Policy Contribution assesses the potential fiscal costs of...

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Total assets versus risk weighted assets: does it matter for MREL?

As a consequence of the global financial crisis, various initiatives have been taken in different jurisdictions to ensure the future resolvability of banks without massive use of public funds. In Europe, the BRRD introduced the concept of MREL, which is in the process of being defined. This material was originally published in a paper provided at the request of the Committee of Economic and Monetary Affairs of the European Parliament and commissioned by the Directorate-General for...

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