2023-11-13 17:39:36
Inflation has not yet been tamed. According to ECB President Luis de Guindos, inflation could return in the coming months. The reason for this is also base effects, said de Guindos at the Euro Finance Week banking conference in Frankfurt on Monday. “Energy prices remain a major source of uncertainty given heightened geopolitical tensions and the impact of fiscal measures.”
Inken Schönauer
Editor in business, responsible for the financial market.
After numerous interest rate increases in a row, the ECB paused interest rates around two weeks ago. Inflation in the euro zone fell to 2.9 percent in October. In September it was still at 4.3 percent. A year ago an inflation rate of more than 10 percent was reported.
From the ECB Vice President’s point of view, a resilient and well-functioning financial system is essential for monetary policy to have its effect and for the ECB to achieve its target of an inflation rate of 2 percent. For the banking industry, the current uncertain situation means that the regulatory requirements for crisis buffers should not be affected. Authorities should maintain them to ensure they are available should conditions in the banking industry worsen, de Guindos said.
Banks in view
According to Bafin President Mark Branson, banks are being assessed more proactively than before in order to be able to identify risks more quickly. “We have around two dozen institutes in particular in focus here,” Branson said at the conference. There are only a handful of fintechs among them. “Some say we have them in our sights in particular. That’s not the case – they are not over-represented, given the inherent risks of early-stage companies.”
It is important that this assessment is dynamic. In the past two years, more institutes have been added, but others are no longer so important. Why is that so? “It may be that the situation has normalized or there are no longer any suspicions. But it may also be the case that banks have left the market.”
Such exits must be possible, said Branson, who has been at the head of Bafin since August 2021. Branson, who previously headed the Swiss supervisory authority Finma, replaced Felix Hufeld in the summer of 2021 after he was heavily criticized following the bankruptcy of the payment service provider Wirecard. The market will only be healthy if exits from the banking market are possible, said Branson. “In these cases, our job is to minimize the damage to customers and creditors: We try as best we can to enable a quiet exit from the market.”
Deposits are safe
An interesting example in this context is the liquidation of the Russian VTB Bank Europe. Sanctions were imposed on this bank’s parent company immediately after Russia’s invasion of Ukraine. At this point, the bank had deposits of five billion euros, mostly from German retail customers. “We could have sent the bank into insolvency in March 2022 – the damage to the depositors and the security systems would have been correspondingly great.”
Instead, they took control: the bank was sealed off from the Russian parent and its business was shut down step by step. “We’re not quite finished yet, but one thing is already certain: all private depositors have had their money paid out. This was successful support of a very complex case.”
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Bafin sees some catching up to do at some financial institutions in the fight against money laundering. According to the supervisory authority, several companies there had or have “serious deficits”. Bafin has sent a special representative to six institutes on this topic. “As a last resort, we can intervene in an institution’s business, for example by limiting lending or growth.”
Or by issuing bans – for distributions or the servicing of certain customer segments. Such or other measures to improve capital adequacy and liquidity, in the event of organizational deficiencies or specific dangers, have been imposed on 28 institutions since the beginning of 2022. “I want to make it clear: we are reluctant to go that far. We only do it when there are no alternatives left for us.”
In Branson’s opinion, financial institutions will have to prepare for setbacks in commercial real estate: “This will be a market that will remain under pressure for a very long time, which will result in losses for banks.” The residential real estate market, on the other hand, “doesn’t worry him much.”
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