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Banks warn of risks of ultra-loose policy 

March 22, 2016

Martin Arnold and Laura Noonan, The Financial Times

European bank chiefs have warned that a new wave of ultra-loose monetary policy could push some institutions into taking greater risks, as they seek to protect profit margins.

Speaking in the wake of the European Central Bank’s decision this month to push interest rates further into negative territory and to begin buying corporate bonds, the executives said that such moves might, as intended, push banks to lend more — but carried dangers of their own.

Gonzalo Gortázar, chief executive at Spain’s Caixabank, expressed concerns about a build-up of risk in the banking system as a whole.

“In a world of low or negative interest rates, that is a possible consequence; you could see banks taking more risk,” he said.

He added that his own group’s consumer lending was expanding fast — but only to existing clients. More generally, other bankers draw parallels with the dangerous levels of risk that preceded the financial crisis.

Mr Gortázar also said some banks were taking up the ECB’s offer to pay them to borrow money in a new programme known as targeted longer-term operations — or TLTROs — and using the loans to buy riskier assets, such as high-yield corporate debt. Read more

 
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