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ECB Encourages Banks to Diversify Revenue Pool on Low Rates 

March 2, 2016

Jana Randow, Bloomberg Business

Banks struggling to make a profit in an environment of low interest rates should diversify their revenue pool, European Central Bank Executive Board member Sabine Lautenschlaeger said.

“It’s not my task to find a viable business model for each and every bank,” but “having a diversified revenue pool is always very good,” she said in an interview in New York late Tuesday. “You can see that banks are increasing their fee income right now, that they change their business model to shorter maturities when they lend in order to be able to change faster when the interest-rate environment changes again.”

The ECB, which directly supervises the largest banking groups in the euro area, has made profitability achief priority for 2016 after financial institutions ventured into riskier markets in search for revenue amid weak economic growth and a prolonged period of low interest rates.

Lautenschlaeger declined to comment on monetary policy. The Governing Council is widely expected to cut the deposit rate further below zero next week to bolster an inflation rate that hasn’t been in line with the ECB’s goal in three years.

Lautenschlaeger, who is the vice chair of the ECB’s bank supervision arm, said that as long as changes in banks’ risk taking are supported by adequate risk management, capitalization and liquidity, “there’s no problem with it.”

“Banking business is taking risks,” said Lautenschlaeger. “It’s not about, as a supervisor, not allowing banks to take risks. But they’re supposed to take risks which they can identify, measure and manage adequately.” Read more

 

 
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