ECB chief supervisor urges banks to seize the moment on debt

ECB chief supervisor urges banks to seize the moment on debt

Reuters  | Sep 17, 2019 18:16

ECB chief supervisor urges banks to seize the moment on debt

By Valentina Za

MILAN (Reuters) - The European Central Bank's chief supervisor expressed concern on Tuesday that European banks were not taking full advantage of favourable markets to issue more debt, especially the type that can be used to soak up losses.

Speaking at the Analysis forum in Milan, Andrea Enria warned that banks may be caught unprepared when the ECB starts unwinding its ultra-loose monetary policy.

"Market conditions are now very favourable ... banks are not paying sufficient attention to this," Enria said. "To see that banks are not yet issuing massively worries me a little."

Under rules introduced after the 2008/09 financial crisis to avoid a repeat of costly bank bailouts, lenders are being required to issue debt that can be written down in the event of losses.

Enria said last year's spike in risk premiums on Italian assets was a stark reminder that market conditions could change suddenly.

Italian banks were shut out of funding markets after an anti-European government came to power, reigniting euro break-up fears and driving up Rome's borrowing costs.

"That should teach banks that market windows must be rapidly seized," Enria said.

Turning to the global debate over the possibility of scrapping the risk-free status enjoyed by banks' government bond holdings, Enria said there was "little desire on global tables to push forward."

At the European level, he said discussions should go hand-in-hand with those on the creation of safe euro zone assets.

"I believe the two things should move in parallel," he said.

The head of euro zone finance ministers is seeking to revive talks on a plan to pool the debt of the bloc's countries, in a bid to reduce the shortage of triple-A rated bonds in the area.

The plan aims to overcome opposition to the idea of a euro zone safe asset by offering reluctant states the prospect of making government bond holdings more expensive for banks - thus limiting their exposure.

Large holdings of their own state's debt have made lenders in countries such as Italy vulnerable to sovereign woes, in what is known as a "doom loop".

Enria said the key element for supervisors was how banks valued government bonds they held, adding he was not pleased with banks classing government bonds as assets held to maturity to avoid taking the hit from falling market prices.

"We should have stricter rules because banks would be more active in their risk-management if they were forced to value a large portion of their government bonds at market prices," he said.

(Reported by Valentina Za; Editing by Stephen Jewkes and Alex Richardson)

Related News

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Discussion
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (India) English (Canada) English (Australia) English (South Africa) English (Philippines) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 中文 香港 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
NoYes
CancelYes
Saving Changes

+