Eurozone banks need to watch their funding sources or risk being “surprised” by rising interest rates, said tuesday Andrea Enriatop banking supervisor of the European Central Bank.
In presenting the ECB’s annual report on banking supervision, Enria stated that euro area banks are soundbut warned that the strong Rising borrowing costs in the last year mean banks can no longer rely on cheap financing and in rising financial markets.
“Rising interest rates and quantitative tightening force banks to focus more on liquidity and funding risksEnria said in a statement that the ECB said was written in February, before the recent turmoil in the global banking system. “There is a risk that banks will be caught off guard”he warned, adding that there is a possibility that banks will see their net worth is affected by the increase in borrowing costs.
In a similar sense, the head of the US Treasury referred, Yanet Yellen, who clarified that the banking system of that country is stabilizing thanks to the measures of the regulators, although he anticipated that more measures may have to be taken if the withdrawals of deposits from regional banks are sustained.
In extracts from statements prepared for a conference before the American Bankers AssociationYellen said that the measures taken by the government in recent days to protect deposits uninsured at two failing banks and creating new Federal Reserve liquidity facilities demonstrated a “determined commitment to take the necessary steps to ensure that depositors’ savings and the banking system remain safe.
More than a week after the Federal Deposit Insurance Corporation (FDIC) closed bankruptcies Silicon Valley Bank and SignatureBankYellen will say that the “decisive and forceful” actions were strengthening public confidence in the banking system and protecting the American economy.
“The measures we took were not focused on helping specific banks or classes of banks. Our intervention was necessary to protect the American banking system in general.”Yellen said in the statements released by the Treasury. “And similar actions could be justified if smaller institutions experience deposit withdrawals that pose contagion risk.”
The guarantees for the uninsured deposits in banks with specific problems would require Yellen, the president Joe Biden and the Fed “supermajorities” and the FDIC board determine that the entity qualifies for a “systemic risk exception,” steps taken in the SVB and Signature cases.
The decision taken last week by the big banks to deposit 30,000 million dollars in the First Republic Bank “It represents a vote of confidence in our banking system,” Yellen added.
He also said that it is important maintain a “dynamic and diverse banking system” to support the American economy, with large, medium and small banks all playing a role in supporting households, small businesses and the growing competition in financial services.
regulations
The impact of the rise in interest rates on bank equity was one of the main problems of BLSthat had invested its clients’ deposits without hedging against the risk of rising rates, ultimately suffering a bank collapse.
“(Banks) should adopt sound and prudent practices liability management modeling tools to capture changes in consumer preferences and behavior when interest rate regimes change,” Enria said. “They should also carefully monitor the risks inherent in hedging derivatives.”
Credit Suisse it also suffered massive deposit outflows, especially from its international business, following a series of corruption scandals that led its main creditor, the Saudi National Bank, to refuse to back the bank’s losses.
The big banks in the euro zone had a leverage ratio – a broad indicator of its strength in which capital is measured as a percentage of total assets – from 5.2% on average in September 2022, according to the report.
This week it will be known whether or not the Federal Reserve will increase the interest rate. It was projected that it would do so at 50 percentage points, but after the financial crisis broke out, the expectation was mainly focused on 25 points.
Source: Ambito
