Regulation / banks

More power for the headquarters

The new EU aid fund – or thMore power for the headquarterse new Recovery and Resilience Facility (RRF), as it was called in the summit’s final document – is to amount to 750 billion euros as proposed by the EU Commission. Over the next three years, the fund will provide EUR 390 billion in grants and EUR 360 billion in loans to member states. To finance this programme, the EU Commission will be authorised to issue its own bonds on behalf of the EU and place them on the capital market. This gives the EU the opportunity for the first time to refinance itself by raising its own loans on the capital market. The debt service for the new EU bonds will then be handled by the EU budget, which in future will also have its own tax revenues: From 2021 a tax on disposable plastics is to be introduced,…

Corona crisis burdens lending business of banks in the euro zone

The corona crisis continues to dominate the lending business of banks in the euro area. Whereas in the April survey of the ECB the banks were still expecting a strong increase in demand for corporate loans and a significant decline in private real estate loans in the coming months, the picture in the current survey has returned to normal: Now there is only a small majority who expect a continued rise in demand for corporate loans and the banks are now slightly optimistic about real estate loans. In fact, as a result of the crisis, companies have recently been increasingly asking for aid loans to counter liquidity bottlenecks caused by lockdowns and production stops. Especially loans with medium terms were in demand. At the end of May, this segment recorded a remarkable growth of 15.5 per cent. On the other hand, the pessimism in housing construction loans did not prove…

The end of interest?

Interest rates existed long before Christ’s birth, presumably since people systematically managed their economies and traded. Today it seems as if this millennia-old history of interest rates has come to an end. Interest is being buried by the central banks. For example, the average key interest rate in the G10 countries is currently just 0.05 percent. In many cases, we are currently even dealing with negative interest rates – something that until recently economists thought was only a theoretical construct. How did this state of emergency come about, and how long will it last? Zero interest rates are just the end point of a downward trend that has been going on since the 1980s. In turn, this is based on a prolonged downward trend in inflation rates, which can be observed quite synchronously in most countries. There is a whole range of explanations for falling inflation rates – for example,…

Corona crisis dominates the development of lending business in the euro zone

Lending dynamics in the euro area continued to strengthen in April. This is shown by figures published today by the ECB in connection with monetary developments. According to these figures, the annual growth rate of total lending to euro area residents rose to 4.9 percent. The sharp increase is mainly due to the consequences of the Corona crisis and the support measures taken and is being felt differently by borrowers: While the growth in bank debt of private households slowed down, it accelerated for companies from 5.5 percent in March to an impressive 6.6 percent in April. The dynamics of public sector lending were even stronger. The crisis represents a major challenge for the banking industry. This applies not only to the organisational effort in connection with the aid loans. There are also the massive shifts in demand for credit: while short- to medium-term loans to bridge the crisis are…

EUR-USD: Caught between two fronts

The Corona crisis has triggered extreme turbulence on the international financial markets. Particularly in March, some dramatic price movements were observed. The „risk-off“ sentiment pulled stock markets into sheer bottomless pits, while aggressive spread widening dominated the picture on the credit markets. The situation on the currency markets is somewhat more complex. Here, too, there are, of course, traditional risk-off patterns – these have recently been observed above all among emerging market currencies, which have suffered severe losses. However, currencies are by definition always a relative consideration: it is not enough to say that the corona crisis will result in massive economic losses for all countries. It is the task of a foreign exchange investor to assess which countries are more or less affected than the rest. How difficult the market has found it to weigh up the various economic perspectives and to assess which currencies can be considered safe…

Is a European Bad Bank coming?

The Financial Times reported on Sunday that high-level talks had taken place between representatives of the ECB and the EU Commission on the possible creation of a bad bank for the eurozone. The bad bank could take over billions of dollars worth of non-performing loans (NPLs) from banks, thereby cleaning up their balance sheets. It appears to be a matter of NPLs that still originate from the financial crisis of 2008/09. The idea of a bad bank to relieve banks of NPLs is not new. Ireland, Germany and Spain, for example, founded liquidation companies in the wake of the financial and European sovereign debt crisis and used them to reduce non-strategic assets and NPLs. A European bad bank was also examined in detail at the beginning of 2017 as part of a possible solution to the high NPL portfolio on behalf of the EU Commission. The establishment of national or…

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