Regulation / banks

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…

FOMC: Fed ensures liquidity supply

The clear message from the US Federal Reserve last night is that the current interest rate level is appropriate. The current monetary policy stance should strengthen economic growth and support a return to the 2% inflation target. Against this background, the Fed’s Monetary Policy Committee left the key rate corridor unchanged at 1.5% to 1.75% at its meeting yesterday. The key rate decision was taken unanimously. This had been unanimously expected by market participants. Despite the unchanged level of key rates, other important monetary policy decisions were taken. For example, the interest rate for excess reserves (Interest on Excess Reserves IOER) was raised by five basis points as expected. This adjustment is primarily to be understood as a technical measure to ensure that the IOER and the effective Fed funds rate are in the middle of the targeted interest rate corridor. It was also announced that repo transactions would continue…

Industrial economy slows down growth of corporate loans in Germany

The economic problems in parts of German industry are increasingly reflected in the banks‘ lending business. As the results of the latest ECB Bank Lending Survey in Germany show, banks tightened their lending conditions for companies in the final quarter of 2019, for example by widening margins. Although the demand for credit from corporate customers continued to rise overall, this was not the case in the first quarter of 2019. However, growth was driven by small and medium-sized enterprises, while demand for loans from large companies actually declined. For the coming months, a clear majority of banks expect demand for loans from corporate customers to shrink. Compared to the October survey, the share of pessimistic banks has even increased, especially with regard to large companies. Even if no further tightening or even loosening of lending guidelines is planned for the time being, the growth of corporate loans on banks‘ books…

Lagarde is in no hurry

The 500th council meeting exactly five years after the announcement of the QE program would have been an exciting event. The fact that there were no new announcements on the ECB’s current monetary policy today was not surprising. On the one hand, the economic picture with decreasing downside risks is developing more or less as expected by the ECB. Accordingly, there was no need to change course. An interesting statement regarding indications as to whether Mrs Lagarde prefers a hawkish or dovish course was the brooch she wore today – an owl! On the other hand, in view of the strategic review of monetary policy that is now under way, the ECB will not necessarily be willing to make adjustments if it does not have to. Why should it, when in a year’s time it may have a different approach. As far as the strategic review of monetary policy is…

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