Regulation / banks

Is there a future for European banks?

The weakness of the European banking sector appears to be centering on Germany at the moment. Last week, two of our banks stood in the focus of market happenings. What must happen for the situation in the European banking sector to stabilize and improvement to become possible in the medium term? Huge upheavals were sparked off at Deutsche Bank when the US Ministry of Justice announced that the bank could face a 14 billion dollar fine. Commerzbank has announced yet another restructuring in order to strengthen its profitability. But the burdens on European banks are not merely confined to Germany. All EU countries are affected by this. Three factors are essentially responsible for the burdens facing European banks – low interest rates, regulatory requirements and the new rivals, known as the FinTechs. In Germany, the burdens are compounded by the existence of too many banks. This can be attributed to…

Bank Lending Survey signals that lending is growing – How successful is ECB policy really?

As can be seen from the ECB’s July Euro Area Bank Lending Survey, the banks in the Euro area still expect increasing credit demand. Although the number of more optimistic banks has shrunk somewhat compared to April, they are nevertheless still clearly in the majority. Above all, the banks take a positive view of credit demand from enterprises and households. Nor do they plan to tighten their credit standards. That sounds good. So is there hope that the upturn in bank lending that is gradually emerging will pick up momentum and stimulate investment in the economy? Ultimately, this is what the ECB’s very expansionary monetary policy aims to achieve. A closer look at the statistics shows that the inundation of very cheap central bank funds has not been very efficient so far: while the volume of loans granted by commercial banks “to Euro area non-financial corporations” grew a considerable 3.1…

Crisis on the Italian banking market and the consequences for Europe

Since the Brexit decision, the Italian banking sector has come under enormous pressure once again. In particular the share prices of domestic banks have recorded palpable losses, but risk premiums on bank bonds have also widened. However, multiple reports of the great efforts being undertaken by the Italian government to inject state aid into the domestic banking sector have caused some of the spreads to narrow again. The Italian government’s first request for a bail-in (i.e. capital aid without forcing bond creditors to participate in losses) was rejected by the EU Commission with the expected reference to the ban on state aid. The Italian government quickly denied any accusations that it would support its crisis-stricken banks with public funds without the approval of the EU Commission. Nor have the other rumours and press reports that the banking market might be salvaged through state or private finance been backed by further…

Is the Mortgage Credit Directive stifling the property lending business for German banks?

The European Mortgage Credit Directive is intended to provide better protection for bank customers against poor advice. The law which came into force on 21 March to implement the Directive in Germany has however triggered considerable uncertainty. A majority of banks who participated in the Bank Lending Survey already announced in January that they were tightening their guidelines for private mortgage loans. In the April survey – shortly after the rules were adopted – the proportion of banks planning to operate on a more restrictive basis had risen to more than 34 per cent. This is the highest level since the survey began 14 years ago. Under the new rules, a mortgage loan customer is only regarded as credit worthy if they are likely to be able to repay the loan in full. When monitoring creditworthiness, the bank may not rely mainly on the property value or an expected increase…

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