ECB’s Visco: Removing Policy Support Early Worse Than ‘Being a Little Bit Too Late’

7 April 2021

By David Barwick – FRANKFURT (Econostream) – A premature withdrawal of policy support would be worse than leaving that support in place a little too long, European Central Bank Governing Council member Ignazio Visco said on Wednesday.

At the press conference following the meeting of G20 finance ministers and central bank governors, Visco, who heads Banca d’Italia, urged a ‘state-contingent and data-driven approach when deciding’ about a withdrawal, which in any case should proceed in a ‘gradual and targeted way in order to minimize long-term financial stability risks.’

The potential stability risks from removing policy support early are ‘significant’ and ‘certainly more costly than being a little bit too late’, he said.

‘As we move forward, obviously … we will be very careful in removing these support measures too early’, he said. However, he made clear, upon their eventual removal ‘there will certainly be an increase in insolvencies.’

Authorities are called on to help ‘viable firms to pass this transition and re-enter operation in good health’, he said. ‘We are monitoring this and this monitoring will certainly lead to a more targeted’ approach, he said, ‘but there will be an increase in NPLs and insolvencies.’

Pointing to the fortification of the banking sector since the last crisis, Visco affirmed that banks now had ‘certainly more ability to absorb these NPLs. So overall, we are cautiously confident that we will overcome this period in a much better way than we have in the past.’