ECB’s de Guindos: Cannot Be Complacent with Banking Sector Resilience

16 May 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos on Thursday said that even amid evidence of resilience in the euro area banking sector, it was important to consider potential risks to financial stability.

In a briefing with journalists on the occasion of the release of the ECB’s May 2024 Financial Stability Review, de Guindos said, ‘We cannot be complacent, that’s the message; so far, so good, but we have to look forward. The profitability has started to decline, it has stabilised as we have indicated before in the last quarter of last year. I think that data of the first quarter go in a similar direction and that there are headwinds that the bank industry is going to face over the next months.’

The growing number of loans, rising costs of funding and low growth must be taken into consideration in that scenario, he said.

‘That’s why our recommendation in terms of macroprudential policy is quite clear: try to take advantage of the good profitability in order to reinforce the capital buffers’, he said.

Asked about non-banks, he said that it was clear that they were gaining market share and becoming more relevant, which could affect banks as well.

‘Even though in the case of the banks, the exposure is limited, if there is any accident in the non-bank system, for sure that will have channels that connect this restrain, this tension in the non-bank system to some banks’, he said.

Interconnectedness was a reality in the financial markets and something that needed to be monitored ‘very, very closely’, he said.

Fiscal policy would likely draw more attention in the coming months, he said.

‘I hope that countries will make an effort in terms of fiscal consolidation, simultaneously increasing the investment in different areas: digital, climate, defence’, he said. ‘So I think we will have to square the circle in the near future.