ECB’s Kazāks: Vital That Banks Take Calculated Risks and Not Just Avoid Risk

2 October 2024

By David Barwick – RIGA (Econostream) – European Central Bank Governing Council member Mārtiņš Kazāks on Wednesday said that economic growth required risk-taking on the part of banks.

During a panel discussion at the annual conference of Latvijas Banka, which he heads, Kazāks said, ‘In addition to completion of the Capital Markets Union and the Banking Union, there is one additional key factor that needs to change and it is likely to prove to be the most difficult – our mentality.’

Households in Europe, though less wealthy than those in the US, had clearly higher savings rates, he said. The difference in wealth was mainly because of lower returns on the financial assets of European households, he said.

‘In capital markets, returns go hand-in-hand with risk’, he said. ‘In Europe, we are much more risk averse than our American peers. We invest in conservative financial instruments such as bank deposits or government debt securities whereas Americans are more enterprising and buy riskier, higher-yield financial assets such as equity.’

‘… if we want to reignite economic growth and finance our fair share of the EU’s future investment requirements, it is vital that that banks take calculated risks, instead of avoiding risk’, he said.