Home / Finance News / Mario Draghi urged commercial banks to cut costs instead of blaming the ECB for their weak earnings
Mario Draghi

Mario Draghi urged commercial banks to cut costs instead of blaming the ECB for their weak earnings

The President of the European Central Bank (ECB) Mario Draghi urged commercial banks to cut their costs instead of blaming the central government’s monetary policy for low profitability.

“There is little evidence that negative rates are undermining the profitability of banks”, said the Governor of the ECB. Instead, in his words, the creditors in the region should consider cutting their operating costs to boost their profits.

The ECB lowered interest rates to negative levels in the summer of 2014. It now implies a rate of -0.4% on part of the creditors’ deposits with the Eurozone central banks. The banks are criticizing politics, complaining that it has affected their ability to make profits, as they can not pass all the costs of politics to their clients.

Mario Draghi also noted the progress that the Single Supervision Mechanism, operating as a subdivision of the ECB, has achieved in unraveling the dangerous relationship between sovereign member states and their banks.

“The credit risk of banks is now determined by the country on which they are based”, said the ECB.

However, additional measures are still needed to ensure that the fate of banks is less tied to the health of the economies on which they are based.

The relationship between the sovereign and the banks is one of the key risks outlined during the Eurozone debt crisis. The banks are willing to invest in the bonds of their own governments. Banks in weaker economies with more sovereign sovereigns also tend to have higher shares of bad loans on their balance sheets. Fighting bad credit, which in part of the banks’ balances, is a top priority that requires joint efforts by regulators, supervisors and national authorities, according to Mario Draghi.

The ECB is being criticized by Italy, including the Italian President of the European Parliament, for entering the regulators’ prerogatives with their latest guidelines on how banks have to deal with new bad loans.

“At the moment, the most important issue is to deal with non-performing loans”, said Mario Draghi. “That is why we need the joint efforts of banks, supervisors, regulators and national authorities to resolve this issue adequately, first and foremost, to create an environment where non-performing loans can be effectively managed and disposed”, added he.

About Viliyana Filipova

Viliyana Filipova is 27 year-old girl from Varna, Bulgaria. She is founder and Chief Editor of Finance Apprise Journal, working also as analyzer on the world finance and commodity markets.

Check Also

US stocks

US stocks kicked off the new week with increases

The US stocks kicked off the new week with increases, as Wall Street continues to …

Leave a Reply

Your email address will not be published. Required fields are marked *