Monetary policy should not be designed for banks, BNP Paribas chairman says - CNBC
- European banking chiefs have long bemoaned persistent negative interest rates as placing a burdensome squeeze on profits, but BNP Paribas Chairman Jean Lemierre said monetary policy “shouldn’t be designed for banks.”
- Negative interest rates, such as in Europe, penalize the banks for holding cash deposits at central banks. The current ECB deposit rate is -0.5%, the lowest on record.
In an era of negative interest rates in Europe, monetary policy should not be geared towards appeasing the banking sector, BNP Paribas Chairman Jean Lemierre has said.
Speaking to CNBC’s Annette Weisbach at the BNP Conference in London on Thursday, Lemierre said the ECB (European Central Bank) was moving in the right direction with its latest rate cut and substantial bond buying package, but “can’t be alone” in efforts to stimulate the European economy.
European banking chiefs have long bemoaned long-term low and negative interest rates as placing a burdensome squeeze on lenders’ profits, but Lemierre insisted it is the role of banks to adapt to a changing monetary environment.
“It is not easy, but our job is to adapt and monetary policy shouldn’t be designed for banks,” Lemierre said, adding that lenders should have the “appropriate business model in this environment by product and by region.”
“We need to reduce costs and we need to move more digital,” he suggested. “The banking sector should not be a toll on the economy, but a support to the economy.”
Monetary policy shouldn’t be designed for banks, BNP Paribas chairman says
European banks have struggled for years to achieve profitability against persistent low rates, and fears have been raised over the ability of some large institutions to survive if rates remain negative.
Rising rates are good for banks since it allows them to lend out money to investors at a profitable rate of interest. Lower interest rates restrict a bank’s ability to make profits, thus adding pressure on margins.
Negative interest rates, such as in Europe, penalize the banks for holding cash deposits at central banks. The current ECB deposit rate is -0.5%, the lowest on record.
However, Lemierre argued that the key to survival for European banks was “diversification.”
“You need many engines. If you have one engine and one business model you are stuck in the monetary policy. You need to be able to cross sell within a market and across the world,” Lemierre said.
“If you are able to do this - it is not easy, it is a lot of work, a lot of adaptation - but you can try to fly at the normal altitude.”
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BNP Paribas recently received the necessary regulatory approval to take on Deutsche Bank’s equities trading business, and Lemierre highlighted this as an example of how banks can work together to adapt, suggesting such deals would be “good for Europe.”
Speaking at the BNP Conference Thursday, ECB Vice-President Luis de Guindos echoed Lemierre’s comments, according to Reuters, by suggesting that the low profitability of European banks was structural, rather than a consequence of negative interest rates.