布鲁盖尔-Excess-liquidity-and-bank-lending-risks-in-the-euro-area_30页_1mb

Summary of "Excess liquidity and bank lending risks in the euro area"

Core Content

This document analyzes the implications of excess liquidity in the euro area and its potential impact on bank lending behavior and financial stability. Excess liquidity is defined as commercial bank deposits held by the Eurosystem minus the minimum reserve requirements. It highlights that while the ECB's monetary policy tools have supported economic growth and the banking sector, they have also led to a significant buildup of excess liquidity, which may influence lending behavior.

Main Points

• Excess Liquidity Levels:
  In September 2018, excess liquidity in the euro area exceeded €1,900 billion, or 17% of GDP. This is a large amount and has been growing since 2015, following the ECB's expanded asset purchase programme (APP).

• Cost of Holding Excess Liquidity:
  The ECB's negative deposit rate of -0.4% imposes a direct annual cost of €7.6 billion on banks holding this liquidity. However, this cost is not the only factor affecting bank profitability, as low interest rates and asset purchases have also reduced the interest rate spread, squeezing profits.

• Monetary Policy Impact:
  While the ECB's negative deposit rate and asset purchases may reduce bank profits, they have also boosted asset prices and improved economic conditions, which in turn can enhance credit quality and profitability. Overall, the impact on bank profitability is positive, according to empirical research.

• Risk Appetite and Lending Behavior:
  The document questions whether excess liquidity leads to riskier lending. It argues that the degree of risk is more important than the mere presence of excess liquidity. Banks may avoid lending to high-risk borrowers, or they may take on more risk to improve profits. However, the overall risk to financial stability remains low.

• Concentration of Excess Liquidity:
  Excess liquidity is highly concentrated in a few countries and banks. Five countries (Germany, France, the Netherlands, Luxembourg, and Finland) account for 80-90% of total excess liquidity. Similarly, a small number of banks hold the majority of this liquidity.

• Distribution and Drivers:
  The concentration of excess liquidity is driven by several factors, including the ECB's asset purchase programmes, regulatory requirements, bank business models, and liquidity management strategies. Banks in lower-rated countries may hold excess liquidity to reinvest in sovereign bonds.

• Global Comparison:
  The euro area's excess liquidity is lower than in Japan and the United States, and somewhat lower than in the UK. The ECB's negative deposit rate and asset purchases have contributed to the rise in excess liquidity, but the level is not exceptional globally.

• Lending Trends and Risk Factors:
  Bank lending growth remains subdued in most euro-area countries, with the exception of Belgium and Slovakia. House price increases have been observed in some countries, but they are not as strong as during previous housing booms, except in Ireland. Tighter credit standards have been implemented in countries with rapid house price growth, suggesting banks are cautious about risk.

• Macroprudential Considerations:
  Macroprudential reports suggest that the overall risk to financial stability is low, but some countries (e.g., Ireland, Latvia, and Finland) have accelerated house price growth that warrants attention.

• Financial Stability Concerns:
  The authors argue that monetary policy tools are not well-suited to promoting financial stability. Excess liquidity may incentivize riskier lending in order to improve profits, but this is not yet evident in the data. However, when excess liquidity is reduced, banks that rely on it for the Liquidity Coverage Ratio (LCR) might face financial stability risks.

Key Information

• Excess Liquidity Definition:
  Excess liquidity is the amount of commercial bank deposits held by the Eurosystem minus the minimum reserve requirements.

• Historical Trends:

  • Before 2008, excess liquidity was close to zero.
  • It peaked at ~€1,000 billion in 2012, then fell to ~€100 billion by mid-2014.
  • It has since increased significantly, surpassing €1,900 billion in September 2018.

• Monetary Policy Impact:

  • The ECB's negative deposit rate and asset purchases have lowered interest rates, reduced net interest income, and incentivized risk-taking.
  • These measures have also boosted asset prices and economic growth, which improve bank profitability through better credit quality.

• Financial Stability Assessment:

  • The overall risk to financial stability is low, but some countries show concerning trends in house price growth.
  • Bank risk-weighted assets are declining or stable, indicating lower riskiness in most countries.
  • Home bias in lending and investment has increased, exposing banks more to domestic risks.

• Policy Implications:

  • Excess liquidity is not a good indicator of increased risk-taking.
  • The winding down of excess liquidity could pose challenges for banks, especially those relying on it to meet regulatory requirements.
  • Macroprudential supervision is crucial to monitor and mitigate risks associated with house price growth and lending behavior.