20180802-NATIXIS-Risk_aversion_is_bad_for_euro-zone_banks_5页_727kb

Flash Economics Summary

Core Content

The document titled "Flash Economics" dated 02 August 2018 discusses the adverse effects of increased risk aversion on euro-zone banks, focusing on the impact on their profitability and financial market reactions.

Main Points

1. Marked Fall in Share Prices of Euro-Zone Banks

• Risk perception in the euro zone began to rise significantly in March 2018, due to protectionism, geopolitical tensions, and political tensions.
• This led to a marked decline in share prices of euro-zone banks, as shown in Charts 1A and B.
• The decline reflects the negative impact of risk aversion on bank profitability.

2. Why High Risk Aversion is Bad for Euro-Zone Banks

• Flattening of the yield curve: High risk aversion leads to lower long-term interest rates, which reduces the spread between short-term and long-term rates. This is shown in Charts 2A and B.
• Rising risk premia on bonds: Banks pay higher premia on their bonds, increasing their funding costs. This is illustrated in Charts 3A and B.
• Negative interest rates on excess reserves: High risk aversion may prolong the period of negative interest rates on banks' deposits at the ECB, acting as a tax on excess reserves. This is depicted in Charts 4A and B.

3. Procyclical Financial Market Reaction

• The decline in bank profitability due to risk aversion may lead to reduced credit supply, which could amplify economic downturns.
• This procyclical effect means that financial market reactions can exacerbate economic cycles, rather than cushion them.

Key Information

• Risk aversion negatively affects euro-zone banks by:
  • Flattening the yield curve
  • Increasing risk premia on bonds
  • Prolonging negative interest rates on excess reserves
• The decline in share prices is a direct result of increased risk perception.
• The procyclical nature of the reaction means that it may worsen economic conditions by reducing credit availability.
• The document is a non-personalized investment recommendation and is intended for professional and qualified investors only.
• It is not a financial analysis and has not been prepared in accordance with legal requirements for independent investment research.
• The information is based on public data and may be subject to change without notice.

Disclaimer Highlights

• The document is strictly confidential and not to be disclosed to third parties without written consent.
• No liability is accepted by Natixis for any loss or damage arising from the use of the document.
• The statements, assumptions, and forecasts are the personal views of the authors and may differ from those of Natixis or other entities.
• Regulatory compliance is emphasized, with specific authorization and supervision in various jurisdictions.
• The document is not an offer or solicitation for any investment and should not be relied upon as investment advice.

Conclusion

• Increased risk aversion in the euro zone has led to a decline in bank profitability and share prices.
• This financial market reaction is logical but procyclical, potentially amplifying economic downturns.
• The document serves as an informational guide for professional investors and does not constitute personalized investment recommendations.