20180711-NATIXIS-Euro-zone_banks__Conflicting_orders_and_incentives_5页_587kb

Flash Economics Summary

Core Content

The document discusses the challenges faced by euro-zone banks due to conflicting policy signals and regulatory pressures. It highlights the tension between monetary policy that encourages lending and macroprudential measures that aim to control credit growth. Additionally, it addresses the issue of low profitability among euro-zone banks, which is attributed to both monetary policy and regulatory frameworks.

Main Conflicts

1. Lending Policy Conflict

• Monetary Policy: The European Central Bank (ECB) promotes lending by maintaining very low interest rates, which are intended to stimulate economic activity and inflation.

• Macroprudential Concerns: Institutions like the Bank for International Settlements (BIS) and the Bank of France are concerned about excessive credit growth and implement restrictive policies, such as increasing the counter-cyclical capital cushion.

• Charts Referenced:

  • Chart 1A: Shows the relationship between nominal GDP, the euro repo rate, and the interest rate on 10-year government bonds.
  • Chart 1B: Indicates the interest rate on fixed-rate loans.
  • Chart 2: Reflects the growth rate of loans to households and companies.

2. Profitability Conflict

• Low Profitability: Euro-zone banks are currently experiencing low profitability and return on equity (RoE), which is seen as a risk to their stability and value creation.

• Reasons for Low Profitability:

  • Monetary Policy: Very low interest rates and negative interest rates on excess reserves (NIRP) reduce income from lending.
  • Regulatory Framework: High liquidity requirements force banks to hold large portfolios of low-yielding government bonds.

• Charts Referenced:

  • Chart 3A: Displays the profitability of euro-zone banks as a percentage of nominal GDP.
  • Chart 3B: Shows the return on equity (RoE) of euro-zone banks.
  • Chart 4: Illustrates the interest rate on banks' deposits at the central bank and their reserves.
  • Chart 5: Reflects the proportion of outstanding government bonds held by banks relative to nominal GDP.

Key Information

• ECB's Role: Encourages lending through low interest rates and NIRP.
• BIS and Bank of France: Express concerns over credit growth and advocate for more restrictive policies.
• Profitability Concerns: Low profitability is a result of both monetary and regulatory factors, and is seen as a threat to bank stability.
• Regulatory Oversight: Natixis is supervised and regulated in various jurisdictions, including the ECB, ACPR, AMF, FCA, and others, depending on the country.

Conclusion

Euro-zone banks are caught between conflicting policy directions: one promoting lending and another limiting it, and one seeking to improve profitability while the other constraints it. A clear and consistent message from monetary and regulatory authorities would be beneficial to help banks navigate these tensions effectively.

Disclaimer

• The document is intended for professional and qualified investors only.
• It is confidential and must not be disclosed to third parties without prior consent.
• It is not a personalized investment recommendation and does not constitute an offer or solicitation to buy or sell any financial instruments.
• Natixis makes no guarantees regarding the accuracy or completeness of the information and does not accept liability for any reliance on it.
• The views expressed are those of the authors and do not necessarily reflect the views of Natixis or its affiliates.