The European Central Bank remains ready to support euro zone banks with loans if needed, ECB President Christine Lagarde told MEPs, as she reiterated earlier assurances after the Swiss-brokered rescue of Credit Suisse, but added that the banks were “resilient”.
Europe’s bank shares fought back from an early slump on Monday and a cross-asset scramble for safety looked to have eased.
Lagarde told an EU Parliament committee that euro area banks were “resilient, with strong capital and liquidity positions” but said the central bank was ready to step in if necessary.
“Our policy toolkit is fully equipped to provide liquidity support to the euro area financial system, if needed, and to preserve the smooth transmission of monetary policy,” she said.
Lagarde welcomed “the swift action and the decisions taken by the Swiss authorities”, which orchestrated Credit Suisse’s takeover by rival UBS.
“They are instrumental for restoring orderly market conditions and ensuring financial stability,” she said.
MEPs focussed their questions on monetary policy tightening in light of the high inflation and the concerns surrounding the global banking sector as a result of problems encountered by Silicon Valley Bank and Credit Suisse. Some also asked whether the ECB’s monetary tightening to curb inflation risked accentuating the instability in the financial sector and if, as a result, whether monetary tightening could need to be put on hold temporarily.
Ms Lagarde said that there was “no trade-off between price stability and financial stability”, arguing that the ECB had separate tools to deal with both.
Concerns were raised about the effects that inflation and trouble in the banking sector would have on the real economy, with MEPs asking for this dimension to be better considered. Others asked whether any new tools needed to be envisioned.
MEPs also asked what other actions should be envisaged other than reducing public expenditures to fight inflation, notably by taxing excessive profits or for the ECB to use other tools other than interest rates hikes. Concerns were also aired about the stubbornly disparate inflation rates between member states and that the ECB needed to do more to support Easter European countries.
via Reuters, EP