PARIS — Europe may have dodged the worst of the banking crisis, but regulators at the POLITICO Finance Summit warned that now is not the time for complacency.
One of the conference’s prominent speakers, Bank of Greece Governor Yannis Stournaras, warned against raising interest rates too quickly following the collapse of Credit Suisse and California-based lender Silicon Valley Bank.
“A financial crisis can spread very quickly like a fire in the hole, so we have to be careful – it makes me feel like we should be more careful than before,” he said at the event. Thursday in Paris. “Inflation remains a problem and is well above the ECB’s target” of 2%, even if “it is falling”.
He used a quote from Aristotle to get his point across on the financial system: The whole is sometimes greater than the sum of the parts.
Minutes before Stournaras took the stage, the Swiss National Bank raised interest rates by half a percentage point to 1.5%. Later in the day, the Bank of England announced a quarter-point hike. Central banks appear to be prioritizing price stability over the risk of further financial turmoil.
But the fear that higher interest rates could stir up further troubles remains in the banking sector. Until now, it had mainly benefited from the increase in margins and profitability.
For his part, the President of the European Banking Authority, José Manuel Campa, reminded the audience in France that higher interest rates “were not necessarily good for banks as a whole” and that this depended on the specifics of the business model and the ability to reprice assets.
Due to the confusing and unexpected manner in which the Swiss authorities resolved the Credit Suisse crisis and merged it with its rival UBS, financing costs across the sector are certain to increase, which will increase tensions in the banking system.
“As long as this process of transition [to a higher interest rate environment] is not finished, I think we have to digest how this is integrated into the current system with policies,” Campa said.
For now, the EU has strong bank guarantees in place to protect its lenders against the prospect of another crisis, but additional rules will help and are imminent.
“The Commission will do this in the second quarter of this year,” said Paolo Gentiloni, EU Economics Commissioner, referring to the review of crisis management and deposit insurance, which was removed from the agenda. agenda before unrest breaks out.
Even the UK has been seen to scale back its ambitions to relaunch the City of London as a center for regulatory arbitrage in the wake of the crisis, with UK economy minister Andrew Griffith using the finance summit to point out that the country was now ready to commit to a Memorandum of Understanding on Financial Regulation with the EU.
“Our ambition, our commitment to the highest quality standards in regulation is completely intact,” Griffith said.
Mairead McGuinness, the EU’s financial services chief, summed up the mood by saying the economic world had changed, introducing risks into the system.
“What we need is to be vigilant and not to be complacent,” she said.