In a marathon three-hour session before the European Parliament’s Committee on Economic and Monetary Affairs, the president of the European Central Bank (ECB), Christine Lagarde, said she thinks about inflation even when she goes to bed at night. “It’s something I don’t forget every night when I go to sleep. I know that employees and small business owners are taking a hard hit from inflation,” she said.
On the other hand, it seems calmer regarding the international banking turmoil, which in its opinion does not have to affect the euro area. The former French minister affirmed that the exposure of European banks to Credit Suisse, which has been saved in extremis with the purchase offer of its Swiss rival UBS, is minimal. So limited that at most we talk about “millions”.
“The Credit Suisse thing has little to do with Europe,” agrees, after hearing his speech, a private bank manager in Geneva, who requests anonymity. “This is rather a manifest case of mismanagement, aggravated by the complete lack of vigilance by the Swiss regulatory authorities. We all knew how delicate his situation was and in the end UBS bought it at a bargain price, under the complicit silence of the country’s competition authorities”, adds this banker.
Regarding the bankruptcy of Silicon Valley Bank (SVB) and the difficulties that various regional banks in the United States are experiencing, the ECB president defended before the MEPs that the regulatory and surveillance system in the euro area makes it very difficult for produce similar cases in Europe. “Only about 14 banks in the United States adopt standards like Basel III, when in Europe we have more than 2,000 entities subject to it,” Lagarde recalled.
According to his analysis, eurozone banks have high capitalization and robust liquidity, above the required levels. In his opinion, then, Europeans can sleep easy (at least in this area).
Under an intense battery of questions from the members of the European Parliament, the highest representative of European monetary policy went back to partly explain the latest decisions to tighten interest rates. She stressed – once again – that her institution is committed to price stability. Hence, “there is still ground to cover” in terms of the increase in the price of money.
Even so, the French woman said that this increase does not have to be incompatible with “financial stability”. In short, higher rates, in his opinion, should not, in principle, be a problem for the banks because if necessary the ECB has options, through other means, to provide them with some type of help.
Lagarde assured that the tensions experienced in the last ten days in the financial markets “are not trivial”, but pointed out that “in any case” the ECB is “fully equipped to provide support in the form of liquidity to the financial system of the euro area if necessary.” necessary and preserve the smooth transmission of monetary policy”.
Lagarde insisted that if the current tools “are not sufficient, the staff (of the institution) are able to provide adjustments or do the necessary recalibration to address any liquidity risk” that could arise, although she did not specify details.
One last reference was to the controversial loss of 17,000 million euros suffered by Credit Suisse’s AT1 debt holders with respect to shareholders after the purchase by UBS. “Switzerland does not set standards in Europe,” he stated. And he recalled again that in Europe the hierarchical order of those who assume the losses would be different: the first to bear the burden would be the holders of the ordinary capital shares of the entities.
In a personal capacity, Lagarde said that she is in favor of the line of the US president, Joe Biden, that bank managers have to be subject to some type of responsibility, because “they are trustees” of investors and shareholders.
