In a marathon three-hour session before the European Parliament’s Economic and Monetary Affairs committee, the president of the European Central Bank (ECB), Christine Lagarde, said that she thinks about inflation even when she goes to bed in the evening bed. “It’s something I don’t forget every night when I go to sleep. I know that workers and small business owners are being hit hard by inflation,” he said.
Instead, she seemed more relaxed about the international banking turmoil, which, in her opinion, will not necessarily affect the eurozone. The former French minister stated that the exposure of European banks to Credit Suisse, which has been saved in extremis by the purchase offer of its Swiss rival UBS, is minimal. So limited that they talk about “millions” all the time.
“This from Credit Suisse has little to do with Europe”, agrees, after hearing his intervention, a manager of a private bank in Geneva, who requests anonymity. “We are rather facing a manifest case of bad management, aggravated by the absolute lack of vigilance of 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.
With regard to the bankruptcy of Silicon Valley Bank (SVB) and the difficulties experienced by several regional banks in the United States, the President of the ECB defended before the MEPs that the regulatory and surveillance system in the Eurozone makes it very difficult that there may be similar cases in Europe. “Only about 14 banks in the United States adopt rules such as Basel 3, when in Europe we have more than 2,000 entities subject to them,” recalled Lagarde.
According to their 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 series of questions from members of the Eurochamber, the highest representative of European monetary policy returned, in part, to explain the latest decisions to tighten interest rates. He emphasized – once again – that his institution is committed to price stability. That is why “there is still ground to cover” in terms of the increase in the price of money.
However, the French woman said that this increase is not necessarily incompatible with “financial stability”. In short, higher rates, in his opinion, should in principle not be a problem for banks because, if necessary, the ECB has options, through other channels, to provide them with some kind of help.
Lagarde assured that the tensions that have been 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 system eurozone finance if necessary and preserve the smooth transmission of monetary policy”.
Lagarde insisted that if the current tools “were not sufficient, [the institution’s] staff are able to provide adjustments or recalibrate as necessary to address any liquidity risk” that might arise, although she did not elaborate. .
A final reference was to the controversial loss of €17 billion suffered by holders of Credit Suisse’s AT1 debt to shareholders after the purchase by UBS. “Switzerland does not set standards in Europe”, he said. And he reminded again that in Europe the hierarchical order of who assumes the losses would be different: the first to bear the burden would be the holders of the entities’ ordinary capital shares.
In a personal capacity, Lagarde said that she is a supporter of the line of the president of the USA, Joe Biden, that the managers of the banks should be subject to some kind of responsibility, because “they are custodians of trust” of investors and shareholders.
