Pressure Mounts on Banks to Repay Deposits as ECB and Bank of Spain Get Involved
The European Central Bank (ECB) and the Bank of Spain have been applying pressure on financial institutions in recent days to repay their liabilities, with the expectation that this will lead to the launch of commercial offers in the coming weeks. The banks have already begun the countdown for the remuneration of deposits, and the ECB and the Bank of Spain have been keen to ensure that they are repaid promptly.
The supervisors’ pressure has taken place both publicly and privately, according to financial sources. “The entities are being squeezed,” they stress. The European monetary authority raised rates by half a point last February, up to 3%, while warning of new increases in their upcoming meetings. However, this increase in the price of money has not been transferred to deposits, for now, leaving banks with all margins.
The governor of the Bank of Spain, Pablo Hernández de Cos, expressed his disappointment with the sector this week, stating that the translation of rates is being slower, especially for deposits, compared to previous episodes of increases in the Euribor. He lamented how in Spain this evolution is even below the European average.
De Cos estimated the increase in the average rate in credit operations signed last year, stating that these magnitudes imply a transfer of rates to credit of 59%, 46%, and 49%, respectively, percentages much higher than those observed in the rates of time deposits, located at 37% (130 basis points) for companies and 15% (50 basis points) for households.
The banks have accepted the challenge, and now it is conceded that the margin of action has narrowed. “In June we are all with a commercial offer,” says a senior executive from one of the six main entities listed on the Ibex. The documentation handled by the companies already includes the possibility of launching commercial offers for deposit remuneration. For instance, Santander included the need to expand margins per client to face worsening macroeconomic forecasts in the coming years.
The European Central Bank has been even more forceful than the governor of the Bank of Spain, stating that “We want the monetary transmission to be channeled through the economy, that the banks also reflect these increases in interest rates in their remuneration of deposits.” The deputy governor of the Bank of Spain, Margarita Delgado, has also met with the main managers of the banks, within the framework of the advisory council of the employers’ association of savings banks (CECA), to discuss the reputational problems affecting the entities.
Why have the European Central Bank and the Bank of Spain been pressuring financial institutions in recent days?
The ECB and Bank of Spain have been pressuring banks to repay their liabilities, which should lead to the launch of commercial offers in the coming weeks.
Why has the governor of the Bank of Spain expressed disappointment with the sector?
The governor of the Bank of Spain, Pablo Hernández de Cos, expressed disappointment with the sector because the translation of rates to deposits is being slower than previous episodes of increases in the Euribor, and the evolution in Spain is even below the European average.
How have the banks responded to the pressure?
The banks have accepted the challenge, and senior executives from one of the six main entities listed on the Ibex have stated that they will launch a commercial offer in June.
What have the European Central Bank and the Bank of Spain said about the need for banks to reflect increases in interest rates in their remuneration of deposits?
The European Central Bank has stated that they want the banks to reflect these increases in their remuneration of deposits, and that the monetary transmission should be channeled through the economy.
The European Central Bank and the Bank of Spain are putting pressure on financial institutions to increase the remuneration of deposits. Despite raising rates by half a point in February 2023, financial institutions have not yet passed on the increase to deposits. The banks have picked up the gauntlet and are expected to launch commercial offers in June 2023. The pressure from the supervisors has been both public and private, and the documentation already includes the possibility of increasing deposit remuneration.
The bank managers have acknowledged that the margin of action has narrowed, and they are looking at their competitors before launching their own commercial offers. Overall, the banks are being squeezed by the supervisors, and the pressure is not helping to solve the reputational problems that affect the entities.
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