European Central Bank President Mario Draghi has been talking up the eurozone’s banks, many of which have seen their shares slump on worries they have too many bad loans and will not be able to make enough money amidst lower growth and lower interest-rates.
Addressing European Parliament lawmakers in Brussels, Draghi conceding there are still “challenges” but he stressed the banks are much stronger than they were just three years ago, as is the whole financial system.
The ECB head said: “There is a subset of banks with elevated levels of non-performing loans (NPLs). However, these NPLs were identified during the Comprehensive Assessment [stress tests of banks], using for the first time a common definition, and have since been adequately provisioned for. Therefore, we are in a good position to bring down NPLs in an orderly manner over the next few years.”
Introductory statement by Mario Draghi for hearing at European Parliament's Economic and Monetary Affairs Committee https://t.co/ByuG9BSn9h— ECB (@ecb) February 15, 2016
As for the super low inflation in the region, which is tied in with slowing growth, Draghi called again for lower taxes and greater public investment by governments: “It is becoming clearer and clearer that fiscal policies should support the economic recovery through public investment and lower taxation. In addition, the ongoing cyclical recovery should be supported by effective structural policies. In particular, actions to improve the business environment, including the provision of an adequate public infrastructure, are vital to increase productive investment, boost job creations and raise productivity.”
He also confirmed that the ECB is ready to push ahead with more stimulus measures at its next policy meeting in early March if the real economy is threatened by that and the problems in the financial markets: “In the light of the recent financial turmoil, we will analyse the state of transmission of our monetary impulses by the financial system and in particular by banks.”
Future of 500 euro note under consideration
Draghi also revealed that the European Central Bank is considering ditching the 500 euro note, because they are often used by criminals and terrorists.
The European Anti-Fraud Office recently spoke out against the notes which are more than five times the face value of the largest US note – the $100 bill.
The problem for the ECB is that they are also used by savers to hoard tens of billions of euros.
Draghi said those savers would not be penalised and could use the 200 euro note instead to hold their cash.
The amount of cash in the euro zone rose to more than 1 trillion euros ($1.1 trillion) last year, with 28 percent of it hoarded in 500 euro notes, reflecting fears about banks as well as exasperation with low returns on savings.
Germany was one of the early champions of the 500 euro note to match the value of its old 1,000 mark note and cater to Germans’ traditional preference for cash over electronic money.
Cash hoarding has increased since the 2008 financial crisis. Capital controls prohibit large withdrawals in Greece, where savers have hidden away tens of billions, after big depositors lost money in the country’s financial bailout.