Yesterday European Central Bank President Mario Draghi spoke on Europe’s changing banking landscape tackling issues around “zombie banks” and non-performing loans. So-called Zombie banks are institutions that have a negative net worth but are supported by national governments so they can continue operating and avoid a ‘run on the bank’ which in turn could worsen the situation.
Concerned representatives, particularly in Italy where the economic recovery is frail, have criticised the ECB for setting one-size-fits-all rules for how much money banks should set aside for new unpaid loans. Antonio Tajani, the Italian head of the European Parliament, has been vocal about fears that the new rules will push banks to restrain from lending.
In his speech, Draghi indicated that that there is little proof that negative interest rates have impacted profitability of banks in the region and rather suggested that banks cut operations costs to boost profitability. Referring to the introduction of the Bank Recovery and Resolution Directive in 2015 for example, Draghi indicated that European banks have strengthened the EU banking sector.
Draghi’s last attempt to diffuse uncertainties came with a calling for joint effort “by banks, supervisors, regulators and national authorities to address this issue in an orderly manner”.