The EBF president, whose own bank is unusual in having a big retail business in Italy and Germany, takes a markedly more measured and conciliatory tone on negative rates than other chief executives of big European banks.
“We have to put negative rates in perspective” he says. “The ECB put negative rates in place to stimulate investment and growth. That’s good, as it allows the economy to develop at a higher rate of growth than would be possible if we did not have them.”
However, he warns: “The point is now that rates are more negative and for longer. That has a more negative impact on the banks.”
While banks across the board are having to reduce their medium-term return targets, in part because of regulation, Mustier warns that if banks’ profit is impacted, it will be harder to finance the economy.
“It’s important to look at the different moving parts, and what are the combined effects of regulation and monetary policy,” he says. “The ECB needs to make sure that there’s a consistent approach between its monetary policy and supervision.”
Markus Brunnermeier, the Princeton University professor best known for describing the reversal rate, also says costs on banks of negative rates will increase as time goes on, particularly if capital rules get tougher.
“It’s very important to be able to reduce the capital buffer,” Brunnermeier tells Euromoney. “If you just always increase the capital needs, the reversal rate will be higher.”
Claudio Borio, head of the monetary and economic department at the Bank for International Settlements, agrees that the undesired side-effects of negative rates on banks’ net interest margins could be coming to the fore.
Borio tells Euromoney: “There is little evidence [to indicate] that negative interest rates have reduced bank lending so far, but the longer they persist, the more they weaken profits. They can boost growth only temporarily, while the effect on margins is longer term.”