Provides Enria’s feedback in parliament
FRANKFURT, March 21 (Reuters) – Euro zone banks ought to watch their sources of funding or they threat being “caught off guard” by rising rates of interest, the European Central Financial institution’s high banking supervisor Andrea Enria stated on Tuesday.
Introducing the ECB’s annual report on banking supervision, Enria stated euro zone banks have been strong however warned {that a} sharp rise in borrowing prices over the previous 12 months meant lenders may not depend on low-cost funding and rising monetary markets.
“Growing rates of interest and quantitative tightening require banks to sharpen their give attention to liquidity and funding dangers,” stated Enria, in remarks the ECB stated have been drafted in February, earlier than current turmoil within the international banking system.
“There’s a threat that banks may be caught off guard,” he warned.
The worldwide monetary system is on tenterhooks after Silicon Valley Financial institution of the US and Switzerland’s big Credit score Suisse CSGN.S each ran out of money, for various causes.
Enria’s report warns banks a few possible hit to their internet price as borrowing prices rise.
This was a significant drawback at SVB, which had invested buyer deposits with out hedging itself towards the danger of rising charges, in the end struggling a financial institution run.
“(Banks) ought to undertake sound and prudent asset and legal responsibility administration modelling practices in an effort to seize shifts in shopper preferences and behavior when rate of interest regimes change,” Enria stated. “They need to additionally rigorously monitor dangers arising from hedging derivatives.”
Credit score Suisse additionally suffered huge deposit outflows, particularly from its worldwide enterprise, after a string of scandals.
Massive euro zone banks had a Frequent Fairness Tier 1 ratio – a gauge of their solidity through which their capital is measured as a share of dangerous property – of 15.3% on common on the finish of final 12 months, up barely over September, Enria instructed European lawmakers in a while Tuesday.
Their liquidity protection ratio, which is the inventory of high-quality liquid property banks must personal as reserves to outlive a months’ price of outflows, was 161%, down barely in comparison with September however nonetheless nicely above necessities.
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Reporting by Francesco Canepa; Modifying by Catherine Evans
