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The European Central Bank has said it is
considering the need to mitigate the impact of its negative
deposit rate on lenders' profits.
With a negative deposit rate, banks have to pay to park cash at
the ECB, which they say hurts their profitability the longer the
central bank keeps rates at current record lows.
"Maintaining a low interest rate environment is completely
justified and necessary in light of the economic situation in
the euro area," Villeroy said at the Bank of France, where he is
also governor.
Speaking in his role as the head of France's ACPR financial
supervisor, Villeroy said the issue of low rates' impact on
banks should neither be ignored nor blown out of proportion.
"It would be an exaggeration ... to say this is the only reason
profits are under pressure: monetary policy also has favorable
effects for banks, including a reduction of the cost of risk and
an increase in lending volumes," Villeroy said.
Other than low rates, banks - as well as insurers - were facing
an "existential challenge" in the form of transforming their
businesses to interact with clients digitally while investment
banks were losing market share to U.S. rivals due to a lack of
critical mass, added Villeroy.
With profits squeezed by those factors, he urged banks to put
into place restructuring strategies focused on technological
innovation, cost control and diversification of revenue sources.
He also renewed a call for more consolidation in the European
banking sector, which he said would make lenders more efficient
and allow them to compete better internationally.
"Private sector actors do not need to wait for public
authorities to do everything before starting to think about
consolidation strategies," Villeroy added.
(Reporting by Leigh Thomas; Editing by Sudip Kar-Gupta)
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