De Nederlandsche Bank warns of the emergence of new bubbles in the financial markets. Can occur as in parts of the world would be a shock interest rates go up
Die warning indicates the central bank in the published Tuesday Overview of Financial Stability, a six-month investigation into potential risks to financial stability. “Low inflation makes a loose monetary policy and low interest rates are required, but it is also known that when this drug is administered that side effects occur, namely bubble formation in the financial markets long-term,” says central bank president Klaas Knot in a statement.
High-yield bonds
late according Knot The current image as’ that readily paid for financial securities. Among other things he points to “high yield” debt of riskier companies. The returns on this paper are in many cases lower than before the crisis, now while the debts of the company compared to the profits are higher than in the past
According Knot is the broad policy of the ECB aims to promote risk-taking in the real economy, ie Frankfurt hopes to relaunch. investments in companies and consumer spending “Unfortunately, we see that so far risk-taking is encouraged. Financial markets There is a gap between the real economy and the financial markets. That is a situation that is best risky. “
Weaker euro countries
In addition to high-yield bonds strictly Knot the strong price increases in government bonds of some weaker euro countries, despite the problems in those countries long the world are not yet out. “Some countries borrow at lower rates than a country like Norway that much better shape. This is a country that has had little affected by the crisis, a state fund and a surplus on the current account or any account whatsoever. “
Nevertheless Knot claims to stand. behind the current ECB policy Balance the benefits of broad policy – a stimulating effect on the real economy and inflation to a higher level – considering at this time outweigh the disadvantages. “I think the benefits now outweigh the costs. But if we move forward on this path, there comes a turning point. “
Correction
When, if and how any adjustment will take place according to the central bank president can not be predicted. “Just a period of low volatility and tranquility as we now know it, has historically often followed by sharp market corrections. Accept parties against lower fees and more risks. That is the paradox of financial instability. “
A moment that can put a shift in motion, an amendment interest rate policy. In the eurozone, the short-term rates will not be increased, according Knot. But in the United Kingdom and the United States is that moment closer. “That can be a trigger, even though we are in the eurozone so far to raise interest rates. The international markets are global, and what happens in the USA, has a direct impact on Europe. “
Expectations banking sector
Apart from that, the report shows that investors in banking stocks, and bank boards themselves, still have the expectation that the profitability of the sector will reach 10% to 15% of the equity in the future. Although this is lower than the 15% to 20% before the crisis, according to DNB is still on the high side, because such returns also taking more risk involves. Knot: “We are deliberately trying to create another safer banking system and that includes lower, stable returns with. We do not want to go back to the situation before the crisis. “
Furthermore, the efficiency of European banks by the state of the economy at this time, on average, even at 5%. Dutch banks, this was in 2013, 7%. DNB states in the report that appear in the current environment of modest economic growth, low inflation and sharply tightened requirements double-digit return targets for the future difficult to keep full. If the monitor ‘these assumptions prove incompatible with capital requirements or desired risk profile of the institution, the bank is required to review the schedule. “
Capital requirement banks
Finally, the central bank noted in the report that Dutch banks little do to strengthen ahead of the stricter capital requirements under the international banking rules of Basel 3. their capital position accelerated If the profitability steady growth of the economy follows the banks have, are there but there is little room for setbacks.
Knot “As a regulator, we have the formal power to the capital ratios to be determined, but it is for the bank to determine how they get there. They can reach the higher capital requirement by increasing the numerator or decrease. “The denominator, ie the bank through a share issue of capital can pick up, or may decide to lower the balance sheet by divest loans or reduce to as the achieve. higher capital “I would prefer that banks capital to continue to strengthen the counter and that lending much suffering in the Netherlands of ingrowth to Basel-3. We can provide the means of strengthening the balance sheet does not enforce it to the bank management to determine how that happens. “
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