European Central Bank president Mario Draghi faced down mutinous Bundestag MPs on Wednesday, insisting low ECB interest rates were not responsible for German economic problems – particularly with its banks.
While Mr Draghi declined to comment on individual institutions, his remarks came as Germany denied it was working on a rescue plan for the country's largest lender, Deutsche Bank.
Die Zeit weekly said financial regulator BaFin is devising a contingency plan to allow Berlin take a stake of up to 25 per cent stake should the bank struggle to finance a multi-billion $14 billion fine imposed by the US government.
Deutsche Bank says it is optimistic it can negotiate a lower fine, imposed for trading in asset-backed securities. On Wednesday, the bank's chief executive John Cryan said state aid was "not an issue" and denied having ever asking chancellor Angela Merkel for assistance.
A weekend news report claiming Dr Merkel had rebuffed such an approach triggered a plunge in Deutsche shares this week.
For Credit Suisse chief executive Tidjane Thiam, the Deutsche woes were indicative of the "very fragile situation" facing European banks. Meanwhile another Swiss bank, UBS, warned of rising housing bubbles across Europe, from Stockholm to Munich.
Side effect
For German MPs, that is just one side effect of the ECB’s low interest rates, something they also blame for obliterating German savers’ nest eggs and boosting political extremism.
Mr Draghi told the Bundestag European committee his bank saw no evidence for housing bubbles because rising residential real estate prices, “notably in large cities in Germany”, were not matched by spikes in lending.
Instead, Mr Draghi pointed out that low interest rates had brought benefits, such as loan interest savings of €28 billion for Dr Merkel’s federal government last year.
Nor was ECB monetary policy contributing to Germany's banking sector woes, he said, as spooked investors abandon Deutsche Bank and Commerzbank, the number two lender, prepares to announce 9,000 job cuts.
“Those who blame ECB policy for the mixed performance of certain German financial firms have been very vocal,” said Mr Draghi.
But they overlooked that their lower interest revenues were offset in part by higher lending volumes. And nobody but German banks themselves were to blame for their “relatively high” cost-to-income ratios.
“They also need to address their own structural issues, such as overcapacity, the stock of non-performing loans and the potential impact of technological innovation. Low profitability is closely linked to low operational efficiency.”
