Banks around the world have been crucial throughout 2020 in stabilising their respective economies. They have ensured that liquidity continues to be transmitted to the real economy, which in turn has helped to prevent a full-blown credit crisis from emerging as happened during the 2007-09 global financial crisis.
“For the first time since the pandemic began, there is now hope for a brighter future.” That was the assessment given by the OECD (Organisation for Economic Co-operation and Development) on December 1 following the news of progress being made with coronavirus vaccines.
During its policy meeting on Thursday, September 10, the European Central Bank (ECB) decided to keep its main refinancing benchmark rate unchanged at 0 percent, along with leaving its rates on the marginal lending facility and deposit facility the same at 0.25 percent and -0.50 percent, respectively.
Some puzzles are fun, while others are not. The sovereign-bank diabolic loop puzzle is definitely not fun for the European governments and banks victimized by it. Trapped in the loop, banks hurt sovereigns, while sovereigns return the favor by hurting banks. Is there a way to break free of this deadly embrace? New research shines a light on a possible channel to freedom that strangely enough originates in the US.
Mergers and acquisitions are often a good solution for ailing banks and have been tossed around more frequently lately as the answer for Europe’s financial institutions, many of which are struggling with internal issues along with external factors such as anemic growth and low interest rates. While consolidation brings many benefits, it may not be the best remedy for European banks right now, especially when it involves substantial cross-border deals.
Global growth is strong, but policymakers need to navigate uncharted waters and enact complex policy changes to keep the world economy on an even keel. The main risk lies not in economic conditions, but in economic policy debates too often distorted by partisanship. We have a chance to leverage new technologies to lift living standards on a sustainable basis—but we need a more level-headed discussion to chart the path forward.
Italy’s banking sector, mired in bad debt and low profitability, has been labelled Europe’s weakest, but fortunately it is making progress in addressing long-standing issues—with a little help from the government. Recent bank bailouts have given renewed hope to struggling lenders, while raising concerns that the arrangements conflict with Europe-wide rules prohibiting the use of taxpayer funds to bail out failing banks.
Quantitative easing and low interest rates were to work together to ignite roaring economic growth following the last financial crisis; in some parts of the world, monetary policy has set interest rates at zero (even below), but growth remains elusive and rock-bottom inflation rates coincide with interest rates. What went wrong?
The European debt crisis demonstrated not only the fragility of the bloc to external shocks, but it also showcased the glaring inequality within the European nations. It was a reminder that the impact falling across the Eurozone is not only severe but also unequal.
The European Union is exactly that, a union. This interconnectedness works well when all members are doing well, but what happens when one is not? Many investors are concerned about the health of banking in one member country in particular, Italy, and how its struggles may infect the Eurozone as a whole.