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ECB tells banks to watch their cash amid turmoil

By Reuters_News

15:27, 21 March 2023

A file photo shows signage outside the European Central Bank (ECB) building, in Frankfurt, Germany, July 21, 2022.
A file photo shows signage outside the European Central Bank (ECB) building, in Frankfurt, Germany, July 21, 2022.

Adds Enria's comments in parliament

- Euro zone banks should watch their sources of funding or they risk being "caught off guard" by rising interest rates, the European Central Bank's top banking supervisor Andrea Enria said on Tuesday.

Introducing the ECB's annual report on banking supervision, Enria said euro zone banks were solid but warned that a sharp rise in borrowing costs over the past year meant lenders could no longer rely on cheap funding and rising financial markets.

"Increasing interest rates and quantitative tightening require banks to sharpen their focus on liquidity and funding risks," said Enria, in remarks the ECB said were drafted in February, before recent turmoil in the global banking system.

"There is a risk that banks might be caught off guard," he warned.

The global financial system is on tenterhooks after Silicon Valley Bank of the United States and Switzerland's giant Credit Suisse CSGN.S both ran out of cash, for different reasons.

Enria's report warns banks about a likely hit to their net worth as borrowing costs rise.

This was a major problem at SVB, which had invested customer deposits without hedging itself against the risk of rising rates, ultimately suffering a bank run.


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+1.220% 1D Chg, %
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Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 60.00


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+0.640% 1D Chg, %
Long position overnight fee -0.0255%
Short position overnight fee 0.0032%
Overnight fee time 21:00 (UTC)
Spread 3.0


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+2.810% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.00403

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+2.450% 1D Chg, %
Long position overnight fee -0.0201%
Short position overnight fee -0.0018%
Overnight fee time 21:00 (UTC)
Spread 0.04

"(Banks) should adopt sound and prudent asset and liability management modelling practices in order to capture shifts in consumer preferences and behaviour when interest rate regimes change," Enria said. "They should also carefully monitor risks arising from hedging derivatives."

Credit Suisse also suffered massive deposit outflows, especially from its international business, after a string of scandals.

Large euro zone banks had a Common Equity Tier 1 ratio - a gauge of their solidity in which their capital is measured as a percentage of risky assets - of 15.3% on average at the end of last year, up slightly over September, Enria told European lawmakers later on Tuesday.

Their liquidity coverage ratio, which is the stock of high-quality liquid assets banks need to own as reserves to survive a months' worth of outflows, was 161%, down slightly compared to September but still well above requirements.


Reporting by Francesco Canepa; Editing by Catherine Evans

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

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