The European Central Bank has warned that European lenders are breaking promises that they would avoid excessive risk in the wake of the financial crisis.
“We’re seeing more and more banks take risks that, back in 2008 and 2009, they said they’d never do again,” said Korbinian Ibel, a director general at the ECB’s banking supervision arm. “They argue that everyone else is doing it, so how can they avoid it? That sounds a lot like 2007.”
As reported by Bloomberg, banks fuelled the global financial crisis in the last decade after lending to companies and individuals who couldn’t afford to pay back their debts. Now European banks are struggling to increase profitability in the face of record-low interest rates, stricter regulation and a slew of bad loans left over from the last economic downturn.
Ibel told at a conference in Frankfurt on November 19 that banks argue that pressure to increase revenue has pushed them into riskier business and encouraged them to loosen their loan-underwriting standards.
“No one really wins in the end; the banks just fill their books with loans that could turn non-performing,” he said, adding that it is up to banks which business model they pursue and “it is absolutely OK for us if they invest in high risk”.