Big Commercial Banks Criticized European Central Bank's Simulus Measure
European Central Bank has decided to offer a four-year cheap loan to help struggling banks. ECB also cut all of its key interest rates, but the policy has drawn criticism from Northern European countries.
On Thursday, ECB president Mario Draghi announced plan to stimulate growth and supress the inflation to its original target at below 2%. ECB cut all of its three key interest rates, increased bank lending, cut and pushed core deposit rate deeper into negative territory. This measure will make banks with excessive funds, particularly those in northern Europe, to pay more fees to park their cash in ECB.
European Central Bank also introduced quantitative easing policy by adding corporate bonds to the assets it can buy as part of large-scale asset-purchase program. The central bank also raise its monthly bond purchase to €80 billion ($88 billion).
Bankers in Germany criticized the decision, saying the plan as unnecessary. German banks, which have large surplus of cash, raised concern with the plan. They said the measures to pour more money will not affect the real economy.
Chief economist at German bank DSGV Michael Wolgast told Wall Street Journal, "These measures are above all aimed at financial institutions in crisis in Southern Europe, which could use favorable refinancing aren't necessary for monetary policy and they will not have an effect on the real economy."
Other experts, a chief global strategist at Deutsche Bank Binky Chadha in his client's note as quoted by CNBC said the measures will do more harm than good, "The empirical record indicates multiple episodes of CB easing actions that resulted in large and opposite reactions to those intended."
A moderate comment was made by economist Wolfgang Munchau. He said in his Financial Times column there is nothing wrong with ECB measures, but the central bank missed a trick. Monetary policies, just like the new ECB program was filtered into real economy through variety of channels, one of which is the exchange rate. The plan will work only if the Euro currency has improved its value to be more competitive.
Nevertheless, some experts said the new package from ECP will help banks in southern Europe to get fresh and cheap loan. Chief strategiest at Pictet Asset Management Luca Paolini commented, "The ECB decision…is a positive because [the targeted loans] are on very generous terms and will go a long way to offset any negative impact of falling deposit rates."
ECB was criticized for its stimulus program to provide cheap loan for struggling banks in southern Europe. Banks in northern Europe that have a huge cash reserve will have to pay more to ECB in the new policy announced on Thursday.