Statement from Head of ZEW Research Department Professor Sascha Steffen: "The Decision Made by the ECB Poses Significant Problems to Banks"

The European Central Bank (ECB) has decided to reduce the interest rate for the marginal lending facility to zero per cent, and that for the deposit facility from minus 0.3 to minus 0.4 per cent. In addition, the ECB has extended its asset purchasing programme, "Quantitative Easing", by a further 20 billion, thus providing a total of 80 billion euros, and determined a further liquidity programme for banks. This decision exceeds market expectations and leads to extreme reactions in the German and US stock markets. Professor Sascha Steffen, head of the Research Department "International Finance and Financial Management" at the Mannheim Centre for European Economic Research (ZEW), provides a statement about the ECB's latest decision.

"The decision made by the ECB poses significant problems for banks in the future, and poses a risk to financial market stability in Europe. Small and medium-sized banks as well as savings banks, which rely on maturity transformations for their survival, shall be particularly negatively impacted by the decision. These institutions will have problems maintaining future profits. Furthermore, it cannot yet be said whether the ECB's strategy shall prove successful. Banks may be forced to increase interest rates in order to remain profitable. This would contradict the strategy adopted by the ECB.

It is also worth noting that many banks do not face liquidity problems, but rather insolvency problems which national governments have failed to address. It is therefore unlikely that the measures implemented by the ECB will lead to sustainable growth in the medium-term."

For more information please contact

Professor Sascha Steffen, Phone +49(0)621/1235-140, E-mail steffen@zew.de