You’re right, banks are important, especially important for the euro zone, which is basically a bank-based economy where the credit intermediation goes mostly through the bank lending channel. Bank equities in the aftermath of the Brexit were especially hit. And especially in the euro zone, and especially those banks with a high share of NPLs, or non-performing loans.
Equity prices, bank equity prices are also significant for policymakers, because when if they drop in the way they did one would assume this is to stay cost of capital would increase, and therefore the net return on lending would decrease, that would suggest on the banking side a more conservative lending behavior. That’s why we do care about bank equity prices for the transmission of our monetary policy…
On the solvency side, our banks are better if not much better than they were before… So what is the problem? The problem now that we have to address is the weak profitability, not a problem of solvency.
Equity prices, bank equity prices are also significant for policymakers, because when if they drop in the way they did one would assume this is to stay cost of capital would increase, and therefore the net return on lending would decrease, that would suggest on the banking side a more conservative lending behavior. That’s why we do care about bank equity prices for the transmission of our monetary policy…
On the solvency side, our banks are better if not much better than they were before… So what is the problem? The problem now that we have to address is the weak profitability, not a problem of solvency.
