Monday 15th November 2021
Given rising inflation
Sewing calls for countermeasures from monetary policy
The rate of inflation in Germany has been climbing significantly for months. The ECB explains the rise in consumer prices largely with special factors. Deutsch Bank boss Sewing does not see the rise in inflation as temporary. He believes that monetary policy should act sooner rather than later.
Deutsche Bank boss Christian Sewing has called on monetary policy to act because of the soaring inflation. The central banks assumed that the current rise in inflation was a temporary effect, Sewing said at the Euro Finance Week in Frankfurt. “Our economists do not share this opinion.”
Deutsche Bank customers are preparing for the fact that the high rates will last longer. Market participants began to anticipate price increases. “I think monetary policy has to take countermeasures here – sooner rather than later,” said Sewing. In his view, the consequences of the ultra-loose monetary policy will become more and more difficult to cure the longer the central banks do not take countermeasures. “The supposed panacea of the past few years – low interest rates with apparently stable prices – has lost its effect, now we are struggling with the side effects,” said Sewing.
ECB is aiming for two percent inflation as the ideal value
Inflation in the euro area rose more sharply in October than it had been in over 13 years. Driven by a sharp rise in energy costs, consumer prices rose by 4.1 percent within a year. In Germany, annual inflation rose by 4.5 percent in October. So far, however, the European Central Bank (ECB) has anticipated that the current surge in inflation in the euro area will not become a permanent problem. The ECB is aiming for two percent inflation as the ideal value in the medium term.
Sewing said there were some positive things about the EU Commission’s legislative proposal to implement global banking reform in Europe. The draft takes into account the peculiarities of the European banking market – such as the high proportion of low-risk mortgages in the loan portfolio or the importance of small and medium-sized companies. The longer transition periods would also help.
“On the other hand, many of the exceptions are provisional and there is no legal and planning security,” criticized Sewing, who is also President of the Association of German Banks (BdB). The bottom line is that the additional capital requirements are significant. The EU does not want to implement the tightened capital requirements for banks as part of the “Basel III” reform package until 2025.
Supervisors consider the criticism to be unjustified
The key is to limit the use of internal models, which large banks in particular use to calculate how much equity they have to set aside for business. The banks will be given a staggered transition period until the end of 2032 to implement the new Basel III requirements. The BdB criticizes that the EU Commission is playing with its proposal for a limited period of time. Because relief is limited in time. Important questions would not be resolved, only postponed.
Supervisors consider the criticism to be unjustified. From the Bundesbank’s point of view, the temporary relief gives financial institutions sufficient time to adjust to the new rules, as Bundesbank board member Joachim Wuermeling told Reuters on request. “The implementation of Basel III is manageable for the German banking market,” he concluded. Wuermeling is responsible for banking supervision on the Bundesbank board.