SHANGHAI May 24 Euro zone banks need to be
strong enough to support a pick up in credit demand to keep the
euro zone recovery going, European Central Bank Executive Board
member Yves Mersch said on Saturday.
Tougher regulatory standards and a stronger sense of
risk-aversion in the wake of the financial crisis have led banks
to scale back lending and raised interest rates on loans.
That has made it more difficult for companies, especially
smaller and medium-sized ones, to obtain credit to fund
expansion or growth.
Mersch said the euro zone had started to recover and was
reaching a point where companies could no longer rely on their
own funds but were increasingly in need of external funding to
"We are seeing tentative signs from survey data that credit
demand in the euro area is starting to pick up," Mersch said in
the text of a speech in Shanghai. "So we need to make sure that
the banking sector is strong enough to meet that demand."
"A car can run on low fuel for a while, but at some point it
needs to fill up otherwise the engine will stall. At this stage
of the recovery it is clear: There needs to be sufficient fuel
to rev up the engine," he said, referring to the signs of a
pickup in credit demand.
Mersch said the ECB was counting on its ongoing health
checks on lenders in the euro zone to help the banks clean up
their balance sheets so that they can focus on lending.
The ECB has signaled its readiness to add more stimulus to
the euro zone economy at its policy meeting in June if necessary
and one of the tools on its shelf is an injection of cheap
long-term funds with pricing linked to an increase in net
Another option would be to cut interest rates, including the
deposit rate, which currently stands at zero. A negative deposit
rate would mean charging banks for parking their money at the
This is seen as an incentive for banks to lend the money to
other banks or companies and households instead.
Mersch did not single out any policy tools in his speech.
Reviving the market for securitised loans was particular
important to improve funding for small and medium-sized
companies, Mersch said, referring to a joint initiative on the
matter with the Bank of England.
(Reporting by Pete Sweeney in Shanghai; Writing by Eva Taylor;
Editing by Hugh Lawson)