November 29, 2019 / 1:24 PM / 13 days ago

HIGHLIGHTS-ECB's board candidate Panetta replies to questions from Parliament

(Adds climate change, deposit insurance)

FRANKFURT, Nov 29 (Reuters) - The following are the highlights of written replies by European Central Bank board candidate Fabio Panetta to questions from the European Parliament’s Committee on Economic and Monetary Affairs.

Panetta, currently the Bank of Italy’s senior deputy governor, and fellow board candidate Isabel Schnabel, a German academic, will be heard by the committee on Tuesday.

ON ACCOMMODATIVE POLICY

“Recent data indicate that the inflation outlook seems to fall short of the Governing Council’s inflation aim of below but close to 2%, and hence calls for an accommodative monetary policy: the incoming information (both hard data and soft information) suggests that the slowdown in growth is proving to be more protracted than expected just a few months ago, due to the ongoing weakness in international trade and to persistent global uncertainties that impinge in particular on manufacturing, and more generally on firms’ confidence and their propensity to invest. As past experience consistently shows, a protracted slowdown in the manufacturing sector tends to spill over to other key parts of the economy, such as the services sector.

ON PROPORTIONATE AND APPROPRIATE RESPONSE

“The package of measures adopted by the Governing Council of the ECB in September was a proportionate and appropriate response to the macroeconomic situation.

ON DISAGREEMENTS OVER STIMULUS

“In a large decision-making body it is inevitable – and, I think, healthy – to have different views. The governance in place ensures that a fair debate is always possible but also that the Governing Council can always reach operational conclusions.

NEGATIVE IS POSITIVE

“At the current juncture the benefits from the ECB’s measures, including negative rates, still exceed their potential side effects. Continuous monitoring is needed, however, to assure that this statement remains valid. Going forward, the Governing Council can review the measures in place and decide on further mitigating measures if the net benefits of some of them are assessed to be waning.

ON ASSET PRICE PUBBLES

“Macroprudential policies, which can be tailored to the circumstances of individual countries or sectors (such as real estate), are best placed to address any excesses in asset price dynamics.

ON CORPORATE BONDS

“Given the limits to sovereign bond holdings and the ensuing feasibility constraints for the PSPP (Public Sector Purchase Programme), a relatively larger contribution of the private sector component improves the overall flexibility (and potential scope) of the APP (Asset Purchase Programme).

ON A NO-DEAL BREXIT

“A no-deal scenario could prove very costly, and could lead to significant bouts of volatility in financial markets.

“(The ECB) could take appropriate action to safeguard financial stability if funding and liquidity conditions were to deteriorate in the euro area.

ON CLIMATE CHANGE

It is foremost a responsibility of the governments to define the appropriate measures to achieve these objectives.

Climate change could pose risks for economic growth and for the stability of the financial system, and thus it can influence the environment in which monetary policy operates. It is therefore important, while staying within its mandate, for the ECB to better understand the channels through which climate-related risks affect...monetary policy transmission, and take action if needed.

ON A EUROPEAN DEPOSIT INSURANCE SCHEME

I strongly welcome the momentum that seems to emerge on a concrete roadmap to establish a truly European deposit insurance scheme. Such a roadmap should also include, as a longer term objective, the creation of a public backstop.

I believe that the model of the US Federal Deposit Insurance Corporation (FDIC) represents a valuable benchmark for the EU in this matter.

ON THE EUROPEAN STABILITY MECHANISM

“A positive decision on the ESM reform in December 2019 would thus represent a welcome step forward.

“I would consider a reasonable next move to integrate the ESM into the EU legal framework and make it accountable to the European Parliament.

ON TOO BIG TO FAIL

“On the issue of the too-big-to-fail...I believe that the accumulation of additional capital buffers as well as larger loss-absorbing capacity for systemically important banks usefully contribute to address the problem. (Reporting By Francesco Canepa)

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