LONDON (Reuters) - The European Central Bank should pay greater attention to economic and financial considerations when making decisions on the euro zone banks it supervises, ECB Supervisory Board member Ignazio Angeloni said on Wednesday.
The ECB has to balance its roles as the watchdog in charge of cleaning up the euro zone’s banking sector and as the authority tasked with shoring up inflation in the bloc by stimulating banks to lend more.
In the most high-profile example of this dilemma, an initiative that would have forced banks to set aside more money against their stock of bad loans risks being shelved due to concerns about its side-effects on lenders.
“The ECB needs to develop more systematic analyses of the broader impact of its microprudential decisions,” Angeloni told an audience in London. “Synergies between the two approaches should be exploited fully, and the analytical functions of ECB Banking Supervision could be further developed.”
Euro zone banks have cut their stock of bad loans to 721 billion euros (634 billion pounds) at the end of 2017 from 877 billion euros a year earlier.
But the problem remains sizeable in countries such as Portugal and Italy, which did not use state-backed bad banks to buy up toxic assets during the financial crisis.
ECB Vice-President Vitor Constancio said further progress in cutting bad loans, while necessary, should be gradual.
Angeloni also said that in his personal view he believed banks needed to prepare better for rising interest rates across the model, as many of their internal models tended to be based on declining rates. “The banks are not fully prepared,” he said.
Reporting by Tommy Wilkes; writing by Francesco Canepa; editing by Mark Heinrich