“The ECB is withdrawing liquidity and this will force banks to compete more and increase deposits”

The Vice-President of the European Central Bank (ECB), Luis de Guindos, noted this Monday that the monetary institution is “withdrawing liquidity from the market” and assured that “this will force banks to compete more and increase deposits.” buyers.

At a conference at UIMP (University International Menendez Pelayo), De Guindos admitted that financial institutions had not sufficiently translated interest rate increases into rewarding their clients’ savings over the past two years.

Now Spain’s former economy minister is predicting that banks will begin to compete to attract deposits due to the end of excess liquidity that has existed in the system.

In fact, the lack of competition in deposit remuneration is one of the arguments the coalition government is using to demonstrate its opposition to the hostile takeover proposal that BBVA has put forward for Banco Sabadell, although De Guindos has avoided commenting on the operation.

De Guindos recalled that the ECB itself has several times asked institutions to reward liabilities (their clients’ savings, deposits) for the correct transmission of rate increases.

At a previous conference, at the same UIMP event, current Economy Minister Carlos Bodi warned of insufficient – ​​“neither in the spirit of other countries, nor in previous episodes” – transfer to rewarding customer deposits Spain has seen an increase in official interest rates in the eurozone over the past two years to fight inflation, which made mortgages and loans in general more expensive.

“There are two explanations, the structure of the market, that there is an oligopolistic situation (in other words: excessive concentration of the sector), and the other, which I think is most relevant in this case, is the excess liquidity that was in the system, which was obtained in as a result of operations to purchase bonds (debts of countries, banks and companies) that we withdraw. Or the famous TLTRO (refinancing programs with very favorable conditions for private financial institutions). There was no need for banks to compete for deposits,” said the ECB vice-president.

In the first week of June, the European institution began reversing the monetary austerity policies that have stifled mortgage-earning households in recent months, cutting interest rates for the first time to 4.25% from the 4.5% that had remained in place since the fall (the highest since 2008). On the same day, it also announced that at the end of 2024 it would stop reinvesting maturing debt acquired in recent years to prioritize addressing the latest crises.

“This will lead, from our point of view, to increased competition and to the fact that banks will begin to compete more for deposits, including demand savings,” concluded Luis de Guindos.