The ECB seems committed to its monetary policy despite some Opposition. After recent market reports suggested the European Central Bank’s stimulus program put the eurozone economy back on the right track, many officials are sending a warning that the mission is far from over. There concerns grow even more as some banks in Europe showed reluctance in dealing with ECB supervisors any longer.
Germany’s Landeskreditbank Baden-Wuerttemberg-Foederbank, a regional development bank, has been under direct ECB supervision since November last year, among other 122 European financial institutions. L-Bank announced on Thursday that it had filed a suit against the ECB at the European Court of Justice to get free of its supervisors.
According to L-Bank officials, ECB supervision would only raise the costs for the German investment bank’s low interest loans by adding unnecessary bureaucracy. The German bank, which had an estimated value of 70.7 billion euros ($77 billion) in 2013, said its area of interest does not fit into the complex international banking activity that the ECB aims to regulate.
L-Bank officials expressed their full support for the ECB’s supervisory system, but argued their bank only offers low risk development lending that does not require this kind of supervision. The housing and new-business projects that L-Bank usually funds would suffer greatly if supervisors are not removed.
The ECB has failed to clearly determine how a bank falls under its direct supervision. The only criteria used by the European bank in its selection was the total asset size, which puts together every financial institution with a value of at least 30 billion euros. As a result, many regional banks that could have normally been left under national supervision, such as L-Bank, are now directly monitored by the ECB.
Currently, the ECB has declined to make any comment on the issue, although they acknowledge having received L-Bank’s suit notice. “We confirm receiving notice of the court case filed by L-Bank. However, the ECB does not comment on cases pending in court,” one of its spokesmen told the press.
The European Central Bank also has some economic issues to solve in the meantime, such as their forecast for economic growth in the eurozone. The ECB’s quantitative easing program is set to end in September 2016. Initial estimates indicated a value of 2.1% economic growth for the entire 19-country bloc by 2017.
However, some ECB economists wonder if the monetary easing policy couldn’t be extended to 2017 in order to make sure no surprises happen. With the QE ending in 2016, they fear any prediction beyond that date would be delving into the unknown.
At Thursday’s European Central Bank’s Governing Council meeting, the institution managed to identify a few other factors that the economic growth depends on. Beyond 2016, any progress is dependent “on the assumptions of continued low oil prices and a further strengthening in foreign trade,” the council report concluded.
Nevertheless, the ECB also fears that internal structural flaws in some of the member countries might hinder economic growth, although the report is short on specifics here. Overall, the analysis “provided grounds for ‘prudent optimism,’” as long as inflation gets back below the 2% value.
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