The recent instability experienced by financial markets has once again brought to the forefront the essential need for portfolio risk management. In a world dominated by the pursuit of returns, with official interest rates at zero levels, it is easy to fall into the temptation of underestimating the risk being taken. The future normalisation of monetary policy also entails, beforehand, the normalisation of the potential imbalance between risk and return.
The extreme regulation applied to banks in recent years has had a dual objective: strengthening financial stability and protecting banking customers. The ECB’s supervision of banks has also focused on ensuring the financial stability achieved after the crisis. In parallel, the expansionary monetary policy implemented—exceptional in both its intensity and the instruments chosen—had companies and households as its ultimate beneficiaries. However, indirectly it has strengthened the role of the non-bank financial system, which is subject to looser regulation than that applied to credit institutions.
Many perceive a change in the ECB’s messaging regarding the future direction of monetary policy. It is not about making it more restrictive, but rather less expansionary, in a way that preserves financial stability in the medium and long term. The future increase in official interest rates and the gradual withdrawal of the liquidity injected during the crisis are not only consistent with the strong current economic recovery. They also seek to curb potential excesses and distortions in the allocation of financial resources.
Risk management is key, as it already is for banks. They also have the responsibility to maintain favourable financial conditions so that economic growth does not suffer. They accept this as a matter of course.
José Luis Martínez Campuzano, spokesperson for the Spanish Banking Association
