The debate that has emerged in recent weeks regarding negative interest rates focuses on their continuation rather than the initial decision to implement them. There is a consensus that extreme expansionary monetary measures were necessary to combat the crisis, and the monetary authority showed great courage in doing so. However, the crisis has now been overcome, and the European Central Bank itself warns, in its role as supervisor, of the potential risks to financial stability of maintaining an overly loose monetary policy for too long.
The potential negative impact of negative interest rates on bank results is perhaps being exaggerated. In Europe, entities have been able to improve their results in an interest rate environment as adverse as the current one. They have achieved this through a combination of cost reduction, increased revenue, balance sheet adjustments, and a decrease in non-performing loans. The future strategy of these entities will focus on advancing the digitalization process, improving efficiency, maintaining revenue growth and cost adjustments, as well as generating new products with higher added value for the client. A return to normal interest rates would undoubtedly help the recovery of bank results, but it is not essential to achieving the set objectives.
However, there is a tendency to underestimate the risk that maintaining negative interest rates poses to the functioning of financial markets and the allocation of resources, as well as to savings management and the economic expectations of agents. This scenario generates uncertainty and deepens financial repression. The President of the ECB, Mario Draghi, recently warned of the need for extreme vigilance regarding the risks of shadow banking, while also speaking very positively about the regulatory changes and strict supervision to which banks are subject.
