Re: Value/Lloy26 Jul 2019 19:37
On the subject of banks and particularly European banks with regards to the inevitable forthcoming ECB rate cut and further QE.
This can only mean further negative pressure on bank's and possibly with it UK banks as well, (including Lloyds).
One of the key arguments, that restricted the lower bound of the ECB’s deposit rate, has been the negative ramifications for the banking system in the event of further cuts, but it seems according to Mario that so called restriction is being scrapped in September.
Deposit rate cuts in negative territory are basically a tax on banks’ excess reserves that increase pressure on the banking system.
Due to QE, excess reserves will increase further for the banking system as a whole and this tax becomes bigger if the deposit rate is cut further. This could lead to banks increasing lending rates, like that's positive for the Euro area on the brink of recession, and introducing negative rates for clients’ bank deposits to offset the additional costs from a lower deposit rate in the absence of being able to monetise the ECB accommodation via lending to the real economy.
Put differently while the ECB intends to ease monetary policy the financial conditions for the real economy could even tighten because of that. This would especially be the case for core euro area banks, which hold the largest share of excess liquidity.
Damned if they do and dammed if they don't, there has to be some ramifications for LBG even though their exposure to the Euro area is minimal.
Just another reason I'm patient to wait for another entry point for Lloyds. If I'm wrong, no big deal I'm still invested here.
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