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Talking points by the Bank of Greece Governor Yannis Stournaras at the EUROFI High Level Seminar 2023

15/09/2023 - Speeches

1. Central banks also care about financial stability (albeit their main task is price stability). Financial stability is necessary in itself but also for the smooth transmission of monetary policy. In this context the market for treasury bills and government bonds attract the attention of central banks. Public debt sustainability is therefore important for governments and central banks alike.  Also the exposure of commercial banks to government bonds has been and continues to be a supervisory concern (sovereign bank nexus).

Due to the pandemic public debt to GDP ratio in the eurozone has increased substantially but has started falling in the last two years, benefiting from a very benign snowball effect ( the difference between the nominal growth rate and the effective interest rate on public debt) and despite the fact of still large primary budget deficits in certain member-states. It is expected that in 2025 the public debt ratio in the eurozone will fall by 4 percentage points (to 87 percent of GDP) compared to what it is today. This however is still higher than before the pandemic. As monetary tightening has caused a general increase in interest rates and weaker growth, there is no room for complacency in fiscal policy. In this context it is imperative that the fiscal stance remains restrictive, and the new fiscal rules (which are more flexible and avoid the procyclicality of the previous ones) are in place in the eurozone from the beginning of 2024.

2. The increase in ECB  interest rates and the curtailment of its balance sheet (through TLTRO repayments and APP pause of reinvestments ) have up to now been beneficial for commercial bank profitability via an increase in their interest rate margins (because they reprice lending rates immediately but deposit rates with a substantial lag). However, this is not expected to continue due to the gradual increase in deposit interest rates, funding costs from money markets and the reduction of loan demand. Hence, commercial banks should be prepared for a more difficult banking and macroeconomic environment, due to monetary policy tightening.

3. The non bank financial sector (money market funds, hedge funds, private equity funds, asset management companies, insurance companies, pension funds, etc.) has in general behaved rather well despite the multiplicity of shocks in recent years. However higher interest rates, low growth, demanding market valuations provide reasons for concern, the more so due to the various kinds of exposures of banks to non-banks.


a) supervisors and regulators of non-bank financial institutions should strengthen respective rules especially regarding governance, liquidity mismatches and capital adequacy

b) commercial real estate and retail real estate excessive exposure could be dealt with borrowed based measures and macro prudential buffers

c) the April 2023 crisis management/deposit insurance proposals of the European Commission should proceed without delay as a step in the completion of the Banking Union in Europe

d) all supervisors (bank supervisors, insurance market supervisors, capital market committees, bond market supervisors, money market supervisors etc) should increase the lever of their coordination, cooperation and exchange of information.

e) supervisors should enjoy independence and respect in the exercise of their duties, as well as adequate resources.

f) the SSM despite the fact that it is a relatively new institution has been successful in the supervision of european banks and thus could be used as an example for other jurisdictions. 

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