Report
Distortion of euro-zone banks’ balance sheets: Can we see a Japanese-style trend?
W e use the term " Japanese-style " trend in the structure of banks’ balance sheets for a situation where: Deposits continue to increase, due to the attraction for liquidity caused by the very low interest rates; Credit is weak, due to companies’ strong profitability as they have no need to borrow and the decline in household s’ housing investment; Banks therefore have a growing excess of deposits over credit, which they use to buy bonds; When there is quantitative easing, banks sell these bonds to the central bank, and then hold reserves at the central bank; Banks’ profit margins are squeezed since when monetary policy is expansionary, not only do interest rates on loans fall , but moreover, the yield on bond portfolios and on reserves at the central bank becomes zero (and even negative). Banks are therefore becoming unprofitable while turning into bond funds with significant cash reserves .
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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