European banks must prepare for the next digital storm – ECB’s Schnabel

BERLIN, Reuters administration of the European Central Bank.

FILE PHOTO: Isabel Schnabel, a member of Germany’s economic expert advisory board, poses before a news conference in Berlin, Germany November 6, 2019. REUTERS/Fabrizio Bensch

Isabel Schnabel, a prominent economist, is set to take Germany’s place on the board of the eurozone central bank, where she will succeed Sabine Lautenschlaeger, who resigned amid contention over the ECB’s accommodating fiscal policy.

Speaking in Berlin on Wednesday, Schnabel warned that weak profitability could end up becoming a financial stability problem for the euro zone. Although she has not yet been officially confirmed for the board seat, Schnabel is the only candidate.

“The situation with European banks is very tense,” she told Reuters. “If banks have low profits, it is difficult for them to build up capital, which increases their resilience. This is a problem for financial stability.

If her remarks, made after the presentation of a report on the German economy by the panel of economic experts on which she currently sits, focusing on European banks, they reflect a live debate in Germany on the challenges facing its large banks.

Since the failure of its proposed merger with Commerzbank CBKG.DEGerman Bank DBKGn.DE underwent a painful restructuring, laying off thousands of employees in a bid to recapture more streamlined, online-led newcomers.

Schnabel, who has yet to receive a specific board portfolio from new ECB President Christine Lagarde, said she expects consolidation in the German and European banking sectors, the German public company Landesbanken being particularly ripe for consolidation.

“We need a full banking union and we need to further develop the capital markets union,” she said, echoing Finance Minister Olaf Scholz’s call on Wednesday for a banking union. incorporating a European deposit insurance scheme.

The issue of bank resilience has been made particularly pressing by the prospect of other tech companies following Facebook’s lead. FB.O The Libra project to get into finance, further straining the competitiveness of banks.

“The big danger I see is that at some point we see a market entry by a big tech company. Libra is just a taste,” she said. And then the banks could really find themselves in a situation where they still have large balance sheets but are no longer competitive.”

Reporting by Klaus Lauer; Written by Thomas Escritt; Editing by Paul Carrel