FRANKFURT: Increased bank lending volumes as a result of the European Central Bank's easy money interest rate policy may not be enough to offset the hit to margins from that policy, Deutsche Bank Co-Chief Executive Juergen Fitschen said on Friday.
In a speech to the European Banking Congress, ECB President Mario Draghi had argued that monetary policies that were good for the economy were also good for banks, which needed to replace investments in sovereign bonds with more aggressive lending.
"Even though low interest rates put pressure on banks' unit margins, that is compensated for by volume effects - there is more activity in the banking sector as a whole because monetary policy is supporting the recovery," Draghi told bankers and regulators at the conference on Friday.
Fitschen appeared unconvinced by that argument in remarks on a panel immediately afterward.
"It is not easy to compensate for declining margins by higher volume, because higher lending volumes are associated with higher capital demand and that is why the equation is more complicated," he said. "This was one of the aspects I would have liked to debate with him," Fitschen said, referring to Draghi, who had already left.
Draghi in his speech said the US economy took 14 quarters to recover to its pre-crisis peak, whereas the euro area was likely to take 31 quarters, if it reaches that point as expected in the first quarter of next year.
The relatively quick economic recovery in the United States could at least in part be attributed to its large capital market, which Europe does not yet have, Fitschen said. "The behaviour of banks is also contributing to the dilemma we are in," Fitschen said.
"If there would be very significant growth tomorrow in Europe, I would have serious doubts whether banks could accommodate that," Fitschen said, because regulation was putting brakes on the provision of financial support. "We have to be very realistic about what can be done," he said.
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