Negative interest rates: what future for European banks?

The slow – and sustainable – poison rate will force European banks to make strategic choices. Two tracks are available to them, explains Patrick Artus in a note of Natixis.

The date is ticked in the diaries of all investors.

On 12 September, the European Central Bank is expected to adopt new offensive monetary measures at the back-to-school meeting in order to support faltering euro area economies.

Among the expected measures is a further drop in the deposit rate with the institution of Frankfurt which could go from -0.40% to -0.50%.

But the accentuation of this ultra-accommodating monetary policy based on very low or even negative interest rates does not only have advantages. Penalizing for savers, it is devastating for banks in the euro area. With low interest rates, the loan intermediation margin declines.

However, faced with the deterioration of solvency and return on equity, it is increasingly difficult for banks to raise capital. Which leads to a contraction of credit. A real vicious circle.

Therefore, European banks will have to change their model, says Patrick Artus, director of research and studies of the bank Natixis.

With Japanese sauce …

A first way, called "Japanese", would see European banks follow the example of the Japanese banks who had no choice but to "gradually turn into funds

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