Luis de Guindos: The discussion for a bad bank is premature

The European Central Bank (ECB) poured today some more cold water on the creation of a European bad bank.

Luis de Guindos, Vice-President of the ECB, said today that the ECB has not taken any decision or entered into any detail about the idea of creating a bad bank. ” It’s premature having this discussion now” he said in an interview with Der Spiegel. ECB’s vice president was asked if it is true that ECB has set up a taskforce to look into the idea of of creating a European bad bank.

Asked on banks financial strength, and if they are strong enough to absorb credit defaults that will certainly come  Mr Guindo said that :

“European banks are, on average, in a much better capital and liquidity situation than ten years ago. The problem of European banks is that their profitability was very, very low even before the pandemic. This is clearly reflected in bank valuations in the stock markets. So profitability is the real problem. And I think that the pandemic will make this situation even worse. Since the beginning of the crisis, the valuations of European banks have fallen by 30 percent. I think that this also justifies the rapid policy responses to the pandemic.”

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