ECB's Draghi calls for fiscal stimulus

The European Central Bank stood ready to do more if either the declines in the price of oil and commodities or damage to the transmission mechanism for its monetary policy pointed to downside risks for price stability, Mario Draghi said on Monday.

In testimony before the European parliament, the ECB’s chief also reiterated his call for fiscal stimulus, where possible, and structural reforms to be added to the policy-mix.

"Other policies should help to put the euro area economy on firmer grounds. It is becoming clearer and clearer that fiscal policies should support the economic recovery through public investment and lower taxation. In addition, the on-going cyclical recovery should be supported by effective structural policies.”

“Compliance with the rules of the Stability and Growth Pact remains essential to maintain confidence in the fiscal framework,” he added.

As regarded banks in the euro area, Draghi emphasised that they had significantly strengthened their capital positions, although he admitted they were facing a series of risks.

Those included, concerns about weakening growth, potential adverse signals from falling commodity prices, perceptions lenders may have more to do to adjust their business models to the lower growth/lower interest rate environment and the strengthened regulatory framework put in place since the crisis.

For a number of banks, one also needed to take into account uncertainty about litigation and restructuring costs to working through a stock of legacy assets, especially in the countries affected by the financial crisis.

There was a sub-set of banks with high levels of so-called non-performing loans, he said, but added that those NPLs were already identified during the ECB’s so-called Comprehensive Assessment.

A majority of banks’ shares were now trading below their book values despite having relatively limited exposure to emerging markets and commodity-producing countries, Draghi pointed out.

To take note of, Draghi dismissed a report from Reuters, on Monday, that the ECB was discussing the inclusion of Italian non-performing loans to its asset purchase programme.

“As far as I know, however, I’m not aware of any talk or conversation. We are not talking about buying anything.”

Draghi also commented on the upcoming UK referendum on continued membership of the European Union, saying that ideally the objective would be to "anchor the UK inside the European Union, so that both can draw benefit from this.”

As of 15:41GMT the DJ Stoxx 600 bank's sector index was 3.35% higher to 142.40.