ECB´s Draghi calls for greater regulatory certainty for banks

Monetary policy needs to and will remain accomodative, the president of the European Central Bank said, while calling for a halt to ever-higher capital requirements for banks and on other policymakers to do their bit in fostering a sustainable recovery.

In remarks prepared for a speech at the European banking conference in Frankfurt, Mario Draghi pointed out how 2016 would mark the first full year during which economic activity in the euro area had remained above pre-crisis levels, but only after seven-and-a-half years, he emphasised.

On the positive side of the ledger, banks´ solvency had improved and the recovery was being driven by internal demand, he said.

However, "a sustained adjustment in the path of inflation still relies on the continuation of the current, unprecedented financing conditions," Draghi added.

"It is for this reason that we remain committed to preserving the very substantial degree of monetary accommodation, which is necessary to secure a sustained convergence of inflation towards level below, but close to, 2% over the medium-term," Draghi said.

Significantly, in his speech Draghi called on global regulators to close the current regulatory push due to the uncertainty among lenders about just how high authorities would ask them to raise their capital buffers.

"Uncertainty over future capital requirements can give rise to a risk premium, which weighs on banks’ cost of finance and acts as a deterrent to expanding activities or supplying credit to the economy. So now is the time to finalise the regulatory agenda and enter a period of stability," the ECB´s boss said.

In terms of risks, Draghi highlighted three: the profitability of euro area banks, the relative weakness of inflation dynamics, and the dependence of the recovery on accommodative monetary policy.

"Whether the economic recovery becomes more solid, and how quickly inflation dynamics become more self-sustained, depends not just on the current monetary policy stance, but also on other policies, as I have discussed on several other occasions. Restoring a sense of direction – and therefore confidence – would be the simplest and yet most powerful way to deliver economic stimulus."