In recent years, the ECB has increased its aid to commercial banks. To the benefit of their shareholders, but at the cost of losses, ultimately financed by taxpayers.
The European Central Bank (ECB) gave commercial banks a major gift on Thursday, September 12: the rate at which they borrow from the institution (Refi) and the rates at which the institution lends to them (deposit rates) will be virtually aligned: only a 0.15 point difference. In concrete terms, this means that from now on, Société Générale, BNP or Deutsche Bank will be able to borrow at 3.65% from the ECB and lend to it with interest at 3.50%. Whereas previously, the difference between the two rates was more than three times higher: 0.50 points between the two. And the difference was one point in the 2000s. On this point, the ECB has never favored the banks so much.
Which could in some cases allow their customers to borrow at a lower cost, but will first contribute to the profits of private financial institutions to the detriment of European taxpayers. This is not, by any means, the first gift from the European institution to commercial banks: the previous ones were already substantial. During the Covid crisis, the ECB set up long-term lending facilities for banks, and provided them with more than 3,000 billion euros in long-term loans (TLTRO program) for free, or even at negative rates. Thus the ECB gave the money to the borrowing banks. Two years later, in a context of record-breaking rate increases in its rates, the ECB raised its deposit remuneration rate to 4%, something never seen since the beginning of the Euro. This means that banks were able to deposit capital that they had sometimes borrowed for free without any financial risk, and receive 4% interest on it. In total, the Positive Money Europe expert group reported last January, the total deposits of banks at the counters of central banks amounted to 3,700 billion, which allowed the banks to rake in “146 billion euros of profits without risks” paid by the ECB in 2023. That same year, shareholders of European commercial banks received some 120 billion euros in dividends.
But watering the shareholders of commercial banks had a cost… Which had to be financed by the national central banks (Banque de France, Bundesbank, Banca d’Italia, etc.), which all recorded record losses in 2023. In the case of the Banque de France, the deficit amounted to 12.4 billion euros… Wiped out by the provisions permitted by past profits. But the shortfall for the French taxpayer is high. From 2010 to 2022, the Banque de France paid an average of 4 billion per year to the French State, dividends and corporate taxes combined. In 2023, this figure fell to zero. It is likely that the same will be true for the following years, because even if the institution, by some extraordinary chance, made profits again, they would first be used to rebuild reserves.
In the event of repeated deficits, states could even be forced to cover the losses of their central bank. Even if, according to the economist Jézabel Couppey-Soubeyran, central banks, according to the recommendations of the Bank for International Settlements (BIS), “can operate with negative equity” et “are not intended to make profits”, their objective being “monetary and financial stability, not profit maximization.” What the economist questions, however, is the legitimacy of a central bank subsidising commercial banks without compensation to the tune of more than 146 billion euros which will end up in the pockets of shareholders.
According to her, if there are losses, “they must be carried out in the name of a common good objective. The 146 billion in interest charges would be better used to support public investment, thermal renovation, the Green Deal.” The funds could be transferred through a “public financial company focused on sustainable development” whose mission would be “to allocate subsidies to private or public projects with an impact but which are not financially profitable.”
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