Carlos Costa defends end of the Euribor rate on future loans – publico

 
         

                 

                         
                     

                         

                 

 
 

The Governor of the Bank of Portugal argued Wednesday that the fall in the interest rate on loans in force should not fall below zero and proposes a change in the rate fixing model in futures contracts.

According to said Carlos Costa on Wednesday in parliament, the governor sent a letter to the Minister of Finance, on 5 April, which suggested the end of the use of Euribor rates and the creation of another indexer “representative of the average of deposits in the Portuguese financial system. ” Carlos Costa, “the Euribor is not a good indicator of the cost of financing for Portuguese banks,” which “is based predominantly on deposit.”

The governor also wants to be enshrined in law that spread (trading margin applied by banks), not amended, which implies that even if the new rate fell below zero, the bank always would charge the value of the spread .

the two proposals, advanced at a time that is being discussed a degree that tied require banks to fully reflect the negative Euribor, intended to safeguard the interest income of banks.

the project law under discussion in the Budget and Finance Committee, within which the governor was heard, together proposals of the left parties and came to have a final version, however waged by the PS.

according to the final version of the legislation currently negative rates of Euribor would have to be fully reflected in the contracts even after canceled the spread , which would force banks to write off capital.

this possibility, set up by the Bank of Portugal, in the circular letter of March 2015, put in question, according to the supervisor’s statements, “stability of the financial system and the financial intermediation function of banking.”

in a simulation to the committee at the request of the PSD, the Bank of Portugal analyzes the impact of the final rate of the contract. From the fall of the Euribor six months to -1%, a scenario that seems unlikely at this point (is -0.142%), the impact on net interest income of banks amount to 700 million euros. Limiting the fall in the interest rate to zero (as being the current practice), the impact already happens to be EUR 500 million.

Underpinning the proposal of Carlos Costa, the alternative of limiting only the reference rate (Euribor) to zero (keeping the collection of the value spread ), there would be no impact on net interest income of the banks, the document said. But that would apply to new contracts.

With the position now taken by the governor, who had previously been assumed by a technical delegation of the Bank of Portugal, the left proposal breakthrough seems less likely to advance as it was designed.