Draghi Confirms that ECB Will Not Move Before The Asset Quality Review

On Saturday, briefing the press ahead of the IMF/World Bank Annual Review, Mario Draghi insisted on the need to conduct an Asset Quality Review (AQR). Despite some improvements concerning growth, liquidity fragmentation and balance sheets both in the private and financial sectors, ECB needs to provide a transparent analysis of the quality of banks’ assets to improve confidence in Eurozone.


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Returning to economic activity, which he asserted had “bottomed out” in the first half of 2013, Draghi said the recovery “is still weak, it’s fragile, it’s uneven, and it starts from low levels of activity.”
Draghi noted a “significant” improvement in euro area fragmentation, which with respect to bank deposits had disappeared, even if it persisted in other regards.
As well, financial stability risks in the region have diminished, he added, noting banks’ repayment of LTRO liquidity and Target 2 imbalances’ decline.
Continuing on an upbeat note, Draghi said: “There has been progress across the board in repairing balance sheets both in the private sector and in the financial sector. But we are looking forward to the asset quality review because no matter what our perceptions may be today of the state of health of the banking system, our objective … is to present to the private sector a completely, fully visible and transparent analysis of the quality of the banks’ assets. The ultimate objective is to have a private sector that will invest, that will put money in the banking industry.”


In this context, ECB will focus on AQR before taking any decisions regarding another LTRO, a rate cut or the use of other tools. Remind that the AQR details should be disclosed on the second half of October.


Finally, it’s important to note that Noyer and Weidmannn already said there is no need for another LTRO or rate cut. Therefore, OMT could be the first choice of ECB if it’s valided by the German Constitutional Court.


All ECB members’ speeches since last meeting are available here.