Letter to the ECB – Call on the ECB to address banks’ windfall profits15. September 2022
Strasbourg, 15 September 2022,
Letter to the European Central Bank
Dear President Lagarde,
We would like to bring your attention to the issue of banks’ windfall profits and call on the ECB
and the Governing Council to address it as a matter of urgency.
The Governing Council decided to increase interest rates by 50 basis points in July, 75 in
September, and signaled further aggressive rate hikes in the months to come. The decisions of
the ECB will make borrowing more expensive, reducing the supply of cheap credit. Higher
deposit rates will also incentivise commercial banks to park their liquidity at the ECB instead of
lending to the real economy, as they will get an interest on their deposits at the ECB.
At the same time, the ECB has been providing banks with €2.2 trillion of subsidized loans since
March 2020, by easing the conditions for targeted longer-term refinancing operations (TLTROs).
The borrowing conditions were extremely advantageous, with interest rates as low as -1% for
the Jun 2020 Jun 2022 period. This means that banks received a lot of cash during the
pandemic that was meant to reach consumers in the form of bank loans. This measure made
sense in the context of an expansionary monetary policy with low to negative interest rates.
However, the TLTROs will run for two more years before the loans mature. This means that
rather than using it to provide credit, banks could now simply park this liquidity received by the
TLTRO back at the ECB and collect interest on those deposits – a classic tax-payer subsidized
carry trade. There is talk of 20 to 40 billion euros in risk-free additional income, which the
financial institutions in the euro zone are expected to collect in the next few months.
At a time when citizens and the economy as a whole face a crippling energy price shock eroding
peoples’ incomes, it is unacceptable that the ECB is providing banks with taxpayer-backed
profits, while the borrowing costs of all other companies and households will increase
significantly. Avoiding such unfair distribution of revenues is precisely the rationale behind the
Commission Proposal to tax windfall profits from energy companies, another sector benefiting
from the crisis with ballooning profits.
Following reports in July, as well as the recent joint EU efforts to redistribute (1) extra profits, we
fully expected the ECB to address this issue of banks’ windfall gains at the September
Governing Council. But when asked during the press conference, you maintained this was not
even debated. This means that banks will continue to benefit in full from a higher deposit rate
and from low TLTRO rates, while citizens are struggling to make ends meet. Most commercial banks will be paying out bonuses and distributing dividends to investors, while raising interests on loans to the real economy and mortgages.
As the ECB has been warning of the ‘sacrifice’ needed to tame surging inflation (2) and talks about
the unavoidable pain central banks will need to inflict in terms of weaker growth and higher
unemployment to bring inflation back under control, it is unacceptable that banks will privatize
windfall gains after having socialized their losses. Euro area banks have already benefited
massively from cheap liquidity during the pandemic. Now the least that the ECB can do is
ensure that banks are not the winners of yet another crisis.
In light of the ongoing cost of living crisis that is exacerbating inequality in our societies, we urge
the ECB to stop lenders from making windfall gains.
Kira Marie Peter-Hansen,
_____________ (1) FT: ECB to discuss blocking banks from multibillion-euro windfall as rates rise, 3 July 2022 (2) Isabel Schnabel, Monetary policy and the Great Volatility, 27 August 2022