IMF steps up call for bank reforms

The International Monetary Fund recently advised restructure within Germany’s banks and insurance groups, warning that soft interest rates would pose a threat to the profitability of the country’s financial sector worth EUR3 trillion.

The fund’s warning of “multiple challenges” to the sector, spelt out in its annual review of the German economy, comes in the wake of widespread domestic criticism in Germany of the European Central Bank’s negative interest rates, states a report by FT.

The report concludes that such rates have eroded banks’ profitability from their retail operations and — if protracted — will weaken life insurers’ ability to meet their commitments, which often involve paying policyholders fixed amounts.

The ECB has imposed a rate of minus 0.4 per cent on banks’ deposits held at eurozone central banks, a move that effectively imposes a tax on reserves and which has been described by Germany’s financial watchdog as a “seeping poison” for the country’s financial sector.

The IMF reiterated calls for Berlin to increase public spending and pushed for measures to encourage women, older workers and refugees into the labour market.