Bank of Japan Governor Haruhiko Kuroda said low profitability at financial institutions could start a new financial crisis, offering his strongest warning to date of the demerits of aggressive monetary easing pursued by major central banks, Business Insider reported earlier today.
Mergers and consolidation may be among options for financial institutions to boost profitability, Kuroda commented and also added that while the measures themselves were necessary to revive growth, the resulting plunge in interest rates have hurt profits at financial institutions by narrowing their margins.
Faced with low inflation and tepid economic growth, many central banks like the BOJ, the Federal Reserve and the European Central Bank, have adopted unconventional monetary easing steps since the global financial crisis in 2008.
Kuroda said the problem of low interest rates hurting bank profitability was a global one, pointing to bad loans piling up at some European banks and headwinds plaguing Japanese banks, for instance, from sluggish lending driven by an aging population.
For the financial system to ensure future stability, it is becoming more and more important in the long term to think about possible responses to low profitability at financial institutions,” he said.
Four years of aggressive money printing by the BOJ have failed to pull Japan sustainably out of stagnation, forcing the central bank to revamp its policy framework to one better suited for a long-term battle with deflation.
But the attempts to revive Japan’s anemic consumer spending through unconventional monetary policy have created new problems for the central bank in its dealings with markets and financial institutions.