Mojmír Hampl: Czechs are innovative fiscal conservatives
8. 2. 2016 | Source: BusinessInfo.cz
The Czechs as a whole represent an extraordinary combination of significant financial conservatism and the quick acceptance of technological financial innovations, says Mojmír Hampl, vice-governor of the Czech National Bank.
Do technological novelties, such as peer- to-peer loans, in which money is loaned between people without the need for banks, represent a threat to financial institutions?
It is similar to Bitcoin. You think about the impact, and about what it means or could mean. I'm quite sceptical about Bitcoin in light of its high volatility and inability to preserve purchasing power stability. On the other hand, upon studying the meaning of a "blockchain" [a digital platform for verifying transactions -Ed.] used for reducing transaction costs, one can see the huge potential.
I admit that I have not seen this tool being used in peer-to-peer platforms, meaning lending between people without a bank intermediary - but what do I know? I am just a humble public servant. From the regulatory point of view, it is necessary to point out that we regulate banks because they take in deposits, not for their loan activities.
In the Czech environment, which is highly fiscally conservative, I will let myself be surprised at how much these innovations take off, but I am somewhat sceptical. I also view EU efforts to battle against the financing of terrorism to be a major issue. It is chiefly the French who are, understandably, sensitive about this matter right now, and it is possible that [future regulatory changes] will impact many financial innovations.
Which innovations stand a chance of success in the Czech Republic?
Today Czechs find themselves at the very peak of utilising e-banking and contactless payments. And I would say that all such tools, built around our embrace of such technological innovations, stand a real chance of success. We represent an extraordinarily interesting combination of truly significant fiscal conservatism, for example in terms of where we lodge our savings, and the quick acceptance of technological innovations, for example new methods of payment.
If we are such fans of e-payments, what is the point of introducing electronic receipts for transactions - as is being pushed for by finance minister Babiš? Surely authorities monitoring payments have easy access to the records of all electronic transactions?
Good question. Please address this to the minister of finance...
Many Czech business figures are strongly convinced that once the Czech National Bank [ČNB] ends its currency intervention policy the crown will again strengthen significantly. At the same time, when I ask such people whether they are willing to take on debt in euros - having the certainty that a stronger crown will mean they pay less - they still say that that they won't do it. How to make sense of this?
People talk, live out their lives, and we've already addressed Czech fiscal conservatism. In response to the same question, they tell me that they are not financial speculators.
Business leaders may be happy about the availability of cheap money, and order books are full, but such people also complain that there aren't enough qualified employees out there, so expansion plans are hitting the wall. Acquisitions are very expensive and so is real estate. In essence, they don't know where to invest. What advice would you give?
Heaven forbid a central banker giving advice! But one factor is evident: we have passed through a major economic crisis, which came to the Czech Republic from beyond its borders, and its impact significantly curtailed the horizon for financial decision-making.
Company balance sheets are in excellent condition, and have never looked better. Profitability is solid, money has never been so cheap, and banks are willing to make loans. When I ask: why then are wages not going up?, the reaction is very cautious: we've barely just recovered. No-one wants to get burned, and the horizon really has shortened, and it will take some time for faith in long-term investment bets to be restored.
Also permit me to add that there is always something missing for such business leaders: either customers, or financing, or staff. That is the nature of the economy - that at a given time resources are not limitless.
Is not this very combination of risk aversion and cheap money also fuelling a real estate bubble? In all conservatively- oriented countries, investors view real estate as a safe bet.
We are planning a certain tightening of rules governing systemic risks for banking to come into effect in 2017. We announced this far in advance, but we really don't have any signals that [what you describe] is now occurring. Local booms can happen, but that does not represent a systemic overheating. We don't have any signs of that. It is worth realising that this economy has only just managed to claw its way up to the levels of its productive capacities, and so we really don't get the sense that a bubble is being created. Or we have no knowledge of this.
So what occupies the time of a ČNB central bank vice-governor in January 2016?
Does the acronym MREL [minimum requirement for own funds and eligible liabilities -Ed.] mean anything to you? Under this banner we find the rather serious problem of bank capital adequacy, which should in future lead to taxpayers not having to help foot the bill for a potential bank rescue. The point of issuing subordinated bonds, or some other form of quasi-capital to commercial banks, to help strengthen their capital cushions in leaner times, is clear. But there is a catch.
The incorrect variant - translated into Czech conditions - would mean the necessary issuance of such instruments to the order of around CZK 100bn. Furthermore, banks would have to place these outside of their sector, so as to not be undertaking a "crossways" borrowing of such supplemental capital themselves, which would understandably undermine the entire point of the system. Or they would, via another path, have to dramatically increase their regular capital levels. In fact, banks operating in the Czech Republic possess very good capital reserves; additionally, they primarily finance themselves via deposits and the ratio between loans and deposits [the so-called loan to deposit ratio], which in our country represents one of the lowest in the EU. So similar ideas really aren't necessary here.
Would blanket EU-wide MREL regulations do more harm than good?
In our case, they would represent an entirely unnecessary burden, whose costs would be transferred onto customers, with no real benefits to the security of the overall banking system. So this is what we are dealing with right now, as talks over MREL are now in their final stage. Fortunately, we had and still have partners who are willing to learn about local on-the-ground conditions.
Mojmír Hampl (40)
A member of the Czech National Bank [ČNB] board since December 2006. Since March 2008, has also served as vice-governor of the ČNB. A graduate of the economics faculty of the University of Economics, Prague (VŠE), from where he also gained his doctorate. Also studied economics at the University of Surrey in the UK.
From 2002-04, worked as an analyst for Česká spořitelna. During the same period, also served as an external advisor to the then Czech minister of finance Bohuslav Sobotka.
From 2004-06 served as a member of the board and chief director of the Czech Consolidation Agency [ČKA]. Among other activities, is a member of the Academic Board at the Škoda Auto University in Mladá Boleslav. Has published more than 150 popular and specialist articles and studies. Since 2008, has represented the ČNB on the EU's Economic and Financial Committee; and since 2011 within the Regional Consultative Group of the Financial Stability Board.
Married with two children.
Originally published in E15 weekly, economic and business newsmagazine. Author: Miroslav Zámečník