Europe's banks are mad as hell and they aren't going to take it any more.
That seemed to be the message of John Cryan, the co-chief executive of Deutsche Bank, who warned at a conference Wednesday that investors are losing faith in the power of central banks to promote growth.
The European Central Bank is fighting back, arguing that Europe's banks need to get their own act together and stop blaming the central banks for their problems.
The latest spat comes as the great and the good of the ECB will meet in Frankfurt in one week to decide on interest rates for the 19-nation euro zone. They are widely expected to cut the deposit rate for banks that park reserves with the ECB, in a bid to fight what they believe is a dangerous deflationary climate in Europe.
Prices in the euro zone have remained doggedly stagnant over the past few months despite the central bank's best efforts, even declining by 0.2 percent in February.
Analysts expect President Mario Draghi to relax monetary policy even further, and will probably even increase the negative interest rate for banks wanting to park their money at the European Central Bank.
This decision will hurt already struggling European financial firms. The banking sector is now starting to speak out.
Deutsche Bank's Mr. Cryan, speaking at a conference hosted by Germany's Süddeutsche Zeitung in Frankfurt, warned that if euro zone interest rates drop even further below zero, it will lead to even greater losses in the banks' deposit business. Banks will be forced to offset these losses by making loans more expensive, not cheaper. Costlier loans, in turn, would be an impediment to growth.
In the end, Mr. Cryan explained, the European Central Bank is achieving precisely the opposite with its negative interest rate than it had intended. Mr. Cryan argued that a more normal interest rate policy would be better for both the banks and the economy as a whole.
Higher growth is urgently needed to bring down high unemployment, deleverage the economy and bring inflation back up toward our price stability goal, Benoît Cœuré, European Central Bank
The interest rate on overnight deposits with the ECB is already at a negative 0.3 percent. In other words, banks have to pay the ECB a fee to deposit their excess reserves with the central bank.
The markets assume that the Frankfurt-based central bank will lower this rate to between negative 0.4 and negative 0.5 percent at their meeting next week. In taking this step, the central bank wants to encourage banks to use their excess liquidity for lending, rather than park the money with the central bank.
For lenders, the parking fee is becoming an increasingly serious burden. The industry is stuck in a crisis of confidence. The share prices of European banks declined dramatically early in the year. Deutsche Bank's stock, for instance, has lost more than 20 percent of its value since the beginning of 2016.
Not all of this should be laid at the central bank's feet, however. While admitting that the negative interest rates are creating more uncertainty in the industry, Benoît Cœuré, an executive board member of the ECB, vehemently rejected the criticism coming from banks. According to Mr. Cœuré, many banks could more than offset declining revenues in the interest business with the profits they make from stronger lending and lower costs for interest and risk provisioning.
"Higher growth is urgently needed to bring down high unemployment, deleverage the economy and bring inflation back up toward our price stability goal," Mr. Cœuré stressed, adding that the central bank hopes to achieve this with its current policy. The sharp declines in bank stocks at the beginning of the year showed how sensitively the banks are responding to a further cooling of the economy, he argued.
Mr. Cœuré believes that the banks themselves have an obligation, and that many haven't done their homework yet. He argued that banks must bring their business models in line with new realities and make more headway in eliminating inherited burdens, such as bad loans.
In contrast Sergio Ermotti, head of the major Swiss bank UBS, believes that the ECB is underestimating the problems of negative interest rates. He points out that 25 percent of the world economy is now dealing with negative rates, and this is creating enormous problems for retirement pension systems. There is also a growing danger that ultra-cheap money will contribute to bubbles in the markets.
Banks have already started passing on some of the costs. So far, most banks have only charged companies and large customers negative interest rates for their deposits. Retail customers are only affected indirectly, through higher mortgage costs, for example. But that could change.
"The bank that makes the first move," and introduces negative interest rates for retail customers, "would probably be doing the industry a huge service," argues Wolfgang Kirsch, head of Germany's DZ Bank. When that happens, the "economic pressure from which everyone suffers will be taken away from the industry."
At the moment, said Mr. Kirsch, tough competition prevents this from happening. But if Mr. Draghi continues to push rates lower into negative territory, the question will be raised once again. "I'm careful about making statements with which you rule out everything for all time," Mr. Kirsch warned.