Listen to the audio version of the article
There are many bankers present at the World Economic Forum in Davos and those with Swiss license plates are in the front row. In the debates, interest rates and new technologies are among the main topics. On rates, Sergio Ermotti, CEO of UBS, the largest Swiss bank, underlines the need to use great caution, even now that inflation is far from its peaks. «Central banks – explains the Ticino top manager – make a mistake when they make unclear communications, moving from time to time from the position of keeping rates high to the position of allowing rate cuts in the near future. On the merits, it should be added that great caution must now be used in reducing rates. There really needs to be all the conditions for moves of this kind, otherwise there is a risk of further increases in inflation, with a worsening of the situation rather than an improvement.”
Lending spread – collection
Those who are critical of banks point out that they prefer high rates because they offer higher margins in their activities. Those who defend the banks indicate, however, that what matters is not the absolute level of the rates, but rather the difference between the rates paid and the rates collected. In short, the balance can be found at different levels. Therefore the defense underlines that it is not true that bankers always oppose the reduction of rates, if they do so it is because they see real dangers in the economic situation.
This is also what Giorgio Pradelli, CEO of EFG, a Swiss bank that integrated the former BSI, which participates in the Davos Forum, claims. «I think that in fact prudence is still needed regarding rates – says Pradelli – because the situation is not clear regarding the dynamics of inflation. If on the one hand the latter has fallen, on the other, however, geopolitical tensions risk leading to rebounds. It’s not that the banks want to remain in high rates, the margin can also be found with other rates. We must avoid returns to high inflation. Having said that, if the situation becomes clearer, there could also be a reduction in rates. When rates are lower, there is more room for growth and everyone can benefit from a better economic situation, including banks.”
Rates and recession, the American case
The artificial intelligence scenario
Swiss bankers are arguing in favor of new technologies and Artificial Intelligence. The development of this new stage of technologies also closely affects banks and the financial sector. “We often talk about fewer jobs due to technologies, but the discussion on employment must actually be done taking into account other elements, including the creation of new jobs and demographic dynamics,” underlines Ermotti. “Properly conceived and applied technologies increase productivity and this also applies to Artificial Intelligence; there are changes to manage, but there is also the possibility of making significant progress, as we already see in part”, concludes Pradelli.