(Bloomberg) --
Banco Santander SA Chairman Ana Botin warned of potential unintended consequences of the European Central Bank's monetary policy, saying an extended period of negative interest rates was the “biggest disruptor” for lenders.
“We need to understand what will consumers do when you're not paying them for their savings,” Botin said in a conversation with Bloomberg TV anchor Francine Lacqua at Bocconi University in Milan. “It's an issue we need to understand better.”
Europe's banks are grappling with the consequences of the ECB's recent decision to cut rates further below zero and also ramp up quantitative easing to tackle slowing growth and stubbornly low inflation. Ultra-low interest rates drain the ability of banks to earn revenue, eroding the value of including Santander, Spain's biggest lender whose share price is down 74% from its pre-financial crisis high in 2007.
Tighter regulation put in place in the aftermath of the crisis is also having unforeseen repercussions for banks and their customers, Botin said. For Santander, it has meant having to take a 1.5 billion-euro ($1.64 billion) goodwill charge for its U.K. business partly as a consequence of ring-fencing, a rule that forces banks to separate their retail and investment banking operations. That has led in some cases to Santander facing duplicated costs.
Read more: Santander to Take $1.7 Billion Charge Tied to U.K. Operations
“If an SME that wants to export or wants to issue a bond has to go to two different banks to get a service from Santander that doesn't seem to me to make much sense,” said Botin. “We need to think about rules that work for customers.”
Botin said she doesn't expect Europe's financial system to be significantly affected by Brexit, even if the U.K. ends up leaving the European Union without a deal. It's small companies that are likely to bear the brunt of a no-deal exit, she said.
“We've done a lot of work and the Bank of England has been way ahead of the curve - I've done calls myself on both sides with the ECB to make sure the markets clear, so that is something we can be quite confident about,” Botin said. “The issue will be small companies. I hear all sorts of stories about if there is a hard Brexit what happens to small companies and the supply chain.”
To contact the reporters on this story: Charlie Devereux in Madrid at cdevereux3@bloomberg.net;Sonia Sirletti in Milan at ssirletti@bloomberg.net
To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Charles Penty, Marion Dakers
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