FirstFT: ECB discusses blocking banks from multibillion-euro windfall as rates rise

The European Central Bank has said it intends to raise its deposit rate to minus 0.25 per cent at its meeting on July 21, while signalling a bigger raise is likely in September to take the rate above zero for the first time in a decade, followed by further increases if inflation remains high.

The ECB is looking at ways to stop banks earning billions of euros of extra profit from the ultra-cheap €2.2tn of subsidised loans it provided during the pandemic once it starts to raise interest rates later this month. But with the central bank now planning to raise rates, it is set to provide a bonanza of extra earnings worth up to €24bn for eurozone lenders, according to analysts.

The ECB’s governing council is due to discuss how it could curb the extra margin that hundreds of banks will be able to earn from its subsidised loans by simply placing them back on deposit at the central bank, according to three people familiar with the plans.

The people said it would be politically unacceptable for the ECB to provide banks with a taxpayer-backed profit while it is raising borrowing costs for households and businesses and most commercial lenders are paying bonuses to staff and distributing dividends to investors.

One option could be for the ECB to change the terms of the loans to reduce the chance for banks to make an automatic return on the money, just as it made them more attractive after the pandemic began in 2020.

The ECB defended its cheap loans to banks, saying: “Without them the pandemic would have hit the real economy much harder.” It declined to comment on how it could stop lenders making windfall gains.

Do you have any feedback on the newsletter? Tell us at firstft@ft.com or by replying directly to this email. Thanks for reading FirstFT Asia. Here’s the rest of today’s news. — Sophia

Five more stories in the news

1. China’s rise pushes Asia-Pacific nations to embrace Nato In an unprecedented move, Japan, South Korea, Australia and New Zealand joined Nato leaders in Madrid last week to discuss cyber defence and maritime security, motivated by their alarm at Russia’s invasion of Ukraine and the growing might of an increasingly assertive China.

2. Brussels pushes for tougher sanctions enforcement Senior Brussels officials are discussing the creation of an EU-wide sanctions authority as they push for more consistent enforcement of penalties related to the war in Ukraine. The EU’s sanctions policy has thus far been hindered by uneven enforcement, since some countries have stronger infrastructure to implement them.

3. Chinese hackers kept up hiring drive despite FBI indictment Hackers with suspected links to China’s intelligence agencies were still advertising for new recruits to work on cyber espionage even after the FBI accused Beijing of setting up companies as a “front” for spying operations against western targets. University students were among those lured to work at a secretive tech company.

4. Shipping boss says Japan has no choice but to buy Russian gas Because of soaring energy prices and limited prospects of rebooting nuclear plants, Mitsui OSK Lines president and chief executive Takeshi Hashimoto said the country lacked viable alternatives to Russian liquefied natural gas. Meanwhile, the Japanese government asked residents and businesses to conserve energy to avert blackouts.

5. Russia claims control of Luhansk region after seizing last city After weeks of brutal fighting, Sergei Shoigu, Russia’s defence minister, reported to Putin yesterday that Russia’s forces had “liberated” the entire Luhansk region after capturing Lysychansk, Ukraine’s last stronghold in the area. The advance puts Russia closer to capturing eastern Ukraine’s Donbas border region.

The day ahead

American Independence Day The US observes a federal holiday today to celebrate the anniversary of their separation from Great Britain.

Ukraine recovery The international Ukraine Recovery Conference begins in Lugano, Switzerland.

What else we’re reading

Immune imprinting is driving the debate about Covid-19 vaccines Two years into the coronavirus pandemic, people have acquired very different types of immunity depending on which strains they’ve encountered. This spectrum requires a broad response, and presents a challenge for the next generation of Covid vaccines.

Biden administration split on whether to remove China tariffs President Biden suggested he was in no rush to remove Trump-era tariffs on more than $300bn of Chinese imports when he entered office. But as inflation has soared to 8.6 per cent, the White House is debating whether lifting some tariffs would provide relief to US consumers even amid the fraught politics of China trade issues.

Have we had enough of the nanny employer? Employers became very conscientious about attending to staff wellbeing during the pandemic, particularly mental health, often delving into matters that were previously viewed as personal. But have they encroached too far into our personal lives?

China’s self-styled Warren Buffett haunted by Fosun’s $40bn debt Chinese billionaire Guo Guangchang, whose global empire includes French resort group Club Med and Portugal’s biggest bank, is back in the spotlight and facing an immense challenge after a sudden sell-off in property bonds put scrutiny on a liquidity crunch and $40bn debts at his expansive conglomerate.

Can crypto contagion infect mainstream finance? The cryptocurrency market carnage has had one silver lining: the broader financial system has been spared. Here’s why most regulators and industry heavyweights believe banks and asset managers are protected.

Food & drink

From glass bottles to linen napkins, freshly cut flowers to sandwiches for everyone — here’s how to host the perfect plastic-free picnic.