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IIF Chief Says Europeans Seeking Input on How to Revive Lending

The Institute of International Finance is exploring options with European officials to help spur lending to small- and medium-sized enterprises, the head of the Washington-based industry group said.

“We are offering suggestions and dialogue with Brussels, with Frankfurt and with various country-specific capitals, helping them to think” about what such a program to support lending to companies might look like, Tim Adams, the IIF’s president and chief executive officer, said in an interview May 17. “We are actually very actively working with a variety of different governments and officials to help them think through the SME problem.”

Germany, France, the U.K. and Italy will be the weakest economies among the Group of Seven industrial nations this year, according to International Monetary Fund projections released last month. Europe’s sluggish growth has prompted officials including Treasury Secretary Jacob J. Lew to call on policy makers in the bloc to adopt measures that allow credit to flow more freely to smaller businesses that often account for the bulk of hiring.

Adams called Europe a “heterogeneous place” where economic conditions vary from country to country. “They want to be sure they understand the problem and I know they are actively looking for input from outside sources,” he said. “We’re certainly engaged with them.”

More Stimulus

The Frankfurt-based European Central Bank on May 2 cut its benchmark interest rate to a record low of 0.5 percent and President Mario Draghi said the central bank is exploring options to rekindle the market for asset-backed securities to support lending to smaller companies. Still, policy makers are “far from reaching any conclusion,” he said.

The IIF represents international financial companies, with a board of directors that includes executives from banks including HSBC Holdings Plc, Goldman Sachs Group Inc. and Deutsche Bank AG.

In Europe, there are “a whole host of things they need to do in order to restore growth. One of them is begin to find ways to channel capital back in the hands of small- and medium-size enterprises,” said Adams, a former U.S. Treasury undersecretary for international affairs.

Adams took over the helm of the IIF from Charles Dallara earlier this year.

ECB Executive Board member Benoit Coeure said May 17 while the central bank is looking at options to spur lending to smaller companies, it shouldn’t artificially change risk premiums paid by such firms.

ECB Independence

“The ECB can only act within its mandate,” Coeure said. Reducing risk premiums or assuming non-profitable assets from banks’ balance sheets “would be to the detriment of the central bank’s independence and freedom of action,” he said.

Adams said Europe needs to deal with a broken “transmission mechanism” of bank lending and rein in austerity, “which they have begun to do so that you can be a little more pro-growth.”

“The challenge for Europe is it’s a heavy banked economy. If banks aren’t lending, you can’t grow,” Adams said. You’ve got to have capital.’’

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