The European Central Bank (ECB) did not want to postpone its interest rate hike. Now it will be interesting to see whether the US Federal Reserve (Fed) will take more account of the turbulence in the banking sector at its interest rate meeting next Wednesday.

Winand von Petersdorff-Campen

Economic correspondent in Washington.

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Christian Siedenbiedel

Editor in business.

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In any case, ECB President Christine Lagarde justified the Governing Council's decision to raise interest rates once again, despite all the worries about the banks, with a well-filled toolbox: it makes it possible to master the two fierce challenges of the central bank, excessive inflation and the bank quake, "separately".

There is therefore no "trade-off", no mutually exclusive choice between financial stability and price stability: the ECB can use the interest rate instrument to combat inflation. And I also have enough other instruments to prevent a financial crisis. It all culminated in the sentence: "The Governing Council of the ECB is closely monitoring current market tensions – and is ready to respond as necessary to maintain price and financial stability in the euro area."

"Respond as necessary": It is certainly no coincidence that this is reminiscent of the epochal events of more than a decade ago in Europe and around the world. Last time, when banks faltered and the financial world looked into the abyss, governments and central banks acted globally in concerted action. It is unforgotten how Chancellor Angela Merkel (CDU) and her Finance Minister Peer Steinbrück (SPD) appeared in front of the television cameras and announced: "The savings deposits are safe."

The ECB's toolbox

Meanwhile, the central banks flooded the world with cheap money. And in the ensuing European sovereign debt crisis, then-ECB President Mario Draghi managed to calm things down at least when he announced that he would do "whatever it takes" to save the euro. At that time, the world learned that if a central bank shows the instruments, this can be enough and save their use, at least temporarily. It showed the effectiveness of an institution that can intervene with unlimited resources if necessary, because it can create nothing less than its own money.

And this time? The ECB remained vague on Thursday about what instruments it uses and under what circumstances as banking turmoil increases. Lagarde stressed that she had everything necessary in the "toolbox" – but at the same time praised the creativity of her team when it comes to creating new programs at short notice. We saw that in the pandemic.

In particular, the ECB President emphasized that the ECB has even more possibilities to react to market turbulence than the US Federal Reserve. Karsten Junius, economist at Bank J. Safra Sarasin, spoke of historical causes in this context: "The ECB's toolbox is actually slightly larger than the Fed's, as it accepts a larger and more diverse type of collateral for its refinancing operations with banks." This extends to bank loans.