He European Central Bank assured this Friday to the leaders of the European Union (EU) that Eurozone banks are safebut asked them to move forward with the European deposit guarantee scheme, officials said.
On the second day of talks in Brussels, EU leaders discussed economic issues, including changes to the bloc’s debt and fiscal rules, but concern over the impact of the bloc’s debt Credit Suisse and Silicon Valley Bank (SVB) in the EU banking system was high on the agenda, according to officials.
European bank shares fell sharply again on Fridaywith Deutsche Bank and UBS hit by concerns that measures by regulators and central banks have yet to contain the worst problems facing the sector since the 2008 financial crisis.
Deutsche Bank shares fell for the third day in a row, more than 12%following a sharp increase in the cost of insuring its bonds against default risk.
“The banking sector in the euro area is resistant because it has strong capital and liquidity positions”, said the head of the ECB, christine lagardeto EU leaders, according to officials present at the meeting.
“The banking sector in the euro area is strong because we have applied to all of them the internationally agreed regulatory reforms following the global financial crisishe said, adding that the ECB’s “toolkit” was fully equipped to provide liquidity to the system should it be needed.
Lagarde defended the ECB’s push to interest rate hike to put an end to high inflation at a time of turmoil in the financial sector, and stated that there is no compromise between fighting price increases and maintaining stability in the banking sector.
“Our toolbox allows us to deal with the risks for both of us,” he told the leaders, according to EU officials. “We are determined to reposition the inflation at 2%. We will decide the rates in the future based on the data that comes to us, ”he declared.
He asked the leaders to promote their banking union project, started in 2012, which still lacks a European Deposit Guarantee Scheme (EDIS) to reinforce or replace the current mosaic of national systems.
He also asked for a Union of Capital Markets in Europe to give businesses, now largely dependent on bank loans, better access to funds at a time when they have to compete with China and the United States in “green” technologies to fight climate change.
“Now we have to move forward in realizing the banking union,” Lagarde told the leaders. “More work is also needed to create truly European capital markets.”
“Complete Banking Union” is the EU code for entering the EDIS as the last missing item in the project that already created a pan-european banking supervisor and a single resolution authority with a special fund to resolve lender bankruptcies.
Although most EU countries have some form of national insurance that guarantees deposits up to €100,000 ($108,300)there is no EU-wide system, no way for authorities to work across borders if a crisis is too severe for any one country.
The main opponent of EDIS is Germanywhich fears that if deposit guarantees are mutualised at EU level, Berlin ends up paying the deposits of the bankrupt banks of other countrieslike Italy, still weighed down by bad credit or investment decisions from years ago.
(With information from Reuters)
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