Monday

9th Dec 2019

EU banks are 'robust', eurozone chiefs say

  • Deutsche Bank lost more than 30 percent of its value this year. (Photo: Bjoern Laczay)

Eurozone finance chiefs downplayed fears over European banks after the sector lost almost 10 percent on the market in recent days.

Meeting in Brussels for a Eurogroup event they insisted that the rules adopted since the start of the financial crisis were sufficient protection against the risk of sell-offs or destabilisation.

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“The euro area is structurally in a much better position now than some years ago. And this is true also for European banks,” Eurogroup president Jeroen Dijsselbloem said after the meeting.

"With banking union, we have developed mechanisms in the euro area to bring stability to the financial sector and to reduce the sovereign-banking nexus," he said.

"Capital buffers have been raised, supervision has been strengthened, and we have clear and common rules for resolution. So overall, structurally we are now in a better position and we need to continue a gradual recovery."

Ministers and officials also downplayed stock market anxiety, with German finance minister Wolfgang Schaeuble saying there were "market exaggerations to some degree”.

Klaus Regling, the director of the European Stability Mechanism, the eurozone's emergency fund, noted that "bank stock declined by as much" in Switzerland, the UK and the US.

Compared to previous market troubles, the eurozone has a "more robust" banking system because it is now equipped with a supervisory and resolution mechanism, the EU finance commissioner Pierre Moscovici noted.

"It allows us to better know the situation of banks and get improved bank capital," he said, adding that "when necessary, we can resolve banks".

On Thursday, the cost of credit default swaps (CDS), the financial instrument used to insure debt, rose again, indicating concerns over the fragility of some of Europe's main lenders.

Deutsche Bank, in particular, lost more than 30 percent of its value since the start of the year after it announced record losses for 2015.

The situation of the banking sector in Italy, where the government recently agreed with the EU commission to set up a so-called bad bank to sell off unpaid bonds, is also a source of concern for investors.

'Firm hand'

On top of the situation of the banks, uncertainties over the Greek bailout talks as well as over the Portuguese budget and the lack of government in Spain also played a role in the market volatility.

In the face of new risks for the eurozone, Dijsselbloem sent a message to the market and also to member states who might be tempted to ease their austerity policies.

"When markets are volatile you need to have a firm hand. And the firm hand is: 'Let's stick to what we have agreed and try to fulfil our obligations'," he told reporters.

Investors "can deal with clear cut rules that will be implemented", he said.

Noting that new bail-in rules "may lead to repricing risks in our banks", he assured that "if that is what is going on, it is the consequence we need to take".

In the future, along with pursuing debt reduction and structural reforms in member states, the answer to market risks will be the "deepening and strengthening of banking union", Dijsselbloem said.

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