Following market turbulence brought on by Swiss and American banks, the European Central Bank is likely to reassure European Union leaders on Friday that banks in the eurozone are safe, but will also urge them to move forward with an EU deposit insurance scheme, according to officials.
In order to discuss economic issues, including revisions to the EU’s fiscal and debt rules, EU leaders are meeting in Brussels for a second day of talks. However, according to officials, concern over the effects of Credit Suisse and Silicon Valley Bank (SVB) problems on the EU banking system is likely to take center stage.
Although investors feared other ticking time bombs in the industry, the collapse of U.S. regional banks SVB and Signature Bank earlier this month caused a panic in banking equities. In order to prevent a worse crisis, UBS Group AG acquired the 167-year-old Swiss bank after this spilled over to Credit Suisse Group AG.
The 20 nations that share the euro will be discussed, and ECB President Christine Lagarde will likely be questioned on the ECB’s plans for additional interest rate increases to combat inflation.
After the Swiss solution, Christine Lagarde will reassure banks, an official predicted. “She will ask the leaders to move forward with the Capital Markets Union and finish their Banking Union.”
“Her message is probably that the ECB’s monetary policy is dictated by data rather than forward guidance. The objectives of financial and price stability are not mutually exclusive. The ECB has complementary tools for both, “added the official.
EU DEPOSIT INSURANCE IS REQUIRED FOR BANKING UNION COMPLETION
Similar advice on banks is anticipated to be given to EU leaders by Paschal Donohoe, the head of the euro zone’s finance ministers.
There is no room for complacency as we have seen from the banking instability, but he is likely to stress that generally banks are in a good position and have sufficient capital liquidity buffers, according to a second official.
He will probably urge for continuing, steady advancement toward the Banking Union’s completion and assert that the Capital Markets Union is crucial for maintaining competitiveness and that more work has to be done.
Introducing a European Deposit Insurance Scheme (EDIS), the final component of the initiative that was first introduced in 2012, is referred to as “completing the banking union” in the EU.
Two-thirds of the Banking Union has already been completed. The EU has established a single resolution authority with a dedicated fund to resolve failing lenders as well as unified supervision of the biggest banks in the eurozone under the control of the ECB.
There is no EU-wide program, nor a way for authorities to work together across borders if a banking crisis is too much for one country to handle on its own, despite the fact that the majority of EU countries have some type of national insurance that guarantees deposits up to 100,000 euros ($108,320.00).
Germany is the principal opponent of EDIS because Berlin is worried that if deposit guarantees are mutualized at the EU level, Berlin would end up covering deposits of failing banks in other nations, like Italy, that are still paying for bad credit or bad investment decisions from years ago.
The Capital Markets Union was established in 2015 to make it easier for EU businesses, which currently rely primarily on bank loans for any financing, to access private capital. Because the 27 member states of the EU have different tax, insolvency, and prospectus rules, progress has been gradual.
