The bankruptcy and rescue of several banks in the United States and Switzerlandsuch as the Silicon Valley Bank and Credit Suisse, and the subsequent turbulence have in recent days brought the Eurozone face to face with a reality that they believed had been overcome and forgotten: the ghost of a new financial crisis. A scenario that institutions and governments have ruled out in recent days, citing the soundness of the European banking system. The fall this Friday of the shares of Deutsche Bank by more than 14% have triggered fears again just as the heads of state and government of the Eurozone meet in Brussels. “It is a very profitable bank. There is no reason to be concerned”, said the German Chancellor, Olaf Scholz, at the end of the summit.
A European Council attended by both the President of the ECB, Christine Lagarde, and the President of the Eurogroup, Paschal Donohoe, to take stock of the financial situation and the turbulence experienced by the markets in recent days. As advanced last Monday before the European Parliament, the head of European monetary policy has conveyed to the leaders that the European banking sector is resilient and that it has “a solid position of capital and liquidity”, according to sources. Lagarde has also explained that the banking system is strong due to the regulatory reforms agreed at the international level after the financial crisis of 2008.
“Recent events remind us how important it has been to continually improve these regulatory standards. Now we need to progress and complete the banking union and continue working to create a true European capital market”, the same sources have explained about the message transmitted to the European leaders who have also made it clear that the dichotomy of price stability and stability does not exist. financial. “Our toolbox allows us to face both risks”. And in the case of financial stability, he has made it clear that the ECB is fully equipped to “provide liquidity to the Eurozone financial system if necessary”.
The same message of calm has transferred Donohoe. “Recent events in the financial markets remind us of the need to remain vigilant and continue to control risks” but “I am confident in the amount of liquidity and the resilience that our banking system has built and I equally believe in our regulators, our institutions, through national and European level, have played a very important role in strengthen the resilience of our banking system”, explained the Irishman.
Like Lagarde, the Irishman has also stressed that “we have the reserves and the resilience to ensure the stability of our banking system at this time.” Something that is the result of some decisions that the governments of the Eurozone adopted at the time and that have worked. Even so, the gesture of the Eurozone recognizes that “we cannot be complacent” and that we must continue to “monitor” events in the banking system. The president of the Eurogroup has taken advantage of his intervention to ask the Eurozone countries to continue developing the measures agreed last summer to develop and complete the banking union because “it can make a difference”.
“What we in the European Union have to do now is keep up our steady progress and build the banking union. We must implement and advance the agreements that were already in place. I am confident that we will be able to do more”, he added on the need to conclude the ratification of the European Stability Mechanism (ESM), still pending ratification by Italy, and key to guaranteeing that the Single Resolution Fund does not run out money. “We need to ensure that the Single Resolution Fund has the support it will need in the future, particularly from 2024, to ensure that if there are future banking difficulties we do not ask taxpayers to pay for them”, he recalled.
The banking union was created in response to the 2008 financial crisis and currently consists of two elements: the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM). The SSM supervises the largest and most important banks in the euro area directly at a European level, while the purpose of the SRM is to resolve failing banks in an orderly manner and with minimal cost to taxpayers and the real economy. . The third element of the package was the creation of a European Deposit Insurance System (SESD), but it was withdrawn in 2022 and has been parked for the moment.