Brussels wants to strengthen its mechanisms to avoid ‘contagion’ in the event of a banking crisis

2023-04-18 16:39:40

The recent financial turbulence following the intervention of Silicon Valley Bank (SVB) and the rescue of Credit Suisse have highlighted the need to strengthen the mechanisms to protect the European banking sector. The European Commission has presented this Wednesday a proposal to reform the tools to protect European entities and deposits and avoid the contagion effect in the event of a new crisis. Brussels hopes to reach an agreement between the Twenty-seven before the parliamentary elections, which will take place in 2024.

The reinforcement of the Banking Union was “a priority” for the European Commission, which had been working on this initiative for a year and a half to improve response mechanisms in the face of a crisis. “It is not a reaction to recent events, but what happened with SVB and Credit Suisse is confirmation that we have to continue improving our system,” official European sources have confirmed.

The new framework proposed by Brussels will make it possible to intervene in the event of bankruptcy of a medium-sized entity, protecting deposits and preventing panic from spreading. “Citizens have to feel 100% safe and know that we can act. Using public funds should be the last option, “say the same sources. The negotiation to create a deposit guarantee fund at the European level continues, however, to be blocked by the ‘frugal’ countries -Germany, Austria, the Netherlands…-. This mechanism would make it possible to guarantee deposits of up to 100,000 euros, which would give greater confidence to the clients of European entities.