ECB vice president highlights need for banking union
0 Comment(s)
Print
E-mail Xinhua, April 25, 2014
Vitor Constancio, the vice president of the European Central Bank (ECB) said on Wednesday that there were many arguments for greater European banking union to compliment monetary union in the region.
Speaking at an event organized by the University of Navarra in Madrid which looked into the different responses the countries in the EU have developed to overcome the banking crisis and how these have been translated into different conditions for credit and investment throughout the EU, Constancio commented banking union would "better protect the real economy and financial stability in the whole area."
He said that the idea of single European supervisor came about in June 2012, "as a consequence of the decision to prepare direct European recapitalization of weak banks."
"The acute situation of liquidity shortage in late 2011 that led us at the ECB to conduct two long-term refinancing operations," he commented.
Constancio explained that, "different forms of dependence created a negative feed-back loop that induced financial fragmentation among member of the monetary union and contributed to impair the credit channel and the transmission of monetary policy."
As a result of this, he said "monetary policy interest rates were not properly transmitted and deposit and credit rates became too different among countries as if we were not related to the same currency and to banks operating in a monetary union."
A Single Supervisory Mechanism "will address the problems created by differences in the way that banks calculate risk-weighted assets. Importantly, the SSM will ensure that the same risks are given similar weights."
Meanwhile a single resolution mechanism (SRM) is also vital given that; "the orderly resolution of banks may contribute to avoid costly rescues by sovereigns that may endanger their own finances."
Constancio said the SRM was thus a "logical and necessary compliment to the SSM," adding that it should become a single European Fund in eight years.
He highlighted the need to protect public money, but said the creation of bail-in fund of 8 percent of the liabilities, including funds, of any given bank, should be enough to shield them from the vast majority of predicable losses.
The vice president explained that banking union would obviously mean a loss of sovereign power and strengthen monetary union, but that in the case of countries with weak public finance "will no longer be able to support, and possibly keep, their national champions."
He said that the new legislation was able to distinguish between individual banks with problems and a generalized economic crisis.
Constancio highlighted that confidence was returning in the banking sector as a result of its recapitalization, saying that the share prices of banks rose by 41 percent in 2013, twice the average growth rate of 20 percent.
Banking Union, he commented, would "trigger corrective supervisory action where it is needed and dispel any remaining doubts about asset valuations and the corresponding level of provisions."
Meanwhile, he commented that banking union would have effects beyond the objective of financial stability and would also have positive knock-on effects for the further integration of the European banking market, enhance the role of the European capital markets and see the emergence of new macro-prudential tools for the ECB.
"Banking Union is an essential complement to monetary union and a project with vast consequences for European integration. It is not, however, the end of the journey,"concluded Constancio. Endi
Go to Forum >>0 Comment(s)