on March 24 The press was talking about another Black Friday, and fears of reviving the 2008 exercise were growing.When the bankruptcy of Lehman Brothers caused a tsunami that could wipe out the international financial system and with it advanced economies. At the beginning of March, the Bank of America’s Silicon Valley (SVB) crashed in what appears to be an isolated case, but a week later insecurity toppled an international private banking institution like Credit Suisse. The eyes of the market and speculators turned to the next victim: Deutsche Bank, the German giant that crashed in the stock market and was about to cause an international financial panic.
Now, just a month later, the calm has returned. There is consensus that the crisis is a collection of individual events. “There have been cases with their own characteristics,” says Luigi Motti, senior director of S&P Global. A view shared by key players in the industry, such as Santander president Ana Botín “certain portions of volatility in certain assets”.
And if there is consensus that the crisis is slowing down, there is consensus on the prescription: Europe must apply to prevent or at least stop the emergence of new cases.if it spawns, with as little damage as possible: complete the banking union.
Dombrovski’s plan
Pablo Hernández de Cos, head of the Bank of Spain, has been calling for “the culmination of banking union with the creation of a fully jointed European deposit guarantee fund”. Europeans have been leaders for eight years. Botín – “will contribute to boosting confidence” – and Alejandra Kindelán, president of the bank employers’ association (AEB), also spoke on the lines –“The next Spanish presidency of the EU could be a good opportunity to complete the banking union”-.
It cannot be said that Europe did not try to act quickly on this occasion. Valdis Dombrovskis, Vice-President of the European Commission for Economics, presented this week his proposal to reform the banking crisis management framework. star measure is exactly a European deposit guarantee fund. “Recent bankruptcies remind us why we need a system that works at all banks, no matter how big,” he said.
Doubt becomes mutual
Considering that Europe is moving in the direction demanded by financial actors, that is, no major technical barriers appear, why has the plan been in place for years? The problem is, as almost always, political: “The most important thing here is deciding that we’re going to have a single system”Explains a senior official of the European Commission.
A European guarantee fund is trying to offer more confidence to savers, as Dombrovskis underlined, by setting “the collateral level of 100,000 euros per depositor and bank”, exactly the same level as the Spanish deposit guarantee fund (FGD). The problem, as experts underline, is that protection will be shared. On the positive side, as Kindelán points out, “Every asset, regardless of nationality, can be evaluated in terms of solvency and solvency.” But some countries see it as a threat. According to European sources, this reciprocation, which equates the protection of first-class banks in Germany with second-level countries, is of no interest. They understand that in the German country, this formula reduces incentives to invest or hold savings in their banks, and increases incentives for savings deposits in other countries’ establishments.
Then, of course, there are the technical difficulties. Return to Germany, the country that provides 100,000 Euro protection per depositor, uses proprietary systems to guarantee practically all savings, something that for now does not seem willing to give up. France does not donate its FGD every year as in Spain, but the Government is committed to providing this amount in case of need.
resolution systems
The other part of the banking union that has not yet been resolved although it is much more developed is the resolution systems. This is an obvious problem after seeing how the Credit Suisse crisis was resolved. Swiss authorities, in their attempt to resolve the crisis as soon as possible, “did a little bit”, in the words of a European official. This meant that it provided protection not only for savers, but also for shareholders.Who should bear the losses of the asset in the first place? This action, which served to stop a rapidly spreading fire, brought on the table the need for regulation to explicitly prevent national authorities from using “public money rather than public money to deal with imminent bankruptcy,” as Dombrovskis points out. safety nets financed by the internal resources of banks and the industry itself”.
One of the weapons used by these resolution mechanisms to overcome serious liquidity problems is the bazooka of the Single Solution Fund (FUR), as Margarita Delgado, vice-president of the Bank of Spain, recalls. 80,000 million euros this year” and with the support of MEDE, which European sources estimate at 80,000 million. A total of 160,000 million that might look like a formidable weaponbut they pale when you consider that Switzerland must approve a bailout of close to 110,000 million to save Credit Suisse.
A looser arrangement
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And as these issues unravel, fear is growing in the industry, especially among regulators, that voices calling for more relaxed regulation, with calm waters, to compete with U.S. entities, in particular, are considered petty and petty there. medium and generally they are designated as such when their assets are less than $250,000 million. Kindelán pointed out in the EEU Assembly that the regulation in Europe applies to all organizationsUnlike what happened in the United States. As the partner of one of the big four explains, “a bank like Sabadell is over-regulated here, and a similar bank in the United States, on the other hand, is barely regulated.”
Where coincidence is, right now, because of the fundamentals, The state of the sector is “much stronger than 15 years ago”explains Botín. The bank highlights that the industry has an equity buffer of over 60,000 million above the minimum requirements, and that in general, solvency positions were 6% before Lehman, now around 12% to 15%. In addition, Víctor Alvargonzález of Nextep Finance, for example, points out that in the US, “bonds already pay out more than 5%; if the Federal Reserve continues to raise rates, small banks will empty their deposits.” “If the deposits go, you lose” sums up the partner of the big four.