The absence of a full banking union is a “gap” in the European Union’s institutional framework and, if closed, could limit the financial tensions created by the collapse of Silicon Valley Bank (SVB) and Credit Suisse. pointed to the vice president European Central Bank (BC), in an action organized by Luis de Guindos IESE Business School.
De Guindos also stressed that vulnerabilities remain, although eurozone banks “have weathered the storm” thanks to “solid capital and liquidity”. In fact, the absence of this unity ” A source of instability for the European banking sector” and a “hole” in the EU’s institutional framework.
ECB vice-president, consequences of the spread of financial turmoil from the USA and Switzerland “would be much dimmer” if this union already exists.
But the former Spanish Economy Minister recalled that the SVB is an “extreme situation” as it is a type of business. “very special with deposits not covered at a very high rate” He said that while trying to raise capital, he failed due to “distrust in the business model”, while on the other hand, he was exposed to the Central Bank’s interest rate hike at a high rate.
De Guindos, your main lesson is, deposit leakA fact highlighted by the digitization of banking “with clicks on your bank app” and social networks “a guide to alternative communication and exchange of information, sometimes true and sometimes not true.”
In conclusion, De Guindos stressed that the situation of European banks is very different because they are backed by one bank. “strong” capitalization and liquidity this sets them apart from their peers in the rest of the world.
“CET1 ratio (higher quality assets) was 15.3% at the end of 2022, well above the minimum requirements”, adding that “about half of its high-quality liquid assets” are protected by central banks as cash or deposits.
Nevertheless, even if higher rates increase banks’ net interest income, “these benefits may be less than previously anticipated”, as tightening financing conditions will reduce and thus contract credit demand. the basis on which banks can make profits.
In addition, this high rate environment may exacerbate the situation. “vulnerabilities in non-bank financial institutions”, may affect banks in the eurozone due to the high interconnectedness between them.
Given this, De Guindos capital shields, especially in light of “recent events in other regions that demonstrate the importance of an appropriate regulatory framework for all types of banks”.
He also called “full application” and “without delay” One of the Basel III criteria is to complete the banking union and adopt the European Deposit Guarantee Scheme, as well as deepen the integration of capital markets that “provide (companies) alternative sources of finance or complement credit banking”.
Macroeconomic situation and the digital euro
For the rest, De Guindos insisted that “core inflation remains high and has a lot of resistance to falling”, but overall inflation will slow and we are “in the process of falling out of inflation”. It was also emphasized that economic growth will accelerate. “medium” and “reduced”, will have an impact on the solvency of families and companies.
The European Central Bank will continue its balance sheet reduction program and from July will no longer reinvest anything that has fallen from its main portfolio. asset purchase this has been done in the past.
De Guindos reminded that “physical money will not disappear” regarding the digital euro, and so far digital transactions with special media, with the digital euro, the difference would be: “the euro is part of the balance sheet of a central bank, in this case the European Central Bank, and by definition, […] It cannot be broken.”