ECB will reassure leaders about bank stability – 03/24/2023 – Market

The European Central Bank is due to reassure EU leaders on Friday that euro zone banks are safe after the financial turmoil caused by creditors in the United States and Switzerland, but will ask them to come up with a scheme of insurance for deposits, officials said.

European bloc leaders meet for a second day of talks in Brussels to discuss economic issues, including changes to the bloc’s tax and debt rules, but fears over the impact of the Credit Suisse and SVB (Silicon Valley Bank) problems in the European banking system should dominate conversations, officials said.

The collapse of US regional banks SVB and Signature Bank this month sent banking stocks plunging as investors feared further disasters in the sector. The effect spilled over to Credit Suisse, prompting UBS to take control of the 167-year-old Swiss bank to avoid a wider crisis.

ECB President Christine Lagarde will brief leaders on the state of economic and financial stability in the 20 countries that share the euro and is expected to face questions about the ECB’s plans for further rate hikes to curb inflation.

“Christine Lagarde will reassure the banks after the Swiss solution,” an official said. “She will ask leaders to complete their Banking Union and move forward on the Capital Markets Union.”

“Your message should be that the ECB is determined on monetary policy but dependent on data, with no future direction. There is no trade-off between financial and price stability targets. The ECB has parallel tools to do both,” he said. the authority.

“Finishing the Banking Union” is block code for the introduction of a European Deposit Insurance Scheme (Edis), the last missing element in a project launched in 2012.

The Banking Union is now two-thirds complete. The EU has established a single supervision of major eurozone banks in the hands of the ECB and a single resolution authority with a special fund to deal with defaulting creditors.

While most EU countries have some form of national insurance that guarantees deposits of up to €100,000, there is no EU-wide scheme, nor a way for authorities to cooperate across borders if a banking crisis is too severe for a country. country.