Eurogroup re­jects calls for looser bank­ing rules

The Pak Banker - - COMPANIES/BOSS -

Eurogroup chair­man Jeroen Di­js­sel­bloem re­jected calls for bank­ing union reg­u­la­tions to be loos­ened af­ter weeks of fall­ing bank shares, say­ing new Euro­pean bail-in rules had caused in­vestors to look "more crit­i­cally" at risks born by banks. Speak­ing on Dutch ra­dio on Satur­day, Di­js­sel­bloem, who is also the Dutch fi­nance min­is­ter, said stricter rules im­posed in the wake of the 2007 fi­nan­cial cri­sis that would re­store con­fi­dence in banks.

"We now have much stricter rules for who pays the bill if banks go wrong, and it's not the tax­payer," he said. "For that rea­son, in­vestors are look­ing much more crit­i­cally at banks, and that is lead­ing to a cor­rec­tion on equity mar­kets." The Stoxx Eu­ro­zone Banks In­dex .SX7E has fallen more than 25 per­cent since the be­gin­ning of the year, prompt­ing pol­i­cy­mak­ers in­clud­ing Bank of Italy gov­er­nor Ig­nazio Visco to call for a more grad­ual in­tro­duc­tion of rules that place the bur­den of prop­ping up fail­ing banks on in­vestors.

But Di­js­sel­bloem, who chairs meet­ings of euro zone fi­nance min­is­ters, said this would be "the worst pos­si­ble thing to do." "We must first make the bank­ing union stronger in my view," he added. "Cap­i­tal re­quire­ments should go up fur­ther in com­ing years. That would strengthen con­fi­dence in banks." Di­js­sel­bloem also said Europe's eco­nomic out­look re­mained cau­tiously pos­i­tive de­spite a re­cent slew of in­di­ca­tors point­ing to an eco­nomic slow­down, and bad eco­nomic news from China and the United States. He warned that talk of cri­sis risked be­com­ing a self-ful­fill­ing prophecy.

"Since 2008 we have been sit­ting con­tin­u­ally in cri­sis mode in our heads even when you can see from the real econ­omy that we are emerg­ing from it," he said. "Banks are much stronger, bal­ances are much stronger and they have been cleaned of bad port­fo­lios."

Low prof­itabil­ity and close to 1 tril­lion euros worth of non-per­form­ing loans, a legacy of Europe's cri­sis, are also weigh­ing on the sec­tor but banks are now well cap­i­tal­ized af­ter years of reg­u­la­tory pres­sure to build up their buf­fers. "[Eu­ro­zone banks] are in a much bet­ter po­si­tion to­day than they were at the height of the debt cri­sis in 2011 and 2012," Euro­pean Cen­tral Bank board mem­ber Bernard Coeure told the Rheinis­che Post news­pa­per on Satur­day. "Thanks to the bank­ing union they are now much more re­silient."

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