IMF presses EU to fur­ther in­te­grate banks

Bank urges ‘bold ap­proach’ for bloc in bank stress tests, new bailout fund.

Austin American-Statesman - - BUSINESS -

BERLIN — The In­ter­na­tional Mon­e­tary Fund urged the Euro­pean Union Thurs­day to step up ef­forts to sta­bi­lize its fi­nan­cial sys­tem by swiftly mov­ing to­ward a fully in­te­grated bank­ing sec­tor.

The 27-coun­try group still faces great chal- lenges “with con­tin­u­ing bank­ing and sov­er­eign debt crises,” the IMF said, adding it needs a com­pre­hen­sive re­gion-wide so­lu­tion as its banks are so heav­ily in­ter­con­nected.

In its first fi­nan­cial sta­bil­ity as­sess­ment for the bloc, the IMF wel­comed this month’s EU de­ci­sion to cre­ate a sin­gle bank­ing su­per­vi­sor, but called it “only an ini­tial step” to­ward a full bank­ing union. That will re­quire fur­ther steps such as a joint de­posit guar­an­tee, a sin­gle set of rules for banks and a joint bank bailout fund, it said.

Euro­pean pol­i­cy­mak­ers, how­ever, are re­luc­tant to cre­ate a full bank­ing union be­cause joint li­a­bil­ity im­plies one coun­try’s tax­pay­ers would some­day have to bail out strug­gling banks of an­other EU coun­try.

Lead­ers in more eco­nom­i­cally dis­ci­plined coun­tries such as Ger­many and the Nether­lands are con­cerned that their tax­pay­ers’ money could be used to bail out banks in weaker coun­tries with­out giv­ing them a say over the use of the funds.

The fund usu­ally car­ries out fi­nan­cial sta­bil­ity analy­ses for sin­gle na­tions, but now moved to­ward car­ry­ing out an EU-wide re­view be­cause it reck­ons that banks’ risks are closely in­ter­con­nected across the 27-na­tion bloc, and even more so be­tween the 17 na­tions us­ing the euro cur­rency.

The IMF also re­com- mended that the EU should beef up its bank stress tests in a bid to iden­tify prob­lems stem­ming from liq­uid­ity is­sues or struc­tural weak­nesses.

“Ex­pe­ri­ence sug­gests that the ben­e­fits of a bold ap­proach out­weigh the risks,” it said.

The Washington-based in­sti­tu­tion also urged the EU to make its new, per­ma­nent bailout fund, the Euro­pean Sta­bil­ity Mech­a­nism, rapidly op­er­a­tional for bank re­cap­i­tal­iza­tions.

That would shield na­tional gov­ern­ments to some ex­tent from the bur­den of tak­ing on more debt when they have to bail out their banks — a move that weak­ens their own fi­nan­cial po­si­tion. A swift and fully func­tional ESM could there­fore help de­cou­ple bank and sov­er­eign risk, the IMF ar­gues.

The full IMF re­view of the EU fi­nan­cial sys­tem has not yet been pub­lished be­cause it is still be­ing dis­cussed with EU of­fi­cials, it said.

In­tercon­ti­nen­tal Ex­change Chair­man and CEO Jef­frey Sprecher (left) and New York Stock Ex­change CEO Dun­can Nieder­auer on the floor of the New York ex­change Thurs­day. Four mem­bers of the NYSE board will be added to ICE’s board, ex­pand­ing it to 15 mem­bers. ICE is head­quar­tered in At­lanta.

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