What is happening

There is no “bank run” in Europe, bank run. But there is strong turbulence, strong selling pressure in banking stocks that is sowing a lot of tension. It goes down Deutsche Bankamong the top five European banks, however, with a stock market capitalization value at the end of 2022 far removed from that of the big global banks and even many big European ones.

The tremors after the collapse of SVB and Signature Bank in the United States and the bailout of Credit Suisse that protected shareholders but canceled 16 billion Swiss francs of “additional tier 1” bonds (legally impossible solutions in the EU) did not finish. This is the scenario in which the heads of state and government of the euro zone met today with Christine Lagarde for the ECB and Pascal Donohoe for the Eurogroup. It was a face-to-face, Q&A between the former and the latter: the former seeking reassurance about the state of European banks, the latter willing to give it in great detail. And the bottom line was this: the banking system in the euro area (and, in general, the European Union) is sound in terms of capital positions and liquidity conditions.

In addition, the ECB has a number of tools at its disposal to deal with “huge” liquidity needs, as demonstrated by the years when the aim was to avoid deflation or face epochal crises such as the pandemic with the sound of securities purchase rulers. There is also the tool to avoid a crisis of confidence in some countries, the non-proliferation shield. In addition, a few days ago Lagarde announced that it is always possible to invent new tools to support bank liquidity. Everything is true, but the concern of governments is very high. As the discussion about the economic situation and the risks arising from the market turbulence progressed, the Luxembourg Prime Minister, Xavier Bettel, frequently forced the listing of bank shares on the Stock Exchange, first and foremost Deutsche Bank, at their level lower There are no news in the messages of the heads of state and government. Everyone rushed to support the same line: strong banks, authorities ready to intervene if necessary, closely monitoring the situation. Each leader has repeated the same for his own ‘territory’ and for the European situation.

First, the German chancellor Olaf Scholz, in the face of the fall of the Deutsche Bank stock market. There has been no criticism of the ECB for how quickly it has raised interest rates since last July: 350 basis points in nine months, and yet inflation remains very high. However, some government officials have not spared criticism of Lagarde in the recent past (including representatives of the Italian government). And again yesterday the president of the European Banking Authority (EBA) José Manuel Campa said that higher interest rates ‘are not necessarily positive for banks in general, it depends on the business model and the ability to revalue the assets’. While the Greek central banker Yannis Stournaras, confirming the thesis according to which a further sharp and rapid increase in rates is inadvisable (in line with what many of his colleagues, including President Lagarde, think) recalled how ” a financial crisis can spread very quickly.” like a fire in a hole, so be careful. today square The political message from European policy makers can be summed up as follows: keep calm. The prerequisites for the banking system to withstand the turbulence of the stock market are there on paper, but two problems have clearly emerged.

The first is that it is certain that the turbulence will not end this week. “There is a bit of ‘Who’s turn next?'” sums up a European source familiar with the leaders’ discussions. Wall Street is expected to close today. Messages, statements, even coordinated interventions between central banks do not are ruled out in the near future if there are serious signs of persistent contagion. What is certain is that in Brussels there is express talk of tug-of-war between the authorities and speculation. The emphasis is on operations of ‘short selling’, short sales of non-owned securities with subsequent repurchase: if the repurchase price is lower than the sale price, it is a success, if it is higher, it can be a blow.

Source : IL Messaggero

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