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ECB chief Christine Lagarde Alamy Stock Photo
Money Trouble

EU leaders insist eurozone banking sector is stable as shares plunge

Shares in several German, French and British banks have tanked.

EU LEADERS AND the head of the European Central Bank have tried to offer reassurances that the eurozone banking sector is resilient and able to withstand shocks after European bank shares plunged.

Germany’s Deutsche Bank shares nosedived by more than 13% as the lender faced surging costs to cover credit insurance, while its peer Commerzbank tumbled by 10% in afternoon trading.

The stock prices of several French and British banks also tanked.

ECB chief Christine Lagarde told leaders the single currency area’s banking sector was “strong” during a euro area leaders’ summit in Brussels, according to an EU official.

“The euro area banking sector is resilient because it has strong capital and liquidity positions,” the official quoted Lagarde as saying.

“The euro area banking sector is strong because we have applied the regulatory reforms agreed internationally after the (2008) global financial crisis to all of them,” she also reportedly told the leaders of the 27-member bloc.

The leaders of the EU’s biggest economies also insisted on the banking system’s good health.

German Chancellor Olaf Scholz said the European banking system is “stable” while French President Emmanuel Macron said the bloc’s banks were the “most solid”.

“It paid off that we had strict rules and regulations in the past years, the banking system is stable in Europe,” Scholz said after the summit.

Scholz added there was no reason to worry about Deutsche Bank.

“Deutsche Bank has modernised and organised the way it works. It’s a very profitable bank. There is no reason to be concerned,” Scholz told reporters after the summit.

Macron echoed these assurances: “European banks’ fundamentals are solid. The eurozone is the zone where the banks are the strongest.”

A plan to complete the EU’s long delayed banking union has long been delayed but has gained greater urgency amid the recent turbulence in the markets.

“The recent developments remind us how important it has been to continuously improve these regulatory standards,” the ECB chief said.

Lagarde said the bloc needed to progress on completing the banking union and added that further work was also necessary to create truly European capital markets.

“There is no trade-off between price stability and financial stability. Our toolbox enables us to address risks to both,” she said during the meeting.

“The ECB toolkit is fully equipped to provide liquidity to the euro area financial system, if needed.”

© AFP 2023

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