“Europe is vulnerable because the banking union is not finished”said Pierre-Olivier Gourinchas in Paris during a meeting organized by the Association of Economic and Financial Journalists (Ajef).
“We do not yet have a deposit union: that means that France is responsible for its own banks, Germany is responsible for its own banks if there is a shock in terms of deposit guarantees”explained Mr. Gourinchas.
Or “we are entitled to ask ourselves questions about the capacity of (European, editor’s note) countries to take charge of their own banks if ever there was a major banking shock”as the American authorities did after the bankruptcies of Silicon Valley Bank, Signature Bank or First Republic.
The financial margins of European states to come to the rescue of defaulting banks are limited, after the significant public spending granted since the Covid-19 pandemic.
The IMF “Is still a little worried about this banking instability, because once investors get nervous about financial institutions, there is always the possibility of market movements that get amplified and are not very well controlled”argued Mr. Gourinchas.
However, European banks have “larger capital cushions” that their American counterparts and they have undergone stress tests in a “more rigorous” way than in the United States, he wanted to reassure.
“In the euro zone, we haven’t had any big banks that have been put in difficulty”with the exception of Credit Suisse, “a bank that has been going badly for a long time”he further argued.
L’Europe “has stronger banks, but fewer tools (than the United States) to respond” their possible difficulties, summed up Mr. Gourinchas.