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Mario Draghi: Banks, Banks, Banks..?

Mario Draghi has second thoughts about the German proposal concluding to a unified banking system in the Euro Zone. The decision-making process is an important issue, but the main question remains: The EU of numbers or the EU of people:

Mario Draghi

Mario Draghi sceptical on German bank union plan

European Central Bank (ECB) boss Mario Draghi has given a sceptical reaction to a German-led compromise on banking union, saying that it could create a regime “that is single in name only.” Speaking at a hearing with the European Parliament’s economic affairs committee on Monday (16 December), Mario Draghi urged deputies to agree “a strong and credible resolution mechanism” with ministers. The new rule-book should have “a single system, a single authority and a single fund,” said Draghi, adding that he was “concerned that the decision making procedures may become overly complex”. ”Everybody knows that these decisions must be taken instantly…we can’t have hundreds of people debating whether a bank is viable or not,” he told MEPs. EU finance ministers will gather in Brussels this week in a bid to thrash out an agreement on a common resolution mechanism to wind up insolvent banks. Governments will be required to set up bank-funded national resolution funds over a period of ten years to cover the costs of bank failure, which will eventually be worth around €60 billion. But it is unclear what should happen if a bank failure cannot be covered by the resolution fund. Berlin has consistently voiced its opposition to the prospect of a single resolution fund, fearing that as the bloc’s biggest member state, its taxpayers could be made liable for the debts of all banks across the eurozone. The latest compromise prepared by the Lithuanian EU presidency would set up an inter-governmental treaty to govern whether countries could have access to each other’s funds during the first ten years of the regime.

On the other hand, Mario Draghi is not sure about the health of Irish banks, as he believes that the banks in Ireland focused on risk-weighted assets:

Mario Draghi expresses concern about health of Irish banks – European …

European Central Bank president Mario Draghi has raised concerns about the health of Irish banks, urging “decisive” action on issues revealed by a recent balance-sheet assessments before European stress tests next year. Addressing the European Parliament, Mr Mario Draghi said while the balance-sheet assessments of the Irish banks had identified no capital shortfall, there were needs for adjustments for provisions and risk-weighted assets. “This should be addressed before the SSM assessment,” he said in a response to a question from Irish MEP Gay Mitchell. Under the original terms of Ireland’s EU-IMF rescue, Ireland was obliged to undergo a full health check of its banks before the end of the program.  However, this was downgraded to a “balance-sheet assessment” after Dublin argued it should not be treated differently from other countries in next year’s Europe-wide stress tests. Mr Mario Draghi emphasised yesterday that the balance-sheet assessments by the Irish Central Bank were “not forward-looking” and fall short of the “stringent” stress tests that would be required next year. Ireland’s three main banks – Bank of IrelandAIB and Permanent TSB – informed the market last month the Central Bank tests had been completed and that no capital requirements had been required. However, the full results of the tests were not published.

The European Central Bank is concerned about European deflation, but:

Mario Draghi: ECB needs “safety margin” against deflation – Telegraph

The European Central Bank has fought back against harsh German criticism, insisting that it had to cut rates to near zero to head off deflation risks and stabilize debt burdens in the crisis states. Mario Draghi, the ECB’s president, said the eurozone’s inflation rate has been in “slow motion” decline for several months. This has spread to all major components of the price index since the summer, pushing the inflation rate down to 0.7pc. Prices have actually fallen over the last three months. Mr Draghi told an audience in Berlin that the bank acted to secure a “safety margin against deflationary risks”, acknowledging that last week’s rate cut to 0.25pc had set off a political storm and raised fears over an erosion of savings. Both German members of the ECB’s council opposed the cut. The German media has described it as a Latin coup to seize control of the ECB’s policy machinery. Hans Werner Sinn, head of Munich’s IFO institute, accused Mr Draghi of misusing the ECB to bail out Italian debtors. The experience of Japan in the 1990s is that once the authorities let inflation fall too low, the country became vulnerable to any deflationary shock from the outside. This happened with the East Asia crisis of 1997 to 1998, pushing Japan over the edge into a deflation trap.Finally, the central question remains: The EU of people or the EU of numbers..? Angela Merkel and Mario Draghi have to give an answer…


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