Banks, because the only guarantee on deposits does not leave margins on “bail-in” – Investing Today

In the hearing at the European Parliament in Strasbourg, the governor of the ECB, Mario Draghi, has rejected suggestions to suspend the application of the new rules on bank bailouts, the so-called “bail-in” , claiming that should be applied in a consistent and replying indirectly to the Bank of Italy, who at the weekend had made this request. Draghi mentioned how the new rules have been approved by the European, with the help also of the Italian representatives. The same is urged, instead, to focus on the unique guarantee on bank deposits, in order to create a homogeneous climate of market confidence in the eurozone on banks, regardless of the state in which they are located.

Dragons also reiterated the need to respect the Stability Pact, opening yes to a more growth-oriented fiscal policy, but through “greater efficiency of services in the public sector”. As for monetary policy, it confirmed the possible strengthening of the stimuli in March, given the changes in the markets in recent weeks, which have lowered to 1.6% inflation expectations, claiming at the same time the activity of the institute, that prevented slipping monetary union says, towards deflation, raising the rate of GDP growth by 1%.

Warranty unique deposits, Germans opposed

Closing, therefore, the Italian governor to requests for flexibility on “bail-in” and in terms of public finances, but full speed ahead on new monetary stimulus and the unique guarantee on deposits. This last point is rejected by the German government as well as by the Bundesbank, which will see a mutualisation of banking risks, as well as those linked to eurozone sovereign debt. Let’s see why.

The reasoning of the Germans is not unfounded. Governor Jens Weidmann believes that a scheme to ensure only on deposits of banks implies that institutions and the taxpayers of one country are at risk of poor management or insolvency of a bank based in another state. Furthermore, he explains, banks in Europe are still very tied to national budgets, buying large quantities of government bonds. From this point of view, the criticism seems directed mainly to Italy, which holds the record of the greater proportion of government bonds held, in relation to the assets (over 11%).

So, a guarantee only indirectly imply that the taxpayers of the country will bear the risks also caused by movements of the public finances of other states, which have an impact on banks’ balance sheets through their bond.