The ECB guarantees bank deposits

31.05.2012 - 16:36

The governor of the European Central Bank, Mario Draghi, speaking at the European Parliament on Thursday 31 May, in his capacity as President of the European Systemic Risk Board said, “we have all the means to counter a bank run as far as creditworthy banking firms are concerned. The European Central Bank will continue to lend money to those banks and we will keep the refinancing lines active for those lenders”.

In this indirect way Draghi guaranteed all deposits in creditworthy Eurozone banks. When asked about the four major Greek banks which were cut off from ECB financing, he clarified that now those four banks are recapitalised and their ECB refinancing line is in place.

The governor of the ECB however, was much more severe however when he referred to the current debt crisis. He stressed that, “there is an urgent need for a central European mechanism which will undertake the task to recapitalise the banks and strengthen the supervision of the banking sector in an effective manner. Only in this way the current challenges will be answered. The key is to find a way to enact firewalls to counter the diffusion of the crisis” he said.

In short Mr. Draghi asked for a “European Banking Union”. Clearly the head of the ECB called on the politicians to act along these directions. His idea for a centralised banking supervision mechanism and an effective way of refinancing ailing Eurozone banks, broadly coincides with what the European Commissioner Olie Rehn had said earlier today. Rehn had stressed also the need for a fiscal consolidation of the Eurozone, because without it there is no point of discussing the issuance of Eurobonds, he explained.

As for Jean-Claude Juncker, the president of the Eurogroup speaking together in an interview with the French minister of Economics Pierre Moscovici, they both agreed that the Spanish banks should be directly refinanced by the European Financial Stability Facility and the European Stability Mechanism and not through lending the money to the Spanish government. In this way the Madrid exchequer will not be loaded with more sovereign debts.