The need for pan-EU funding support for banks

Dear Members of the ECOFIN,

A sense of a worsening crisis has hit the EU. Sovereigns and banks are being shut out of funding markets. They find it increasingly hard to refinance their maturing bonds at affordable interest rates.

In the panic following Lehman’s collapse in 2008, EU governments took national level initiatives to provide emergency support to banks through capital injections and funding guarantees. Given that so many sovereigns are themselves unable to borrow at sustainable rates this national level approach will not work at this time.

The interconnectedness of the EU banking system is so high that the inability of banks in troubled countries to fund and recapitalize themselves through the markets is weighing all EU banks down.

That is why we call on the ECOFIN which meets this week to urgently adopt pan-EU measures to providing capital and term funding backstops for banks in all member states. The details are less important than the principle that a European approach is needed to address what is essentially a European not a national problem.

Of course, the urgency for the Euro area to restore full confidence in the sustainability of sovereign finances cannot be overstated. Without this, no steps to support the EU banking system will be enough.

Ministers to reject pan-Europe funding guarantees - WSJ

EU-wide guarantee scheme for banks urged - FT

Academic and Think Tank members, Banking Stakeholder Group, European Banking Authority

Andrea Cesare Resti, Bocconi University

Daniel Gros, Director, CEPS

David T Llewellyn, Loughborough University

Giovanni Ferri, University of Bari

Javier De Andrés, University of Oviedo

Rudi Vander Vennet, Ghent University

Sony Kapoor, Managing Director, Re-Define