Thursday 31 October 2013

Bank Runs Should Be Avoided, Says European Central Bank

By Cornelius Nunev


The European Central Bank is imploring European leaders to make a decision as to their nations' dedication to the euro, reports Reuters. A definite direction and greater defense against bank runs might be the only things that will keep the European Union from dropping into an economic chasm - and pulling the rest of the globe down with it.

Spain, Greece and fear of bank runs

The euro currency has deflated to a two-year low against the United States dollar because of worries that Greece may not survive and Spain's banking system could failure. Austrian and French bonds have 10-year yields at their low since the introduction of the euro, but European speculators are putting money in nonetheless.

Spanish banks moved huge amounts of cash abroad in March at a rate faster than has been recorded since record-keeping of such transactions began in 1990, notes the Associated Press. The nation's fourth-largest lender, Bankia, reportedly was nationalized in May due to huge losses following a real estate crash. As much as $82 billion in net capital has been lost by Spanish banks in recent months.

IMF denies plans for Spanish bank bailout

IMF Managing Director Christine Lagarde denied reports that the International Monetary Fund is getting ready for a Spanish bank bailout to keep Europe's economy from sinking further into the mire.

"There is no such plan. We have not received any request to that effect and we are not doing any work in relation to any financial support," said Lagarde.

A referendum in Ireland would make it easier for the European Union to offer aid to Ireland voters, according to the New York Times. There is also an election in Greece on June 17 that will go a long ways towards to euro zone for the nation. Right now, the bank bailout favoring New Democracy party is beating the SYRIZA leftists, which is a good thing for people who want bank bailouts.

A demand for clarity

The ECB will not write economic policy for the entire euro zone; European leaders have to figure out where the nations stand quickly, according to European Central Bank President Mario Draghi.

"We will avoid bank runs from solvent banks. Depositors' money will be protected if we build this European guaranteed deposit fund. This will assure that depositors will be protected," said Draghi.

German Chancellor Merkel is one person who has suggested that Europe should consider options since Germany has been unwilling to support the union with its taxpayers' cash in the past. It is the paymaster of the European Union, but the ECB wants a joint deposit guarantee for depositors.

"There are integration steps which will require treaty changes. We are not at that stage today but nevertheless there are no taboos," she said at a news conference.

Financers concerned

The European economic crisis has caused financiers to be really concerned at this time, according to Draghi. Unfortunately, that must not translate into caution.

"I urge all governments to keep this in mind, because it is better to err by too much in the very beginning rather than by too little," he said, citing the recent failures of Spain's Bankia and the French-Belgian bank Dexia.




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