A top European Central Bank official says the euro currency union needs U.S.-style centralized banking oversight so that individual countries don’t have to deal with busted banks alone.
Joerg Asmussen said Friday in the text of a speech in Milan, Italy, that “during the crisis in the U.S., it was federal institutions that stepped into the breach.”
Asmussen, who sits on the ECB’s six-member executive board, cited the role of the Federal Deposit Insurance Corporation, which has overseen the sale or restructuring of hundreds of unviable banks. He also pointed to support from the U.S. Treasury Department for banks to raise capital through the Troubled Asset Relief Program, or TARP. No single U.S. state, he said, could have dealt with such burdens.
“Imagine if the state of New York would have had to provide guarantees to Citigroup,” he said. “The lesson for the euro area is clear: federal institutions can prevent local crises from becoming systemic.”
Banks played a key role in Europe’s debt troubles. The Irish government needed a bailout after the costs of rescuing failed banks made its public debt balloon to unsustainable levels. In other cases, troubled government finances dragged down banks that held government bonds, as happened in Greece.