New European Central Bank powers to oversee euro zone banks will help restore confidence in the sector and revive interbank lending, its president, Mario Draghi, said on Monday.
European ministers clinched a deal last week to give the ECB powers to supervise the currency bloc’s banks from March 2014, taking the first step in a new phase of integration to help underpin the euro.
“The single supervisory mechanism will contribute to restoring confidence in the banking sector across the euro area. It will help revive interbank lending and cross-border credit flows, with tangible effects for the real economy,” Mario Draghi told the European Parliament’s Economic and Monetary Affairs Committee.
Bank-to-bank lending has yet to recover from the onset of the global financial crisis in 2007, and many banks rely on the ECB for their liquidity needs while others hoard their cash rather than lend it on.
Although the ECB will only have automatic oversight of around 150 of the bloc’s 6,000-odd banks, it will have the authority to intervene in smaller banks if there are signs of trouble.
Germany fought hard to constrain the ECB’s scope so that it would not cover its savings banks.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.