EU sees urgency in bolstering bank resilience after turmoil

By Jan Strupczewski and Balazs Koranyi

STOCKHOLM (Reuters) – Last month’s turmoil in the banking sector barely affected European Union lenders but there remains an urgent need to make the sector even more resilient given how fast social media-created runs can sink banks, top EU officials said on Friday.

EU finance ministers were briefed by heads of the EU’s Single Supervisory Mechanism and the Single Resolution Board on lessons that could be drawn from the collapse of U.S. lenders Silicon Valley Bank and Signature Bank (OTC:), and the forced takeover of Credit Suisse by UBS in the bloc’s neighbour Switzerland.

“The speed with which recent events in the financial sector have unfolded is a key theme that emerged from our discussion today,” Paschal Donohoe, chair of the ministers said after they met for regular talks outside Stockholm.

He stressed that EU banks were resilient and stabile thanks to rules the EU put in place since the banking crisis in 2008, but told a news conference: “Recent events have reminded us of the work that we still need to do.”

In March, depositors fled Silicon Valley Bank (SIVB.O), withdrawing $42 billion in 24 hours, some via their mobile phones. Information about the bank’s difficulties spread fast online, creating a social media-driven bank run.

“The fact is that with social media today, when there are risks, or withdrawals of deposits, it goes much faster than in the past,” the head of the euro zone’s ESM bailout fund Pierre Gramegna told the news conference.

Officials said the bank turbulence added urgency to discussions of a European Commission proposal to broaden the EU’s bank resolution framework, now applied to just over 100 of the biggest European banks, to smaller and medium-sized lenders.

The proposal, called Crisis Management and Deposit Insurance (CMDI) was requested by EU finance ministers in mid-2022. It would ensure that the resolution of smaller banks could be paid for from the EU’s resolution fund, financed by banks, rather than by taxpayers.

It would also provide money for winding down failing lenders from national deposit insurance schemes which are also financed by banks, and guarantee deposits of up to 100,000 euros not only for individuals, as now, but also for companies and other institutions.

“The second phase of how we can deepen our resilience is responding back to the Commission policy with regard to reviewing the framework for crisis management, deposit insurance schemes targeted in particular, the small- and medium-sized banks within the European Union,” Donohoe said.

But the Commission’s proposal is opposed by Germany, which is worried it could disrupt a system used by its own regional banks.

Some central bankers said Europe should be ready for change even though there is no immediate pressure from a banking crisis.

“We must remain acutely aware of the dangers … where memories of banking crises fade over time and vested interests call for regulatory rollbacks,” said Spain’s central bank governor Pablo Hernandez de Cos, who also chairs the international Basel Committee of bank regulators.

“It is important to keep an open mind at this stage about whether any potential revisions to the global regulatory and supervisory framework are needed.”

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