AFP, NICE, France
The crisis roiling the financial sector will probably grind on for some time, but European banks should be able to avert serious trouble, EU finance chiefs said.
US investment bank Lehman Brothers’ fight for its very survival over the weekend highlighted just how fragile the sector remains more than one year after the crisis first broke.
PHOTO: AP
“Everybody who was saying for the last few weeks that the light was at the end of the tunnel have had the surprise of finding a locomotive bearing down on them,” German Finance Minister Peer Steinbrueck said on Saturday.
With no end in sight to the crisis, the stability of the financial sector figured high on the agenda of a two-day meeting of EU finance ministers and central bankers in the French Riviera city of Nice.
“This financial crisis will be on our agenda for a great number of months to come,” Luxembourg Finance Minister Jean-Claude Juncker said on Friday, after the ministers debated Europe’s preparations for banking sector turbulence.
“I am really convinced that we are not at the end of the financial crisis,” said Juncker, who chairs the Eurogroup of finance ministers from the 15 euro countries and is also Luxembourg’s prime minister.
German central bank Governor Axel Weber said that the crisis engulfing Lehman Brothers marked “another round of tension in the markets” after the collapse of Bear Stearns earlier this year.
“The situation remains fragile, with the key credit markets disrupted and the banking sector under pressure,” EU Economic and Monetary Affairs Commissioner Joaquin Almunia said.
The travails of big US financial institutions like Lehman Brothers, Freddie Mac and Fannie Mae has focused the minds of Europe’s finance chiefs on whether they are prepared to react in case a major European bank also runs into serious trouble.
Although national governments have their own plans in case a local bank hits the rocks, Europe still lacks a prepared response in case of problems at a big pan-European bank.
European financial regulators have failed to keep up with the waves of cross-border consolidation in the banking industry sector in recent years, leaving banks largely supervised along national lines.
That leaves big European banks like Deutsche Bank, Unicredit or BNP Paribas facing a hodge-podge of regulations across Europe, which officials fear could be a burden if ever there were serious trouble.
In Europe, the bailout of institutions as big as Freddie Mac and Fannie Mae would be made all the more difficult because governments would want to limit contributions of taxpayers’ money, especially if the bank were based in another country.
In spite of the stress gripping the sector, EU central bankers are mostly confident that European banks can withstand the impact.
With Lehman Brothers in dire straits on Saturday, Germany’s Weber said that at least for German banks “the consequences will be limited” if the US investment bank avoided a catastrophic end.
Likewise, Bank of France Governor Christian Noyer said on Thursday that “our banks remained robust and well equipped” in the face of the ongoing international financial crisis.
While stating that Italian banks also had limited exposure to the turbulence, Bank of Italy Governor Mario Draghi predicted on Saturday that “there’ll be a series of consolidations in the international banking sector.”
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