The European Central Bank warned on Wednesday that the euro zone’s slumping economy and a surge in problem loans were raising the risk of a renewed banking crisis, even as overall stress in the region’s financial markets had receded.
In a sober assessment of the state of the zone’s financial system, the E.C.B. said that a prolonged recession had made it harder for many borrowers to repay their loans, burdening banks that had still not finished repairing the damage caused by the 2008 financial crisis.
While the E.C.B., as customary, did not mention specific banks, it said the most vulnerable were those in countries with high unemployment or falling house prices. That list would include Italy, Spain, Greece and Portugal among others. But ailing banks are also a problem in stronger countries like Germany, where Commerzbank and publicly owned landesbanks, or state banks, are struggling with bad loans to the shipping industry and other problems.
Germany has drawn criticism for lecturing other countries on excessive government debt, while trying to protect its own banks from greater scrutiny. “They are very virtuous when they look at national accounts but less when they are looking at their own banks,” said Stefano Micossi, an economist who is director general of Assonime, an Italian business group.
A similarly dim snapshot of the state of the euro zone economy was issued Wednesday by the Organization for Economic Cooperation and Development in Paris. It warned of the dangers posed by weakly capitalized banks, a problem it said underlined the need for E.U. leaders to push through with a so-called banking union that would include centralized supervision of lenders.
Full article: Risk of Bank Failures Is Rising in Europe, E.C.B. Warns (NY Times)