‘ECB needs to get its house in order for bank union’

The senior financials credit analyst at Fidelity Worldwide Investment said he welcomed signs of progress on creating a unified banking regulatory environment but warned that the EU must move quickly to shore up the ECB’s powers next year so that it will be seen as a “credible” regulator.

He said: “The adoption of the recovery and resolution directive provides an effective resolution framework the EU as a whole, which will improve financial stability and thus be beneficial for investors across all asset classes. With the new toolbox in place, disorderly bankruptcies such as Lehman will not repeat themselves in the future. But further measures are required.”

“For fixed income investors bail-in is coming sooner and will be a burden on the bond market, should the financial condition of the banking system fail to improve. Winners are the banks with solid profitability, good risk management and transparent business models that allow investors to make an accurate assessment of risk.”

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However, he was critical of the estimated 10-year delay for the implementation of the eurozone’s single resolution mechanism.

Mr Brandenburg said: “This limits the ECB’s ability to close down weak banks, potentially undermines the credibility of the forthcoming asset quality review, and undermines the political goal to break the link between banks and their sovereigns.

“The SRM is not strong enough to end the damaging fragmentation in Eurozone capital markets.”

His comments came as the Economic and Financial Affairs committee unveiled a nine-page document outlining the debates on the SRM for banks, by which supervision and resolution will be exercised at the same level for countries that share the supervision of banks within the single supervisory mechanism.

In the statement, the committee said: “Creation of a banking union is essential to overcoming market fragmentation and breaking the link between sovereigns and banks.”