Market news
09.12.2010, 16:49

ECB: Exit from public support of banks a particular challenge


  • Withdrawal of support must proceed with caution and care
  • Exit must not threaten financial stability, economic recovery
  • Acute concerns about addicted banks when ecb resumes exit
  • Interplay between public debt problems, weak banks a risk
  • Reemergence of global imbals, disorderly unwinding a risk
  • If risks materialize could cause problem of systemic dimension
  • See EMU debt crisis contagion risk, but low probability
  • Baseline scenario sees emu financial system strengthening further
  • Risk of bank funding vulnerabilities, dampened profit
  • Need strong government commitment to rein in public sector imbalances
  • Must improve competitiveness of and confidence in emu
  • EMU banks' funding markets have improved, but still not normal
  • Fiscal consolidation may weigh on bank earnings short-term

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