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  4. ECB confident on eurozone financial resilience amid crises

ECB confident on eurozone financial resilience amid crises

SVB collapse, Credit Suisse crisis set off contagion concerns

(ANSA) - ROME, MAR 24 - The recent collapse of the Silicon Valley Bank (SVB) in the United States and the crisis at Credit Suisse in Switzerland over the weekend set off concerns regarding contagion across the international financial sector.
    While European governments and financial institutions closely monitor the situation, it is not all bleak.
    On Monday, European political and financial leaders moved to shore up consumer confidence following the crisis at Credit Suisse, Switzerland's second largest bank. The emergency takeover of Credit Suisse by its competitor UBS and the difficulties of some smaller US institutions have fueled concerns about banks in the eurozone in the course of this week.
    European advisors confirmed that in the event of a bank failure in the European Union, a fixed rule applies under which shareholders and other creditors are called upon. Bank losses would first be borne by share capital. If this is insufficient, subordinated bonds, so-called AT1 capital, are called in.
    In the case of Credit Suisse, the holders of these equity-like bonds are to lose their invested money completely in the course of the takeover by UBS. For these AT1 bonds, the loss amounts to 16 billion Swiss francs (16 billion euros). Credit Suisse shareholders will also forfeit a large part of their invested money, but will receive UBS securities.
    European Central Bank (ECB) President Christine Lagarde remained optimistic that there would be no spillover of the event on the eurozone financial system. The European banking sector was resilient thanks to strong capital and liquidity positions, Lagarde said. In the face of the current market tensions, the ECB was ready to support the financial system with liquidity if necessary, and to maintain the smooth functioning of monetary policy, she added.
    Last week, the ECB had raised the key interest rate by 50 basis points despite the turmoil. In view of the current high level of uncertainty, the central bank did not commit itself for the future. Lagarde made it clear that the monetary guardians will be guided by economic data.
    Within Europe, politicians and central bankers are at odds over the effectiveness of the ECB's latest interest rate decisions.
    Italy: ECB interest rate policy under scrutiny Italian Economy Minister Giancarlo Giorgetti said on Monday that he believed the impact of the crisis at Switzerland's Credit Suisse on Italy's banking system would be "insignificant".
    Referring to the market turbulences linked to Credit Suisse and, before that, to the collapse of the Silicon Valley Bank in the United States, he said he believed that the markets had calmed down a bit. "I think that the situation in Europe is under control. We are in constant contact with the regulatory authorities and we are tranquil about the Italian banking system." The Milan stock exchange plummeted 2.6 percent in early trading on Monday, with bank stocks taking a fresh pounding after over a week of turbulences on the international money markets. The rescue of Credit Suisse announced over the weekend had failed to dispel investor concerns. On Tuesday, the Milan exchange closed 2.53 percent up, as bank stocks rallied strongly from recent losses on Silicon Valley Bank and Credit Suisse.
    Giorgetti also reiterated his criticism of the European Central Bank's policy of hiking interest rates to combat high levels of inflation. "[The policy] should be calibrated with great care because increasing interest rates might be useful to control inflation, but it can also cause problems for financial stability," he said.
    The ECB's decision to increase the key interest rate by 50 basis points leaves the Italian government unsatisfied. "The ECB is not moving in the right direction, even if today there was a start of rethinking. In our opinion, it is not a good way to deal with inflation," said Deputy Prime Minister and Foreign Minister Antonio Tajani. (ANSA).


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