ECB warns of hit to top European banks if funds run into trouble

FRANKFURT, Might 30 (Reuters) – The euro zone’s prime banks might take successful if their monetary shoppers, akin to funds, insurers and clearing homes, withdrew their deposits or in any other case bumped into bother, the European Central Financial institution warned on Tuesday.

The ECB research appeared into the danger of spillovers from so-called shadow banks — akin to funds and different monetary corporations that present funding in a single kind or one other — to conventional lenders, and vice versa.

It discovered the publicity each when it comes to financial institution belongings, akin to loans, and liabilities, akin to deposits, was concentrated within the euro zone’s prime 13 lenders, together with its eight globally vital banks.

The most important danger it recognized was that shadow banks withdrew their funds from banks, akin to deposits and repurchase agreements. These account for 13% of all conventional banks’ liabilities — or extra for bigger banks.

This might occur if the shadow banks — or non-bank monetary intermediaries (NBFI) within the regulators’ jargon — had been themselves hit by outflows or misplaced confidence in a financial institution.

“This funding could also be extremely delicate to the credit score high quality of the recipient banks and may amplify the funding pressures confronted by banks if the soundness of their fundamentals has been known as into query,” the ECB stated.

Different spillover channels included pressured gross sales of belongings by shadow banks, which might trigger losses at conventional banks as a result of their portfolios typically overlap or are correlated, the ECB stated.

It added that misery at systemically vital lenders would additionally spell bother for shadow banks.

“If one or a bunch of such (banks) had been to grow to be distressed, there would most likely be substantial ramifications when it comes to the power of great elements of the NBFI sector to handle liquidity and market dangers,” the ECB stated.

The ECB, which used confidential information it obtained in its function because the euro zone’s prime banking watchdog, didn’t title any agency within the report.

The euro zone’s world systemically vital banks are BNP Paribas (BNPP.PA), Deutsche Financial institution (DBKGn.DE), BPCE, Credit score Agricole (CAGR.PA), ING (INGA.AS), Santander (SAN.MC), Societe Generale (SOGN.PA) and UniCredit (CRDI.MI).

(This story has been refiled to appropriate the day of the week in paragraph 1)

Reporting by Francesco Canepa; modifying by David Evans

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