In an interview with the Wall Street Journal, Europe’s top banking supervisor said Greek banks have never been better equipped to face the country’s financial crisis.
Daniele Nouy,
the chairwoman of the Single Supervisory Mechanism - the European Central
Bank’s bank-supervisory arm - said Greek banks are demonstrating
significant resilience, in a show of confidence in the country's banks which have been hurt by fleeing deposits and political challenges in recent months.
SSM is closely monitoring their liquidity and solvency positions.
“These banks have gone through important restructuring, important recapitalizations and a redefinition of their business models,” Ms. Nouy said. Although the lenders are going through a tough period, “they have never been better equipped to go through this kind of stressful situation,” she added.
The lack of a deal between Greece's leftist government and its creditors has given rise to prolonged uncertainty over the country’s economic future, spooking investors and depositors. A sluggish economy is also likely to boost the percentage of nonperforming loans - those for which debtors have failed to make payments for more than 90 days.
The Bank of Greece indicated that in March total deposits of households and businesses fell to €138.6 billion, their lowest level in 10 years. While the outflow hampered in March, Greeks have pulled some €26 billion from the banking system over the last four months, fearing currency changes or capital controls.
Ms. Nouy reiterated criticism of the so-called zero-risk weighting - rules that let banks hold little or no capital against their holdings of government bonds.
Government bondholdings have been treated as risk-free for capital purposes because of the historically low odds of a government default - an assumption that was badly shaken during the continent’s recent debt crisis. But, aided in part by such generous treatment, European banks have been among the biggest buyers of their governments’ bonds, meaning that any change in the zero-risk policy would mean bigger capital charges for them.
But Ms. Nouy insisted that nonzero risks should
be assigned to sovereign exposures, something she said authorities in
some countries are already discreetly asking their banks to do. The countries were not named.
Weak profitability of banks and the level of nonperforming loans were the main sources of risk faced by the euro zone's financial system,
she said, with the latter being too high in the eurozone countries after a
comprehensive health-check of the region’s largest banks completed in
October. The SSM is putting a big focus on the banks’
governance, she noted.
