Fitch says EU banking union gives stability

RATING agency Fitch yesterday came out in favour of plans to hand supervision of all Eurozone banks to the European Central Bank (ECB), arguing it would ensure long-term stability in the region.

The plans, which would enable the ECB to shut down failing banks or grant licences to new entrants, would reduce bank default risk by a factor of around eight over a five-year period, according to Fitch.

Despite concerns from industry insiders that the EU could use the enhanced powers to shift the centre of European finance away from London, Fitch said it welcomed the move.

“Overall, these aspects mean that intervention and resolution decisions are being taken out of national hands, thereby weakening the political considerations that can influence (or cloud) support decisions,” it said.

Fitch’s support came as IMF managing director Christine Lagarde met the leader of bailout candidate Cyprus yesterday, to discuss the timing of financial aid to the island.

The tiny Eurozone member, which has a GDP of just €17bn, asked for aid in June, to rescue its largest banks, heavily exposed to Greek debt.

Cyprus is the fifth Eurozone nation to seek aid. International lenders are demanding salary and pension cuts, pension reform and privatisations in return. Asked about the timing of any bailout deal, Cypriot President Demetris Christofias said: “When we are ready.”