German banks want ECB to be lenders’ watchdog

Julian Harris
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GERMAN lenders yesterday called upon the European Central Bank (ECB) to adopt supervisory powers over the Eurozone’s financial sector.

Investors continue to expect the ECB to start snapping up the debt of struggling euro area member states, and now it is also being asked to take on a more proactive role as a banking watchdog.

Germany’s BDB banking association, which represents big lenders like Deutsche Bank and Commerzbank, said that granting powers to the ECB would cut out any potential political interference in banking supervision.

“The influence of national politics in supervision would be removed,” the BDB said in a paper that laid out the suggestion.

European Union leaders agreed at the end of June that a single banking watchdog must be formed as a pre-condition to allowing Eurozone rescue funds to directly inject cash into struggling lenders, without lending to a government first.

The move is designed to prevent banking crises in struggling member states such as Spain.

Yet the pressure on the Eurozone’s under-fire areas has eased in recent days as investors increasingly expect the ECB to intervene in order to weigh down on borrowing costs.

Bond yields fell again yesterday and are expecting to sink further in the coming days.

The yield on 10-year Spanish debt came down another seven basis points to 6.21 per cent, while Italy’s equivalent sank over 11 basis points to 5.66 per cent.

Even in bailed-out Portugal, yields on 10-years were down 35 basis points to around 9.25 per cent.

“I’d buy into weakness at the front end of Spanish and Italian curves,” said Peter Schaffrik, head of European interest rate strategy at RBC. “We do believe that some intervention programme is coming from the ECB.”

However, any optimism was tempered by a Moody’s report that warned that fiscal consolidation and structural reforms are “at best only half-way complete, depending on the country in question, and could take several years”.

Yet despite the warning, the report nonetheless said that the reforms were having a beneficial effect on debt-struck Eurozone states.