Asmussen said that financial stability in Europe has improved according to the Global Financial Stability Report, and the stress for the euro area financial system has eased tangibly.
"For some in the market , the “great risk normalisation” is the overarching theme for trades and strategies this year. And broadly speaking, I think this trend is intact, in particular when taking into account the following facts, while financial fragmentation in Europe still remains a fundamental concern:
There has been a marked reduction of spreads and yields of stressed countries’ sovereign bonds. For example the yields for ten year bonds have declined for Spain from a peak of 7.6 per cent to currently 4.7 per cent and from 6.6 per cent to 4.3 per cent for Italy.
Bank debt funding conditions improved early this year in terms of lower financing costs and increasing breadth of issuance across banks.
TARGET2 balances of the national central banks in these countries have declined by more than €200 billion, or about 20 per cent since their peak.
And finally, bank’s dependence on central banks liquidity intermediation is waning, to some extent as the early re-payment of more than a quarter of the LTROs shows.
Banking sectors that act as regional financial hubs require vigilant supervision. This applies especially to cases were potentially ‘hot’ capital flows on the liabilities side are financing a growing pool of domestic assets. It has to be ensured that undue investment risks are not taken on the basis of fickle capital.
Final decisions on organisational details of the SSM can only be taken once the SSM Regulation has been formally adopted. This is why swift adoption of the legislative act is now crucial. We expect to be ready to take up the new tasks at the latest one year after the adoption of the regulation.
We still lack clarity regarding the details of the envisaged European framework for resolution which should come hand in hand with a single resolution fund which is funded by the banking industry itself via levies and not with taxpayers’ money. And before the ECB takes over the task as the single supervisor, I would strongly advise to conduct a thorough and credible asset quality review of those banks which will be supervised by the ECB. It will be key for a successful start in the new supervisory structure to have a very clear picture of the risks and vulnerabilities in the European banking industry."
Full speech
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