Following the policy decisions that assigned the European Central Bank (ECB) to assume responsibility for the supervision of the largest banks in the Eurozone, the ECB released a statement on 23 October. In it, the ECB defined the timing of the various actions prior to its taking on this responsibility. Among other information, the list of banks for which supervision will be centralized at the ECB has been specified. All other euro area banks will remain under the direct and sole responsibility of their respective national supervisory authorities. The list includes 124 banks from the seventeen countries joining the euro: Austria (6 banks), Belgium (6), Cyprus (4), Estonia (3), Finland (3), France (13), Germany (24) , Greece (4), Ireland (5), Italy (15), Latvia (3), Luxembourg (6), Malta (2), Netherlands (7), Portugal (4), Slovenia (3) and Spain (16 banks). While, partly confirming the information already available to the markets, the ECB statement specified the timing of the entry into force of centralized supervision, on the other hand, even if the ECB listing was evident for the largest banks, until then there could still be some uncertainty about the inclusion of some medium-large European banks in the Eurozone.
While the euro area's decision to move to the Banking Union and the Single Supervisory Mechanism (SSM) is to be welcomed as this will help fill a gap, as sometimes happens, good deeds do not always come with good intentions are immediately welcomed by the markets. Indeed, 23 October was a bad day for banking stocks across the eurozone: the Eurostoxx banking sector lost 2,8%. This was certainly not a sign of appreciation for the contents of the ECB statement. However, as usual, the correlation does not imply causality and associating the fall in bank shares across the eurozone with the ECB's move could be completely unwarranted. Thus, we need more than observing such a coincidence to infer an underlying link between the two phenomena.
To get a sense of this, it is helpful to look at data on bank stock prices along two dimensions. First, it could be assumed that banks in crisis countries (i.e. GIPSI, Greece, Ireland, Portugal, Spain and Italy, where the order roughly reflects the sequence of involvement in the European sovereign debt crisis) would benefit more than other banks from entering the SSM, due to the implicit support this could imply. Consequently, the first thing to examine is whether the GIPSI banks have outperformed the SSM banks of the other (non-crisis) Euro countries. Second, the markets may now perceive banks centralized in the SSM differently than other banks, which will remain under the full responsibility of national supervisors. Thus, depending on whether the SSM turns out to be tougher or more lenient than national authorities, the stock price might react differently for centralized versus decentralized banks. Therefore, the second question to be examined consists in ascertaining whether bank prices reacted to the announcement of the ECB list in a differentiated way between banks included and banks excluded from the list of centralized banks.
Well, on the first aspect (did the banks of the countries in crisis, ie the GIPSI, benefit more than the others from the announcement?) there is a negative answer. In fact, on 23 October, simultaneously with the ECB announcement, the centralized banks of the GIPSI suffered an average loss of their prices, compared to the closing values of 22, of -3,8%, against -1,2% of the centralized banks of countries not in crisis. And, again based on the closing date of the 22nd, the gap between the two groups of banks was also maintained at the close of the following day (the 24th), when the GIPSI centralized banks still showed a drop of -2,8% against -0,1 .31% of the others, and after another week (October 3,4st), when the former still recorded a drop of -0,5% and the latter only -XNUMX%.
As regards the second question, it is noted that – in most euro area countries, as well as comparing the whole group of centralized banks in the SSM with a large control group of non-centralised banks – SSM banks were surpassed by other banks. Again based on the closure of 22 October, compared with -3,8%, -2,8% and -3,4% – respectively at the closures of 23, 24 and 31 October – of the centralized banks of the GIPSI, the banks GIPSI not centralized recorded -2,3, -1,9 and -1,0%. At the same time, however, also the centralized banks of the countries not in crisis recorded a worse performance than the equivalent non-centralized banks of the respective countries: -1,2, -0,1 and -0,5% for the centralized ones against positive variations of 0,4 .0,5, 1,8 and XNUMX% for non-centralised banks.
This seems to suggest that markets expect the ECB to be tougher than national supervisors. However, this raises an essential question. With Mario Draghi's famous speech at the City of London “we will do whatever it takes to save the euro. And believe me i twill be enough!”, the ECB showed itself equal to the situation in order to prevent countries in sovereign crisis from suffering excessively high interest rates due to the fear of the breakup of the euro. Today the ECB itself is taking over the supervision of banks with the main objective of ensuring banking stability by interrupting the perverse short-circuit between sovereign debt and national banking systems. However, will the ECB be able to take into account that a significant part of the difficulties of many banks, especially those of GIPSI, do not derive from bad management but from the consequences of the deep economic depression experienced by their national economies? If this were not to happen, there would be the risk of paying a steep price for the recovery of banking stability in Europe, with possible permanent damage to the proper functioning of the credit market, especially in weak Euro countries.
