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Interview of the Bank of Greece Governor Yannis Stournaras with CNBC

20/03/2023 - Articles & Interviews

Geoff Cutmore

Karen Tso

Steve Sedgwick

Karen Tso (Journalist): … Governor, thank you very much for joining us today. Let me ask first, given the very rapid events of the weekend, this time by Swiss regulators and authorities to ensure the takeover of Credit Suisse by UBS, this morning there are still concerns that we’re not done with banking contagion.

Can you just explain the health of the European banks in your view and, in particular, some of the Greek banks that were at the centre of the storm last time around?

Y. Stournaras: Yes, good morning first of all and thank you for the invitation. We welcome the swift action by the Swiss authorities to save Credit Suisse and minimise the probability of contagion.

I think the European banking system is well-equipped with capital, with liquidity. The authorities are much wiser than they were ten years ago with the crisis, so we are ready, we have all the instruments ready, if needed, to intervene. But I think that the banking system in Europe is in a much, much better condition today and it is resilient.

Karen Tso (Journalist): Governor, a root cause of some of the banking contagion we’ve witnessed lately has been losses on bond holdings. Should the ECB have pressed ahead with its rate hike over last week considering just how fragile the financial system has been?

Y. Stournaras: We have given forward guidance that there was going to be a rate hike of 50 basis points last week, and this is what we did. Now, for the future we are giving no more forward guidance; it will be data-dependent meetings from now on.

Geoff Cutmore (Journalist): Governor, let me jump in from Zurich, where I am very much in the epicenter of this story surrounding Credit Suisse. When we were here reporting this on Friday, interestingly Mr. De Guindos was talking about the vulnerability of some EU banks to rising interest rates.

Now, as you pointed out, there has been widespread welcoming by regulators and central bankers around the world on this Credit Suisse story, which has somewhat diverted attention from Mr. De Guindos’ comments. Are there some vulnerabilities in the EU banking system and, if it’s not Greece, where should we be looking?

Y. Stournaras: No, we don’t see substantial vulnerabilities. So, the probability of contagion is very small today. The banks are well capitalized. The liquidity ratios are very high. I think the rate hikes are mostly now a story of the past. I think we are close to the end of the tightening cycle, so, to be honest, I do not believe that there is going to be a problem, in the Greek or in the European banking system.

Steve Sedgwick (Journalist): Sorry, I’m going to go back to the days when I was standing in Syntagma Square, at the height of the crisis -not only there by the way, everywhere else as well- and the problem is, we are carrying more debt on the sovereign than we carried at the peak of the great financial crisis, Sir. We have greater links between the financial institutions, the independent banks, and the sovereign.

The doom loop that we talked about so much all those years ago, Sir, is alive and well. Isn’t the problem, when we come right back down to the grassroots, there is too much sovereign debt, there is too much debt of that held by banks who have a very very close relationship with the sovereign and, as such, we’ve left ourselves vulnerable once again to future crises, Sir?

Y. Stournaras: Yes, there is sovereign debt, but banks are much stronger today. They have three times more capital than they used to have. They have better liquidity ratios, and also the supervisors are much, much wiser today. Stress tests have shown no problems with European banks. So, the probability of a problem is a very small one.

Steve Sedgwick (Journalist): There was a very interesting comment from one of our guests earlier on talking about the need, the urgent, perhaps the desperate need for Europe to finally realise we have too many banks, too many small banks and not enough larger institutions which are able to weather the storm.

Do you think the events of the last few weeks, and currently of course, would act as a catalyst for more bank integration? Would you like to see less banks but better banks?

Y. Stournaras: Well, we do not prohibit mergers of banks in Europe. We welcome if there is a commercial opportunity, and don’t forget that in Europe small banks and large banks face more or less the same supervisory parameters. So, there isn’t much difference between big and small banks.

Geoff Cutmore (Journalist): Let me ask you a slightly different question. As part of this bailout arrangement, we are ultimately going to see the CoCo bond holders, the Additional Tier 1 capital holders, wiped out completely, while some of the equity investors will get some of their money back at this stage.

Given that these particular instruments were created from the 2008 financial crisis to act as a form of liquidity support for the banks, what do you think this means in terms of a dangerous precedent to show that any owners of this part of any bank’s capital structure are more vulnerable than the equity holders? Does this mean that we will see increased reluctance to own this part of the credit structure in banks?

Y. Stournaras: I think what happened was a commercial deal in Switzerland. It was not a resolution, and so there must be a reason why the Swiss authorities reversed the order of the distribution of losses. In my view - and well, it’s just an outsider’s view - it was the greater good, the common good that prevailed here, and they had to strike a deal, which they did successfully, and we have welcomed that.

Karen Tso (Journalist): Governor, we very much appreciate your time this morning. Thank you so much for joining us.

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