World Economy

No need for concern on Europe banks: EC's Dombrovskis

Banking sector risks are going down: European Commission VP

European Commission Vice-President Valdis Dombrovskis has moved to reassure jittery investors, claiming Thursday that there was no need to be particularly concerned about the volatility seen in recent weeks in the European banking sector.

European banks have lost about a quarter of their market value since the start of the year and are looking badly bruised as concern over provisions for bad debts and the banks' exposure to the energy sector loans grows.

Chief executives have been trying hard to reassure investors that there is nothing to fear. Shares in other sectors, such as those in the energy sector and those exposed to China, have sold off globally as falling oil prices and slowing growth in China conspired to make the start of 2016 the worst on record on Wall Street.

European commissioner for the Euro and social dialogue Valdis Dombrovskis holds a press conference at the European Commission in Brussels

"We wouldn't say that there should be some particular worry on the banking sector, Dombrovskis, who is European Commission Vice-President for the Euro and Social Dialogue, told CNBC in Brussels, where Eurogroup finance ministers meet later in the day.

The former Latvian Prime Minister said it was important to complete the European banking union, created in response to the financial crisis, to reduce risks in the banking sector. The system includes stricter regulatory requirements for banks, improved depositor protection and rules for managing failing banks.

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The recapitalization already undertaken by banks along with stress tests to probe banks' ability to withstand future shocks in financial markets had all helped to reduce risk, Dombrovskis said. He believed European banks were safe.

Europe's banking system was hard hit by the global financial crisis in 2008 and, as a result, a raft of lenders either received bailouts. In effect, taxpayers and (in the case of Cyprus) some depositors bore the brunt of the bailouts.

In order to prevent future financial shocks permeating the entire region, the euro zone is creating a more integrated and regulated banking union. The EU's new Single Resolution Mechanism, which came into effect earlier this year, is aimed to prevent a repeat of those events. Its Single Resolution Fund, built up with contributions from the banking industry, will cover the cost of potential future trouble in the sector.

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