European Banks Most Fear Potential Crisis of Confidence

At least two major European banks are analyzing domino-effect scenarios in the banking sector following troubles in the U.S. and Switzerland, and are particularly concerned about a potential crisis of confidence, two informed executives told Reuters.

The consequences of the crisis of confidence in Credit Suisse and the collapse of two American banks could also impact the financial system in Europe, the two directors separately stated to Reuters.

The two banks have internally discussed when the European Central Bank should issue a message about the resilience of banks in the eurozone, particularly regarding their capital positions and liquidity, sources said.

Internal discussions focused on the possibility that the ECB could further disturb the public if it speaks out too early, they explained.

They asserted that their banks and the sector are well-capitalized and that their liquidity is strong, but they fear that more lenders will find themselves under the threat of a crisis of confidence.

Last Thursday, the ECB highlighted in a statement from its monetary policy committee meeting that the banking sector in the eurozone is resilient and that its capital and liquidity positions are ‘strong’.

On Friday, an extraordinary meeting of the ECB’s banking supervision committee was convened to ‘exchange views and provide members with the latest information on recent developments in the banking sector,’ a spokesperson told Reuters.

On Sunday, the ECB announced that it would enhance dollar liquidity through a currency swap mechanism in coordination with a group of central banks to ensure normal financing following issues in the U.S. and Switzerland.

To ensure dollar liquidity, the central banks of the U.S., eurozone, Japan, Canada, Switzerland, and the UK will offer lenders financing with a seven-day maturity every day, rather than once a week, according to the ECB’s statement.

Daily financing will be available to banks starting Monday, March 20, at least until the end of April to support the normal functioning of the market and ensure liquidity for lending to companies and households, the statement adds.