CME Group Market Insights: Wait Continues for Centralized Supervisor of European Banking System
LONDON, Jan. 23, 2014 /PRNewswire/ -- A new research report -- Watching European Bank Reform -- from CME Group assesses the prospects for European banking reform and examines the barriers and opportunities ahead. The stagnant growth environment in the Euro-zone is still reflected in GDP numbers, with 2013 estimated year-over-year GDP growth of -0.4%, showing only a modest improvement from the -1% posted in 2012 and forecasted growth for 2014 of 1% provides a hint of optimism.
This new report looks at the following three factors to watch in 2014:
- There exist two cyclical effects which lace the sovereigns and their national banks together: 1. Without a supranational bank regulator and supervisor, member states have kept individual responsibility for and oversight of their national banking systems; 2. Large proportions of domestic government debt are held on the balance sheets of many European banks, so the solvency of the government falls directly onto that country's banks.
High-Yield Debt Issuance
- Given the Euro-zone banks' dual, key roles to provide credit for both commerce and their governments, getting their banking system back to good health has been incredibly difficult, and a decrease in lending by Euro-zone banks has forced corporations of many types to seek funding elsewhere. This shift from corporate loans from banks to public market debt issuance underscores a decreased source of business and revenues for Euro-zone banks on the one hand, but on the other represents hope for future economic growth.
- Currently, there exists a hybrid of the originally proposed supranational, all powerful banking union overseeing the entire Euro-zone banking system and a network of national supervisors. With another round of stress testing for banks in 2014, this round of ECB-conducted tests puts the central banks credibility at risk if they are not perceived as being tough enough.
Looking at the year ahead, deflation is still a concern, and the weaker economies of the Mediterranean countries, while having made progress—observe Italy achieving an operating balance in its budget and Spain growing exports and producing meaningful pension reform—still need to be watched closely.
You can download the full report here: http://www.cmegroup.com/education/featured-reports/watching-european-bank-reform.html
This research report has been prepared on the basis of information obtained from sources which are believed to be reliable, but no representation or warranty is offered as to its accuracy or completeness. The opinions contained in the research report represent the views of its authors as of the date of publication and may be subject to change without prior notice. Nothing in the report should be considered or relied upon as investment advice or as the basis for trading.
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SOURCE CME Group