EU Leaders Grapple with Bank Risks as Economy Weakens

European Central Bank President Christine Lagarde, left, speaks with Slovakia's Prime Minister Eduard Heger, center, and Cypriot President Nikos Christodoulides during a round table meeting at an EU summit in Brussels, Friday, March 24, 2023. (AP Photo/Geert Vanden Wijngaert)
European Central Bank President Christine Lagarde, left, speaks with Slovakia's Prime Minister Eduard Heger, center, and Cypriot President Nikos Christodoulides during a round table meeting at an EU summit in Brussels, Friday, March 24, 2023. (AP Photo/Geert Vanden Wijngaert)
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EU Leaders Grapple with Bank Risks as Economy Weakens

European Central Bank President Christine Lagarde, left, speaks with Slovakia's Prime Minister Eduard Heger, center, and Cypriot President Nikos Christodoulides during a round table meeting at an EU summit in Brussels, Friday, March 24, 2023. (AP Photo/Geert Vanden Wijngaert)
European Central Bank President Christine Lagarde, left, speaks with Slovakia's Prime Minister Eduard Heger, center, and Cypriot President Nikos Christodoulides during a round table meeting at an EU summit in Brussels, Friday, March 24, 2023. (AP Photo/Geert Vanden Wijngaert)

European Union leaders gathered Friday to gauge the risk of a banking crisis developing from recent global financial turbulence and hitting the economy even harder than the energy crunch tied to Russia's war in Ukraine.

The deliberations by EU government heads in Brussels follow US regulators shutting down two US banks, including Silicon Valley Bank, and a Swiss-orchestrated takeover of troubled lender Credit Suisse by rival UBS, The Associated Press said.

The emergency actions on both sides of the Atlantic revived memories of the 2008 global financial meltdown and the ensuing EU sovereign debt crisis, which almost broke apart the euro currency now shared by 20 European countries.

“For the moment, we see no reason to be worried,” Belgian Prime Minister Alexander De Croo told reporters on his way to the EU meeting. “But we monitor it really closely, almost on a daily basis, because no one knows what can happen.”

The European economy has been slowing rapidly since Russia invaded Ukraine 13 months ago to the day, leaving the EU flirting with recession. The war has fueled inflation by prompting cuts in supplies of previously abundant Russian oil, natural gas and coal and by denting consumer and business confidence.

The European Commission, the EU's executive arm, expects economic growth in the 27-nation bloc to slow to 0.8% this year from 3.5% in 2022 and 5.4% in 2021. A projected rebound in growth to 1.6% next year depends on a sound banking sector able to lend to businesses and consumers and protect deposits.

The EU has beefed up its regulation of financial institutions since the euro debt crisis, and little sign has emerged so far of broader contagion in Europe from Credit Suisse’s dramatic rescue.

Nonetheless, financial supervision in Europe remains a patchwork of EU and national authorities pursuing common approaches rather than heeding an actual single European rulebook.

For example, the euro area still lacks a common deposit insurance system, which is widely considered a key defense against future European bank crises. A stalemate among national capitals over how to share risk has left the bloc without this regulatory pillar.

On the market front, officials have said European banks generally have adequate cash buffers — while still urging vigilance.

“I am very confident in the amount of liquidity, the amount of resilience, that our banking system has built up,” said Paschal Donohoe, who leads the group of eurozone finance chiefs and is Ireland’s public expenditure minister. “But we can never be complacent.”

One reason for prudence is that the European Central Bank has raised interest rates from record lows, denting the balance sheets of lenders and making it more expensive for consumers and businesses to get loans. The ECB is seeking to bring stubbornly high euro-area inflation, which was 8.5% in February, closer to a 2% target.

ECB President Christine Lagarde and Donohoe are attending the EU summit to share their views about the economy.

“I’m really looking forward to the discussions with the president of the European Central Bank to understand where we are going and what tools they plan to use in the future — what are the prospects for our economy and inflation,” Estonian Prime Minister Kaja Kallas said.



Oil Slips on Buildup in US Gasoline Stocks; Eyes on Weekend OPEC+ Meeting

FILE PHOTO: An oil and gas industry worker walks during operations of a drilling rig at Zhetybay field in the Mangystau region, Kazakhstan, November 13, 2023. REUTERS/Turar Kazangapov/File Photo
FILE PHOTO: An oil and gas industry worker walks during operations of a drilling rig at Zhetybay field in the Mangystau region, Kazakhstan, November 13, 2023. REUTERS/Turar Kazangapov/File Photo
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Oil Slips on Buildup in US Gasoline Stocks; Eyes on Weekend OPEC+ Meeting

FILE PHOTO: An oil and gas industry worker walks during operations of a drilling rig at Zhetybay field in the Mangystau region, Kazakhstan, November 13, 2023. REUTERS/Turar Kazangapov/File Photo
FILE PHOTO: An oil and gas industry worker walks during operations of a drilling rig at Zhetybay field in the Mangystau region, Kazakhstan, November 13, 2023. REUTERS/Turar Kazangapov/File Photo

Oil prices drifted lower on Thursday after a surprise jump in US gasoline inventories, with investors focusing on the OPEC+ meeting this weekend to discuss oil output policy.
Brent crude futures fell by 14 cents, or 0.2%, to $72.69 per barrel by 0401 GMT, while US West Texas Intermediate crude futures were also down 14 cents, or 0.2%, at $68.58 a barrel.
Trading is expected to be light due to US Thanksgiving holiday kicking off from Thursday.
Oil is likely to hold to its near-term bearish momentum as the risks of supply disruption fade in the Middle East and stemming from the higher-than-expected US gasoline inventories, said Yeap Jun Rong, a market strategist at IG.
US gasoline stocks rose 3.3 million barrels in the week ended on Nov. 22, the US Energy Information Administration (EIA) said on Wednesday, countering expectations for a small draw in fuel stocks ahead of record holiday travel.
Slowing fuel demand growth in top consumers the United States and China has weighed heavily on oil prices this year, although supply curtailments from OPEC+, which groups the Organization of the Petroleum Exporting Countries with Russia and other allies, have limited the losses.
OPEC+ will meet on Sunday. Two sources from the producer group told Reuters on Tuesday that members have been discussing a further delay to a planned oil output hike that was due to start in January.
A further deferment, as expected by many in the market, has mostly been factored into oil prices already, said Suvro Sarkar, energy sector team lead at DBS Bank.
"The only question is whether it's a one-month pushback, or three-month, or even longer. That would give the oil market some direction. On the other hand, we would be worried about a dip in oil prices if the deferments don’t come," he said.
The group, which pumps about half the world's oil, had previously said it would gradually roll back oil production cuts with small increases over many months in 2024 and 2025.
Brent and WTI have lost more than 3% each so far this week, under pressure from Israel's agreement to a ceasefire deal with Lebanon's Hezbollah group. The ceasefire started on Wednesday and helped ease concerns that the conflict could disrupt oil supplies from the top producing Middle East region.
Market participants are uncertain how long the break in the fighting will hold, with the broader geopolitical backdrop for oil remaining murky, analysts at ANZ Bank said.
Oil prices are undervalued due to a market deficit, heads of commodities research at Goldman Sachs and Morgan Stanley warned in recent days, also pointing to a potential risk to Iranian supply from sanctions that might be implemented under US President-elect Donald Trump.