Euro zone must reduce risk before banking union: ECB’s Knot

FRANKFURT (Reuters) – The euro zone needs to complete its stalled banking union but only if risks are reduced before they are shared more widely among member states, European Central Bank policymaker Klaas Knot said in a magazine article on Tuesday.

Measures under consideration include a public backstop for a bank deposit insurance scheme and streamlining liquidity provision for banks under resolution.

“These elements all imply more public risk-sharing in (the European Monetary Union) as liability for bank failures in other countries is shared at the European level,” Knot said in the Eurofi Magazine. “This is why risk-sharing should be preceded by sufficient risk-reduction.”

To do this, the level of non performing loans held by banks must be cut and lenders’ ties to their host governments also needs to be reduced, possibly through charges if they hold too much debt from a particular sovereign, said Knot, the head of the Dutch central bank.

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