The Banking The Banking Executive Magazine - June 2024 Issue

EU Election 2024 IMPACT ON EUROPE DEFENCE SPENDING Since Russia's invasion of Ukraine, pressure on Europe to raise defence spending has mounted. While mem- ber states are primarily responsible for defence spending, further joint EU funding for selective purposes such as defence is expected. The bloc has also broached the idea of a new 100-billion-euro defence fund. Any far-right opposition to further fis- cal integration could defeat those hopes. There is also uncertainty over what the rise of the far-right in Europe would eventually mean for support for Ukraine, as markets grapple with a flurry of geopolitical risks. IMPACT ON BANKS According to Euronews, despite the meteoric performance of the EU banking stocks, the sector may en- counter challenges amid the EU election, with the joint deposit insur- ance policy still unresolved. Big European banks have been expe- riencing robust growth due to a resurgence in deal-making and high investment banking revenue. The Euro Stoxx banking index (SX7E) is up 19%, while the Euro Stoxx 600 Index (SXXP) rose nearly 9% in 2024. The index has also beaten its United States US peer, the Standard & Poor's Depositary Receipts SPDR Select Sector Fund (XLF), which climbed 9% year-to-date. The imminent EU Parliamentary Election may bring uncertainties to the banking sector. The new leader- ship is yet to address a joint deposit insurance policy that had been raised again by the incumbent ruling party. In April 2024, the European Parlia- ment body approved a plan to estab- lish a joint deposit insurance pool for the European Union's (EU) banks. This was in response to rising bank- ing system risks following the col- lapse of United States US regional banks and Credit Suisse's failure in 2023. The measure aims to establish a broader European Deposit Insur- ance Scheme to implement joint de- posit protection. European leaders recognised the need to establish a banking union in response to the global financial crisis (GFC) in 2008, with the goal of en- hancing the stability and integrity of the banking system within the Euro- pean Union (EU), especially within the Eurozone. The joint deposit in- surance scheme, introduced in 2015, constituted one of the three pillars in the framework of the European Bank- ing Union. These three pillars en- compass the Single Supervisory Mechanism (SSM), the Single Reso- lution Mechanism (SRM), and the Eu- ropean Deposit Insurance Scheme (EDIS). While the first two parts were imple- mented in 2013 and 2014, the joint deposit insurance scheme has been controversial, posing a roadblock for the unity of cross-border banks. The joint deposit insurance aims to pro- vide liquidity support to scheme par- ticipants, with all other contributors obliged to lend funds if requested by the board. It grants authority to the single resolution board to utilise and manage the fund. ISSUE 186 JUNE 2024 the BANKING EXECUTIVE 13