Draghi Strives To Steady The Ship

The start of 2016 has been volatile by any standards, but the trend on major global stock markets is lower. Chief amongst the losers of stock value has been the banking sector – one must remember that markets are often driven by sentiment rather than reason. Many analysts believe that the decline in the value of banking shares has been overplayed and does not represent the true status of the sector currently; however, investors would beg to differ.

President of European Central Bank, Mario Draghi, has sought to pour oil on the waters of European banking turmoil, following recent sharp declines in the share values of many leading European banks, some of which are down by more than 25% on the values held at the start of the year.

Draghi sought to remind investors that the health of the European banking sector is much improved on where it stood prior to the Global Financial Crisis and much better placed to withstand a future financial shock, in a speech to European Parliament members.

Investors appear to be concerned that the banks will be adversely affected by weak commodity prices, on the back of the perceived slowdown in China. Or, as Mr Draghi put it: “The sharp fall in bank equity prices reflected the sector’s higher sensitivity to a weaker-than-expected economic outlook.”

He went on to note that European banks now had better “capital buffers” than before the crisis and during the worst excesses of the European sovereign debt crisis. He vowed to the parliamentarians that the ECB stood ready to do its part in strengthening the wider Eurozone economy and that: “We will not hesitate to act.”

Draghi’s remarks were seen as a thinly veiled promise that the ECB will strengthen its monetary stimulus policy in March when the bank next meets. In the face of further monetary easing, the Euro slipped by nearly 1% against the Dollar.