August 5, 2016
EU Source: Bank of England cuts rates to historic low post Brexit
By Future Europe Initiative
- Italian banking crisis continues after EBA stress test
- Julian King receives Commission's security union portfolio
- Turkey threatens to drop migrant deal with EU over visa-free travel
BRUSSELS IN BRIEF
EU bank shares tumble after stress test results
The European Banking Authority (EBA) on July 29 released the results of its stress test for 51 EU banks. While several financial institutions didn't fare well, overall the banking sector has strengthened its capital base and could better survive adverse economic conditions. However, worries remain on profitability and equity investor sentiment, as some analysts claim that the test doesn't reveal the core problem in the sector, namely negative interest rates, which continue to eat into profits and erode bank capital. Bank shares have dropped steadily since the results were published.
Euractiv: No clean bill of health for EU banks in stress test
Financial Times: European banks: still unloved by equity investors
Business Insider: European banking stocks are diving once again
Bailout plan approved for large Italian bank as crisis continues
The European Central Bank approved a rescue plan for Italy's third largest lender, Monte dei Paschi di Siena (MPS), which fared the worst in the EBA's stress test. The plan includes a 5 billion euro sale of new shares to raise capital along with a spin-off and sale of 10 billion euros of non-performing loans hurting the bank's balance sheet. Investors initially reacted positively to the bailout, but shares came crashing down on August 2, causing two of Italy's largest banks, UniCredit and MPS, to temporarily suspend trading.
Reuters: ECB approves rescue plan for Italian bank Monte dei Paschi: sources
Bloomberg: After two bailouts, Monte Paschi faces a challenge wooing investors
Politico: Bank shares tumble on fears of sector's soundness
Julian King gets security union portfolio
European Commission President Jean Claude Juncker has given the new British EU Commissioner Julian King the security union portfolio. King will lead the Commission's efforts in combatting terrorism, organized crime, and cyber attacks. Juncker called for a European security union back in March 2016, a proposition criticized in the UK. While many predicted a light portfolio for King considering Brexit, he will have a lot on his plate as Europe copes with a string of recent terrorist attacks.
European Commission: Juncker's letter to Julian King
Politico: Juncker makes UK Commissioner Julian King EU's anti-terror tsar
BBC: Brexit: Security brief for UK's next EU Commissioner
Brexit to complicate EU-Switzerland immigration negotiations
Talks between Switzerland and the EU over migration have become much more difficult after the Brexit referendum. Switzerland voted in a 2014 referendum to cap immigration, but the EU insists that access to the single market can come only with freedom of movement and it will not accept a cap on EU citizens settling in Switzerland. If the country doesn't accommodate EU demands, its whole trade relationship with the union could be in jeopardy. Talks will begin in October and Switzerland has until December to determine its relationship with the EU, but the power balance has shifted to Brussels knowing that the talks will set a precedent for exit negotiations with the UK.
Politico: Switzerland becomes Brexit casualty