The recapitalization already undertaken by banks along with stress tests to probe banks’ ability to withstand future shocks in financial markets had all helped to reduce risk, Dombrovskis said. He believed European banks were safe.
Europe’s banking system was hard hit by the global financial crisis in 2008 and, as a result, a raft of lenders either received bailouts. In effect, taxpayers and (in the case of Cyprus) some depositors bore the brunt of the bailouts.
In order to prevent future financial shocks permeating the entire region, the euro zone is creating a more integrated and regulated banking union. The EU’s new Single Resolution Mechanism, which came into effect earlier this year, is aimed to prevent a repeat of those events. Its Single Resolution Fund, built up with contributions from the banking industry, will cover the cost of potential future trouble in the sector.