David Lipton, the International Monetary Fund’s No. 2 official, today urged “pan-European” banking supervision while saying euro-area risk-sharing in the form of euro bonds is premature.
“It’s one single market, but it is 17 markets as far as banks are concerned with 17 different regulators,” Lipton said in an interview with Bloomberg Television. “If they move to this kind of pan-European supervision, at least for the large systemically important institutions, people would then feel more comfortable about interventions that help one or another banking system.”
European Union leaders will meet in Brussels on June 28-29 for a summit that will try to resolve competing visions over how to reshape the euro-area economy. Proposals that probably will be discussed include supervision, resolution, recapitalization, and deposit insurance to form what policy makers are calling a banking union.
Lipton said that broader banking supervision would give the European Central Bank “visibility into and some control over the situation in all the national banking systems of the zone.”
When asked about the creation of euro bonds, the IMF official said the idea would require a fiscal arrangement among the member states on how the bonds would be serviced.
“You can’t go issue bonds if it’s not clear who’s going to pay for them,” said Lipton, the IMF’s first deputy managing director. “I think it’s premature. Certainly euro bonds would be one way to use fiscal union to share risks.”
The IMF official also said Europe could “Europeanize deposit insurance,” creating a measure of safety and avoiding a run on the region’s banks.
Group of 20 nations’ leaders this week focused their response to Europe’s financial crisis on stabilizing banks as the IMF raised its lending capacity to shield the rest of the world economy. Emerging countries boosted their pledges to the IMF’s global firewall, nearly doubling the fund’s resources to $456 billion, at a G-20 summit in Mexico dominated by the global effort to restore confidence in the euro.
Lipton in the interview at the St. Petersburg International Economic Forum said today that austerity and growth are not competing concepts. He urged Europe and other advanced countries to provide growth settings that allow issues of fiscal consolidation and competitiveness to be resolved.
Lipton took over the position of first deputy managing director of the IMF on Sept. 1, 2011, according to the fund’s website. He previously was an adviser to President Barack Obama and a U.S. Treasury official in the Clinton administration.