ECB’s Lagarde tells EU leaders that banking sector is strong

European Central Bank President Christine Lagarde told European Union leaders that the euro-area banking sector is strong despite the continued market turmoil, according to people familiar with the matter.

Lagarde spoke on Friday to a gathering of EU leaders in Brussels, where they were discussing economic and monetary issues. She told them that the sector has held up because of the strong regulatory regime, and now it’s time to complete plans for a banking union.

She also said there is no trade off between price stability and financial stability, saying the central bank remains determined to bring inflation back to 2%, the people said.

The collapse of Silicon Valley Bank and the emergency rescue of Credit Suisse last weekend has rattled investors, and European bank stocks fell Friday, with Deutsche Bank plunging as much as 15%. 

Bundesbank President Joachim Nagel also said Friday that policymakers are ready in case turmoil flares further, while praising regulatory progress since the 2008 financial crisis.

“Central banks are not famous for speculating, but in the last two weeks we’ve been confronted with two idiosyncratic events,” Nagel said Friday in Edinburgh. “What I’ve seen is that these events are being solved by the responsible authorities.”

Earlier this week, Lagarde said that all banks should follow strict liquidity rules imposed after 2008. She told European lawmakers that 2,200 banks in the EU adhere to the so-called liquidity coverage ratio, compared with only 14 US banks. 

The EU had decided to impose the Basel framework throughout the bloc, and Lagarde on Friday told the leaders that they should continuously work to improve their regulatory standards, the people said..