ECB's Praet warns euro zone's banking systems pulling dangerously apart

VIENNA (Reuters) - The euro zone’s national banking systems are pulling apart, rather than coming closer together, and that is leaving them more exposed to domestic shocks, the European Central Bank’s chief economist said on Thursday.

European Central Bank executive board member Peter Praet attends the 2016 Institute of International Finance (IIF) Spring Membership meeting in Madrid, Spain, May 25, 2016. REUTERS/Susana Vera

After the euro zone very nearly collapsed during the 2008-12 banking and debt crisis, governments in the bloc have set out to make their banking systems more integrated so that they would be better able to prevent and withstand future shocks.

But ECB chief economist Peter Praet said euro zone’s banks have in fact become more domestically focussed than before.

“The banking systems are becoming more national than before the crisis,” Praet told reporters in Vienna.

“It’s quite dangerous ... If you have an asymmetric shock the banking system in that country is too exposed to that country.”

The ECB took over supervision of the euro zone’s largest lenders in 2014 and a Single Resolution Board has been created to deal with bank failures.

But the creation of a banking union has stalled over the last two years as countries such as Germany have been reluctant to create a common pot to guarantee deposits across 19 countries.

“I have the impression of integration fatigue where it is not very clear what will be the end regime for the banking union,” Praet said.

“I would like to see a date that is relevant. Four to five years is a reasonable time.”

He renewed the ECB’s call to for a common deposit insurance scheme.

“We need a more integrated banking sector in the euro area to achieve greater macroeconomic stability,” he said.

“We cannot expect to have a fully integrated banking sector that can share risks without common institutions that can also share risks, namely for deposit insurance and bank resolution,” he added.

Reporting By Noah Barkin; Writing By Francesco Canepa in Frankfurt; Editing by Toby Chopra