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The European Central Bank’s Francois Villero has stated that the ECB is absolutely determined to fight fragmentation risk between eurozone countries. 

“French banks can weather the current economic storm unleashed by the coronavirus outbreak and are in no need of nationalisation despite the recent collapse in their share prices”, the head of France’s central bank said on Wednesday.

  • We can temporarily focus on certain countries’ debt if necessary.
  • If we need to buy more bonds during this exceptional period we will do it.
  • Says no reason to close equity markets, we are closely monitoring bond markets’ functioning and liquidity.
  • Says commercial paper market not liquid enough, needs us to step up our action.
  • French banks are solid and in no need of nationalisation – Bank of France chief Villeroy.
  • French banks’ solvency and liquidity much stronger than in 2008 – Bank of France chief.

Market implications

Europe has not the best reputation when it comes to cohesion when casting minds back to the bailouts, Grexit and the GFC. Europan banks, such as Deutsche Bank, hold a huge derivates book into the trillions for which the too big to fail banks in the US, such as Goldman Sachs, JP Morgan, are also exposed to.

The risks the banks are exposed to is bad loans and client bankruptcy, defaults that will eat through reserves quickly. A highly leveraged bank industry holding mass numbers of nonperforming consumer and business loans is what the governments and central banks are mostly worried about. We may not have seen the worst of what is to come of COVID-19 in financial markets. At the time of writing, S&P 500 futures are already down over 1% in early Asia.