At the height of the region’s debt problems, the amounts held by foreigners in banks in Spain, Italy and other eurozone “periphery” countries shrunk worryingly.
Recent months have seen signs of improvement – thanks to a pledge by the European Central Bank to prevent a eurozone break-up, as well as government efforts to boost confidence in the banking system.
However, analysts warn the latest initiative to build a resilient eurozone “banking union” – which will put deposits by large corporations at risk of being “bailed-in” to rescue trouble-hit banks – may have the opposite effect and spark renewed capital movement away from the continent’s troubled southern economies while benefiting banks in the north.
“There’s already been a reassessment of risk between periphery and core over the past two years which has led to foreign deposits being moved away from the periphery,” says Huw van Steenis, banking analyst at Morgan Stanley. “The bail-in directive could potentially accentuate this reallocation.”
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