Sinn Féin MEP Matt Carthy has commented on the global volatility in stock markets, saying that it demonstrates the urgent need for structural reform of the largest banks.
Carthy was speaking in Strasbourg following the sell-off that started on Wall Street last Friday before spreading globally, and saw the Dow Jones index fall by almost 1,200 points on Monday.
Carthy, a member of the Economic and Monetary Affairs Committee, said:
“The sharp fall in global markets over the past few days has been blamed largely on fears of central banks hiking interest rates in response to economic growth and the potential for inflation.
“Claims that the massive sell-off was in part a result of automated trading programmes tied to volatility is worrying, but even more worrying is the fact that we don’t know if this is true and don’t have a way of measuring this influence in an opaque and complex market.
“Such a massive sell-off being prompted by what should be good news is an indication of the weak level of confidence in the economic recovery.
“In the US, this might be the bursting of the Trump bubble – his tax reforms and drive to once more de-regulate the financial sector have contributed to a year of steady rises in Wall Street, which has finally been interrupted.
“Most importantly, it is an indication of how deeply dependent the markets have become on the constant flow of easy money from central banks over the past decade; the very idea of a normalisation of interest rates has caused panic.
“In the EU, economists have repeatedly warned that the ECB’s monetary policies, and particularly its Corporate Sector Purchase Programme, risked fuelling bubbles in high-risk assets and would significantly increase inequality by distributing ECB funds directly to banks and corporations rather than to the real economy.”
“This market volatility has brought back fears of a repeat of the global financial crisis, which leaders of financial institutions are quick to reject.
“Hopefully the sell-off will steady today before it affects the jobs and pensions of ordinary people. But it drives home just how vulnerable the economic recovery is – and in particular how vulnerable our banks are to another shock.
“Despite the promise of fundamental financial reform in the EU, the banking system is in many ways in the same situation as it was before the 2007-08 crisis.
“Yesterday bank stocks in the EU fell by 2 per cent, while the sector is still loaded up with close to one trillion euros in non-performing loans.
“There have been some improvements in supervision, but the promise of serious reform – structural separation of the ‘too-big-to-fail’ banks’ retail and commercial banking from their investment banking activities – has been blocked for years by conservatives.
“In recent months the Commission openly abandoned its EU-wide proposal on Banking Structural Reform.
“As a result I have proposed amendments to the Capital Requirements Directive currently being revised in the European Parliament, by inserting a new chapter on the structural separation of the largest banks, which would prevent them from gambling away the savings of their customers and protect ordinary people in the event of a future financial crisis.”