MNI BRIEF: Bank Union May Reduce Need For TPI - De Guindos

Fully-flexible PEPP reinvestments and the European Central Bank’s Transmission Protection Instrument are “important tools” for addressing any fragmentation issues, but closer euro area financial integration might reduce the need to use them, ECB vice president Luis De Guindos said Thursday.

“Flexibility in redemptions coming due in the PEPP portfolio and TPI are important tools for addressing possible fragmentation from the monetary policy side,” he said, “but monetary policy would be greatly facilitated if the banking union were complete. The lack of a common deposit insurance scheme remains an obstacle on our pathway towards a genuine Economic and Monetary Union.

Bond markets are currently stable with little sign of fragmentation, De Guindos said, although weaker banks remain vulnerable to further funding costs increases as interest rates rise. At 1045BST Thursday, the spread between benchmark Italian and German 10-year bonds was trading at 226 bps, little changed on the session and shy of the recent high at 240 bps.