The common theme is that euro area banks are undercapitalised with potential losses still to be recognized. I do not deny that there still problems to be addressed as I will explain later in my remarks but looking at the more recent data, the situation of European banks is better than present market perceptions and better than what many observers acknowledge.
First, we must credibly implement the agreed reforms – for example, the new bail-in instruments need to be credible so that politicians do not preempt the bail-in during times of crisis. Zombie banks should not be kept alive for political reasons. Uncertainty over the bail-in instruments will only exacerbate market uncertainty. Second, supervision must be steadfast.