Investors confident ECB will become euro zone banks’ supervisor, says Fitch survey

European investors are optimistic about the outlook for centralised eurozone banking supervision under the European Central Bank, according to Fitch Ratings’ quarterly investor survey.

A strong majority of 79% of survey respondents expect the ECB to become the supervisor for all eurozone banks, in line with the European Commission’s legislative proposal for a single supervisory mechanism (SSM). This group of investors includes the most optimistic 16% who believe the development will follow the plan to start coverage in January 2013, with full coverage by the end of that year. It also comprises the 63% of investors who anticipate implementation will take longer, which is also Fitch’s opinion.

The survey respondents that are doubtful of success total 21%. Of these, 17% still expect the ECB to become the supervisor but only for banks in receipt of state aid and SIFIs. A small minority of 4% think the plans for a banking union will be derailed by national policy makers and lobbyists.

Little progress was made at October’s EU summit, and the initial optimistic timetable has already slipped. “The summit outcome suggests that banking union is still some way off,” Fitch noted when releasing its poll results, “although the nature of political negotiations means critical decisions were always likely to be delayed until the December summit.”

“Establishing a SSM is controversial enough on its own,” but Fitch believes that if banking union is to be effective, clarity on resolution and deposit protection schemes will also be needed. The SSM proposals are a prerequisite for the ESM being able to recapitalise banks directly.

“Successful implementation would be a positive step towards breaking the destructive bank/sovereign nexus in the euro area. A euro zone banking union would also be positive in bringing more consistent supervision to euro area banks and making bank resolution more objective,” the ratings agency added.

The Q412 survey was conducted between 2 October and 6 November and represents the views of managers of an estimated $7.4 trillion of fixed-income assets.

But on Tuesday, another survey by Fitch Ratings pointed out that there still exists hesitance in the investing community to trust that the euro zone’s economic travails will meet a ‘happy ending’.

The risk qualification agency explained in a report that the European money market funds (MMFs) it rates have reallocated almost 20% of their portfolios by geography over the past two years. The reallocation has been from peripheral Europe, the US and the UK, to core Europe, the Nordic countries and, to a lesser extent, Asian and Middle East issuers.

This represents an industry-wide geographic shift of around €100 billion of assets. Nevertheless, MMFs retain large exposures to European issuers, with the average portfolio 75% exposed to Europe.