The share prices of major banks received a boost over trading on Friday after encouraging developments at the European Summit helped ease investor concerns over a deteriorating debt situation in Europe. Leaders from Eurozone nations reached agreements over a range of issues concerning the crisis, and the single biggest achievement was the clearance of the soon-to-be-formed European Stability Mechanism (ESM) to pump funds directly into the banking systems of troubled member nations. Shares of Deutsche Bank (NYSE:DB) rose by almost 7% over trading, followed by a gain of more than 5% for the shares of Bank of America (NYSE:BAC), Morgan Stanley (NYSE:MS) and Credit Suisse (NYSE:CS).
The fragile condition of Spain’s banking system has been weighing heavily on investor sentiments over recent weeks. A lot of hopes were pinned to the recently concluded European Summit in Brussels which aimed at coming up with broad steps to get the region’s economy back on its feet.
Earlier in June, Spain formally requested aid for its banking systems. One of the key decisions made at the European Summit was to clear the European Union’s permanent bailout fund – the ESM – to capitalize Spain’s banks directly. Moreover, the concerns of current holders of Spanish government notes about the ESM’s preferred creditor status were comprehensively addressed when EU leaders decided to waive this condition for Spain.
Another outcome of the summit which was cheered by investors was the agreement to establish a central supervision authority for all the banks in the Eurozone to work in tandem with the European Central Bank (ECB).
Markets around the world reacted positively to these developments, with the banks’ shares which had been battered the most over recent weeks showing the most recovery.