France backs Euro Commission`s plan on recapitalization of banks
Baku, October 14 (AZERTAC). Europe`s top banking regulator has started to re-examine the strength of the region`s banks, modeling a big write-down of all peripheral euro zone sovereign debt.
The exercise, conducted by the European Banking Authority, could potentially identify capital shortfalls across the banking system of as much as 200 billion euros ($266 billion).
The EBA, which is mid-way through a two-day crisis board meeting designed to assess the potential hit of mass sovereign restructurings, will use market values, to set “haircuts” on banks` sovereign holdings.
The regulator is also closely involved in talks with European officials and governments over mechanisms that could be used to forcibly recapitalize banks, enabling them to cope with sovereign defaults.
The move, a tacit admission that the European Banking Authority`s two previous rounds of bank stress tests were not sufficiently robust, came as Angela Merkel, the German chancellor, said she was prepared to recapitalize her country`s banks if necessary. She suggested she wanted to discuss joint EU-wide bank support efforts at an EU summit in two weeks.
“We`re under the pressure of time and I think we need to take a decision quickly,” Ms Merkel said after meetings with the European Commission in Brussels.
According to senior officials involved in the process, the EBA has been instructed to provide a country-by-country breakdown of how much new capital banks would need in the event that Greece`s bonds were written down.
The officials insisted the move was not an indication that EU leaders were preparing for a Greek default. Instead, they said it was a precautionary measure intended to inform rapidly accelerating negotiations on EU-wide bank recapitalizations.
The International Monetary Fund also gave its support for a quick recapitalization, with Antonio Borges, the IMF`s Europe director, saying a lack of funding was causing banks to cut back on lending, which in turn was a drag on economic growth.
Mr Borges pegged the cost of a Europe-wide recapitalization at 100 billion euros-200 billion euros, and urged leaders to require all European banks to take part.
The primary hold-out appeared to be France. Despite Paris`s ongoing efforts to rescue Dexia, the troubled Franco-Belgian bank, the French government signaled it was uncomfortable with the accelerating talk of recapitalization, insisting its banks did not need help.
“French banks do not need more capital than they have decided to accumulate by 2013,” one French official said.
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