EU to test bank capital for deeper Greek losses
BRUSSELS (AP) — European Union finance ministers have asked the bloc's banking supervisor to draw up a report on banks' capital levels, a European official said Thursday, amid fears that the worsening debt crisis could trigger another credit crunch.
Banks' ability to survive steeper losses on Greek debt will be one of the scenarios assessed in that report, the official said, adding that ministers plan to discuss the results at their next meeting in early November. The official was speaking on condition of anonymity because of the sensitivity of the issue.
German Chancellor Angela Merkel said Wednesday she was in favor of a coordinated recapitalization of European banks if that was deemed necessary.
Speculation that Europe is looking at a coordinated plan to recapitalize its banking sector has been the main reason why stock markets have rallied over the past couple of days following a dismal start to the week.
Franco-Belgian bank Dexia SA has been at the forefront of investor concerns this week over its exposure to potentially bad government debt and its share price has been under severe pressure. The French and Belgian governments have indicated that some sort of deal to save the bank could be announced later Thursday.
The International Monetary Fund, a key player in the eurozone debt crisis, said lenders across the continent may need as much as euro200 billion ($267 billion) to boost their capital cushions enough to restore a loss of confidence in the sector.
Some of that money could come from private investors via capital increases, but analysts expect that governments may have to put up significant amounts for lenders than can't raise money on the markets.
The EU disputes the IMF's euro200 billion estimate, but has nevertheless been pushing for a more coordinated response to the worsening conditions in the continent's banking sector, where lending between banks and from banks to businesses is threatening to freeze up in a manner similar to the aftermath of the collapse of U.S. investment bank Lehman Brothers in 2008.
However, some countries have been slow to set up sufficient backstops for their lenders, reluctant to commit more public money as they are already under pressure over their high debt levels.