Brussels, 30/08/2011 (Agence Europe) - The controversy about the level of bank capitalisation emerged again with force on Tuesday 30 August following an article in FT Deutschland about a letter from the chair of the European Banking Authority (EBA), Andrea Enria, suggesting to European finance ministers that the EU bailout fund, the EFSF, should provide direct funding to struggling banks. The EBA recognises the need for certain banks to receive public funding, echoing recent comments by the director general of the International Monetary Fund, Christine Lagarde, that European banks urgently needed to increase their capital base (see EUROPE 10440). At the end of last month, eurozone countries agreed that in order to stave off the risk of a spread of the sovereign debt crisis, the EFSF should be able to provide capital to financial establishments from the cash loaned to governments, including countries not covered by a bailout programme. The suggestion has yet to be formally ratified by the 17 eurozone countries.
During a debate on Monday at the European Parliament's economic and monetary affairs committee, EU Economic and Monetary Affairs Commissioner Olli Rehn said that European banks had better capital levels this year than last, with banks' capital rising by €50 billion in a year, as revealed by the stress tests coordinated by the EBA (see EUROPE 10421). The eight banks that failed the tests and the banks that only just scraped through now have six to nine months to improve their financial stability, he added, admitting that banks had been finding it hard recently to raise capital on the money markets. The president of the European Central Bank, Jean-Claude Trichet, assured MEPs that banks were not facing any cash flow problems. (M.B./transl.fl)