Brussels, 23/09/2011 (Agence Europe) - In order to stop the rumours about the health of European banks, the European Commission issued a statement on Friday 23 September about the process of increasing bank funding requirements in the European Union, with a Commission spokesperson saying that the recapitalisation process had been underway since 2008 and more than €420 billion has been injected into European banks, compared with the €580 billion injected into banks in the United States.
At a recent meeting in Wroc³aw, European finance ministers examined measures taken by European banks that failed the 2011 stress tests (those with capital of less than 5% of their assets based on a crisis situation scenario), and by those that only just scraped through (see EUROPE 10455). To structure their discussions, they used a report by the Council of Ministers Economic and Financial Committee saying that banks had considerably increased their capital, but member state experts say that the banks in the EU have raised €200 billion, €50bn of it in the first half of 2011 alone. This is half the amount suggested by the European Commission.
In the 2011 stress tests, eight banks failed, or nine if one includes a German bank that withdrew from the tests following disagreement about the European Banking Authority (EBA)'s test criteria. Sixteen banks scraped through (see EUROPE 10420 and 10421). The Commissions spokesperson said it was not the entire bank system that was at risk, but only a handful of banks that need extra capital.
All the above-mentioned banks have until 15 October to explain to the EBA how they are planning to boost their capital. The eight failed banks have until the end of the year to increase their capital, while the second group of banks has until April 2012. The Commission spokesperson explained that the EBA does not plan to bring the deadlines forward.
The 2011 stress tests were strongly criticised for failing to test the situation if a eurozone country were to default on its debt, but transparency has been introduced over banks' exposure to sovereign debt. However; the stress tests were not able to prevent panic on the markets over the summer.
Europe wants the private sector to provide the extra funding to the banks, but where necessary, public bailout systems are available in the form of financial guarantees, cash, golden shares and bailouts. In the future, the EFSF bailout fund will be able to provide emergency loans to the banks of a country not covered by an austerity programme, once the eurozone states have ratified the 21 July eurozone summit decisions, hopefully over the next month. (MB/transl.fl)