Brussels, 13/10/2011 (Agence Europe) - European banks are furious at the way the EU's talks are moving in the direction of compulsory and speedy increases in bank funding. The banks argue that this does not tackle the heart of the sovereign debt problem and will damage the financing of the real economy.
Less haste, more speed, commented the German banking federation (BvB) the day after the publication of plans to increase bank capital requirements, unveiled by the president of the European Commission, Jose Manuel Durao Barroso, to the European Parliament (see EUROPE 10472). The head of the banking lobby, Michael Kemmer, said the proposals were inappropriate because they did not deal with the cause of the current public debt crisis. In a press release, he said that banks had sharply increased their capital in recent months and are now much stronger than before. He said that market uncertainty could
increase due to the many legal issues raised by any forced recapitalisation, arguing that the idea of banning the payment of dividends and bonuses was counterproductive because it would make it even more difficult to raise private capital.
Banks in France are the most exposed to struggling eurozone countries' bonds as a proportion of GDP and they take the same line as Kemmer. In a press release published ahead of publication of the Commission's suggestions for dealing decisively with the sovereign debt crisis, the French banking federation (FBF) said that the uncertainty on the markets was due to the public finance situation in some eurozone nations, rather than in European banks as such. Various member states, it said, need to regain investor confidence so that they can continue to raise capital on the markets in good conditions and any boosting of European banks' capital will not help them do so. The FBF says that French banks have increased their capital by €50 billion in two years and will be ahead of the deadline for implementation of the Basel III deal (2013 rather than 2018). The FBF says that prudential banking rules must allow banks to finance the real economy.
The Basel Committee's Basel III agreement introduces higher bank capital requirements in terms of better quality and better quantity by 2019, along with two liquidity ratios. The core Tier 1 capital (founding capital and profits held in reserve) will need to increase to 7%. The Commission suggests that full details are published of the exposure to bonds of the 91 banks that took the stress tests managed by the European Banking Authority (EBA). After a cautious assessment of their exposure, it will be possible to calculate the total capital required to boost liquidity to a significantly higher level, explained the Commission. Barroso did not give any figures for the hard capital the Commission believes is required, but the EBA has drawn up a scenario based on a 9% ratio. The draft CRD IV Directive to transpose the Basel III agreement into EU law will require banks to raise €460bn by 2019 to meet the new funding rules (see EUROPE 10423 and 10421).
The chair of Eurogroup, Jean-Claude Juncker, set out his ideas on bank capital in an interview with German business newspaper Handelsblatt. He said that, unlike what had happened after the 2008 financial crisis, countries bailing out banks should place officials on the publicly funded bank decision-making organisations and receive profits for the public funds invested in the bank. People are livid at seeing their governments handing over cash to banks hand over fist, he said. (MB/transl.fl)