Published August 30, 2011
Banks in the European Union do not need a huge injection of capital to cope with the challenges of the region's sovereign debt crisis, the bloc's banking watchdog said.
"The European Banking Authority is not calling for an urgent and massive recapitalisation of EU banks," the EBA said on Tuesday.
"The stress test recently conducted by the EBA showed that EU banks have significantly strengthened their capital positions and are able to withstand adverse macroeconomic scenarios, a view not changed by the additional disclosure of sovereign exposures," it said.
The EBA was responding to a report in Financial Times Deutschland that EBA Chairman Andrea Enria was concerned about the thin capital structure of EU banks and might ask for stronger powers.
The EBA said it was monitoring the risks for EU banks and giving EU institutions its views on possible policy options.
"The main EU banks have significantly strengthened their liquidity buffers, lengthened the maturity profile of their liabilities and covered most of their funding needs for 2011. However, going forward it will be important that normal access to medium and long-term funding markets is restored," the EBA said.
German financial regulator Bafin said it opposed plans by the EBA to seek extra powers for the European rescue fund EFSF to recapitalise troubled banks.
A Bafin spokesman said it was aware of the EBA request but did not consider that to be the EBA's task.
Eight European banks failed the EU stress test in July and have to raise a total of 2.5 billion euros ($3.6 billion) capital, less than had been expected before the tests. Another 16 banks that narrowly passed also have to take action.
Some investors say EU banks still face a capital headache.
"European banks are in the deepest hole of all. Over the past five years, the European financial sector has shed 900 billion euros in capitalisation and two thirds of its value," said Jacques Chahine, chairman of European investment firm J.Chahine Capital.
"Although the sector has raised 450 billion euros in capital over the same period, this has clearly been inadequate to cover increased risk on sovereign debt. We believe banks will have to be recapitalised by an additional 450 billion euros to cover that risk," he said.
Separately on Tuesday, the International Accounting Standards Board said European financial institutions should have booked bigger losses on Greek government bond holdings during the recent results season.