Barroso plan eyes capital hike
Source: Agencies |
October 13, 2011, Thursday
|
Print Edition
Print Edition
BANKS in Europe should temporarily raise their capital reserves to better withstand market turmoil over the continent's debt, the president of the European Commission said yesterday as he presented a broad new crisis plan.
Jose-Manuel Barroso also said key European banks should not be allowed to pay out dividends or bonuses until they have raised their capital buffers to the new standards.
The fear gripping the financial sector now is that banks could take big losses on bonds they own from governments with shaky finances, like Greece. That worry is stifling lending, both between banks and to the wider economy, which threaten the 17-nation eurozone with a new recession.
Barroso did not give a specific figure for the new capital buffers, but the full proposal, published on his website after his speech, suggested his plan may need an accelerated implementation of new international rules on bank capital, the Basel III rules.
Those rules increased the amount of collateral that banks have to back up their lending.
A spokesman for Barroso said it will be up to the national banking supervisors, together with the European Banking Authority, to define when the higher capital ratios have to be attained, how long they have to remain elevated and set the precise ratio.
To assess banks' capital needs, their exposure to all sovereign debt should be taken into account "in a transparent way," Barroso said.
The commission also asked for a "prudent valuation of all sovereign debt, whether in the banking book or the trading book" of banks. The international body that sets accounting standards recently complained that many banks were not taking adequate writedowns on bonds that they plan to hold until they mature.
Barroso said that if banks can't raise the money on the market, they should get help from governments, who can get it from the eurozone bailout fund. He also called for a permanent bailout fund, the European Stability Mechanism, to come into force in mid-2012, one year early. The stability mechanism requires private investors to take losses on government bonds if a nation needs to write off some of its debt load.
Jose-Manuel Barroso also said key European banks should not be allowed to pay out dividends or bonuses until they have raised their capital buffers to the new standards.
The fear gripping the financial sector now is that banks could take big losses on bonds they own from governments with shaky finances, like Greece. That worry is stifling lending, both between banks and to the wider economy, which threaten the 17-nation eurozone with a new recession.
Barroso did not give a specific figure for the new capital buffers, but the full proposal, published on his website after his speech, suggested his plan may need an accelerated implementation of new international rules on bank capital, the Basel III rules.
Those rules increased the amount of collateral that banks have to back up their lending.
A spokesman for Barroso said it will be up to the national banking supervisors, together with the European Banking Authority, to define when the higher capital ratios have to be attained, how long they have to remain elevated and set the precise ratio.
To assess banks' capital needs, their exposure to all sovereign debt should be taken into account "in a transparent way," Barroso said.
The commission also asked for a "prudent valuation of all sovereign debt, whether in the banking book or the trading book" of banks. The international body that sets accounting standards recently complained that many banks were not taking adequate writedowns on bonds that they plan to hold until they mature.
Barroso said that if banks can't raise the money on the market, they should get help from governments, who can get it from the eurozone bailout fund. He also called for a permanent bailout fund, the European Stability Mechanism, to come into force in mid-2012, one year early. The stability mechanism requires private investors to take losses on government bonds if a nation needs to write off some of its debt load.
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