Stricter standards for Europe
By David McHugh |
April 9, 2011, Saturday
|
Print Edition
Print Edition
Europe's banking regulator is setting a stricter standard for bank capital reserves as it readies for a new round of stress tests, aimed at boosting confidence that the region's banking system can get through the debt crisis that has taken three countries to the brink of financial collapse.
The European Banking Authority yesterday said it is asking banks to use a stricter standard for assets they keep in case of unexpected losses. It's now requiring them to use the Core 1 measure, which excludes some kinds of assets. That's tougher than the Tier 1 standard used in last year's tests.
The tighter definition is aimed at making sure banks have the resources to get through unexpected losses, shoring up confidence that banks could withstand a worsening of Europe's financial troubles or another economic downturn. Some banks, notably in Ireland, which passed last year's tests ended up requiring government help to survive as their debt obligations swelled.
The current debt crisis among European governments is often viewed in part as a potential banking crisis, as government bonds are widely held by banks and market losses, or a default, would hit their finances.
So far, Greece and Ireland have had to be bailed out to avoid defaulting on bonds. Portugal asked the European Union on Wednesday for a bailout after its shaky finances led bond markets to refuse to lend it more money at affordable rates.
The European Banking Authority yesterday said it is asking banks to use a stricter standard for assets they keep in case of unexpected losses. It's now requiring them to use the Core 1 measure, which excludes some kinds of assets. That's tougher than the Tier 1 standard used in last year's tests.
The tighter definition is aimed at making sure banks have the resources to get through unexpected losses, shoring up confidence that banks could withstand a worsening of Europe's financial troubles or another economic downturn. Some banks, notably in Ireland, which passed last year's tests ended up requiring government help to survive as their debt obligations swelled.
The current debt crisis among European governments is often viewed in part as a potential banking crisis, as government bonds are widely held by banks and market losses, or a default, would hit their finances.
So far, Greece and Ireland have had to be bailed out to avoid defaulting on bonds. Portugal asked the European Union on Wednesday for a bailout after its shaky finances led bond markets to refuse to lend it more money at affordable rates.
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