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Thursday 8 December 2016

EU regulator says banks may require 40 times more reserves than €2.5bn forecast

Ben Moshinsky and Laura Noonan

Published 07/12/2011 | 05:00

LESS than five months after conducting stress tests that found banks needed to raise €2.5bn, the European Banking Authority (EBA) may tell lenders that they need 40 times that amount to defend against losses on sovereign debt.

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But the Irish Independent understands that our extensively recapitalised banks are unlikely to require more cash.

The regulator may release updated figures on how much capital lenders should raise to absorb losses from euro-area bonds as early as this week, three people familiar with the matter said. The London-based watchdog's stress tests in July were criticised for failing to include writedowns on sovereign debt held to maturity.

The EBA "has a fundamental problem, which is that they've lost credibility and it's going to be very difficult to claw that back", Bob Penn, a London-based financial regulation lawyer at Allen & Overy, said. "Will anyone pay attention? I'm not so sure."

European leaders are demanding the region's banks increase capital after financial firms agreed to accept losses on Greek government bonds.

The EBA estimated in October that the region's financial institutions need €106bn to reach a goal of holding 9pc of so-called core Tier 1 capital by mid-2012, after marking their sovereign debt to market prices.

Seventy banks were tested in October with data broken down by country. Spanish banks needed €26.2bn and Italian banks €14.8bn in core tier 1 capital, taking into account booking sovereign debt at market prices, the EBA said.

A publication date for the bank capital data will be agreed to at a meeting today of the EBA's board of supervisors, Franca Congiu, a spokeswoman for the authority said. (Bloomberg)

Irish Independent

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