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EU Bank Watchdog Warns of Major Challenges Ahead

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The European Banking Authority said there remained significant challenges ahead for Europe’s banks after they successfully met new requirements to bolster their core capital buffers.

The EBA said on Wednesday that EU banks had hiked their combined capital by EUR94.4 billion (US$116 billion) to meet the expectations of the watchdog. But EBA Chairman Andrea Enria said banks had further to go to recover from the financial crisis and comply with new global regulations.

“We have always said this is one component of a more comprehensive package of measures that needs to be put in place to bring stability to the European banking sector,” he told Reuters in an interview.

The EBA had given banks until the end of June to have a core capital buffer of 9 per cent of risk weighted assets as part of efforts to restore confidence in Europe’s banks.

Enria said the recapitalisation had been a “necessary and important step in the process of repairing banks balance sheets across the EU”.

“The capital position is now looking much better than it was one year ago,” he said.

The EBA conducted a stress test of banks in July 2011, following up with a review later in the year when additional requirements were imposed on some banks.

That test had a pass mark of 5 per cent core tier 1 capital, the main benchmark of a bank’s health. As the eurozone debt crisis worsened last year, a recapitalisation exercise was later carried out with a tougher threshold set for lenders.

Enria said banks had come up with around EUR230 billion of capital strengthening in the past 18 months, including capital raised for last year’s stress test, the latest recapitalisation and additional packages being deployed in Greece and Spain.

Seven banks needed government help to meet the new threshold. Those banks were Portugal’s Caixa Geral de Depositos, Banco Comercial Portugues and Banco BPI, Slovenia’s Nova Ljubljanska Banka, Italy’s Banca Monte dei Paschi di Siena and Bank of Cyprus and Cyprus Popular.

(Source: Reuters)


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