Audio By Carbonatix
Europe's big banks will be forced to find €108bn ($150bn) of fresh capital over the next six to nine months under a deal to strengthen the banking system agreed by European Union finance ministers.
After ten hours of gruelling talks in Brussels, ministers from all 27 EU member states endorsed an estimate of the banking sector's capital shortfall and made tentative steps towards agreeing on the state backstops to help fill it.
According to two people involved with the negotiations, the European Banking Authority's final emergency stress test identified a total of €108bn to be raised by Europe's banks -- a significantly higher figure than its original estimate presented earlier this week.
This would allow banks to meet a 9 per cent threshold for their core tier one capital ratios -- a measure of financial strength that goes beyond current requirements -- after marking down to market values their sovereign bond holdings of the eurozone's peripheral states.
The final terms of the recapitalisation will need to be approved at a summit of EU leaders on Sunday. While the size of the capital shortfall is broadly agreed, significant differences remain over increasing the firepower of the EFSF, the eurozone's €440bn rescue fund, which some states would borrow from for the recapitalisation.
These unresolved questions mean a further meeting of all 27 member states -- either at the level of finance ministers or heads of government -- will still be held next week, likely before a gathering of eurozone leaders on Wednesday.
Although the basic assumptions in the test remain largely unchanged, fresh data from national supervisors around Europe pushed up the estimate of the shortfall from the €80bn figure calculated by the EBA earlier this week.
Diplomats said the deal proved far more difficult than expected because Italy, Portugal and Spain resisted signing up to raising the capital bar without more certainty about the state backstops in place for any banks unable to raise the capital themselves.
The deal is a victory for those countries that resisted calls for the tests to be watered down, either through reducing capital demands or changing the method for writing down sovereign debt.
Even so, the final figure falls well short of some market estimates of the necessary recapitalisation. A recent International Monetary Fund report identified a €200bn hole in banks' balance sheets stemming from sovereign debt writedowns, while other analysts have put the deficit as high as €275bn.
Under the plan, national supervisors will be told to ensure that banks do not meet the new capital target by shrinking their operations and cutting back on lending to the real economy.
Speaking after the talks had ended, Angela Merkel, German chancellor, said: 'We have to take far-reaching decisions. These have to be prepared properly, I believe that the finance ministers made progress, so that we can achieve our ambitious targets by Wednesday."
George Osborne, UK chancellor, said there had been "real progress" made in the meeting. "Britain will keep up pressure in the next few days to a comprehensive package to resolve the European crisis and to make sure that we get jobs and growth," he said. No UK banks will be required to raise fresh capital under the plan.
Anders Borg, Swedish finance minister, said: "The first solution (for those banks requiring extra capital) is withholding dividends and tapping profits and obviously there will be a responsibility for national governments."
DISCLAIMER: The Views, Comments, Opinions, Contributions and Statements made by Readers and Contributors on this platform do not necessarily represent the views or policy of Multimedia Group Limited.
Tags:
DISCLAIMER: The Views, Comments, Opinions, Contributions and Statements made by Readers and Contributors on this platform do not necessarily represent the views or policy of Multimedia Group Limited.
Latest Stories
-
Many people don’t like sharing their success tips – Mary Anane Awuku
2 minutes -
Resurrection of GN Savings and Loans will be tough – Joe Jackson
3 minutes -
SanlamAllianz Life sponsors four Ghanaian athletes for 2026 Cape Town Marathon
5 minutes -
2026 Legacy Expo comes off on June 3, 2026
11 minutes -
CBG deepens financial inclusion drive with expansion of agency banking network
18 minutes -
Non-Performing Loans decline to 18% nut elevated risk remains – BoG
22 minutes -
Cocoa farmers in Ahondwo area appeal for clinic, support services
27 minutes -
Building collapse kills at least 9 people in Morocco’s Fez
28 minutes -
Congo police fire warning shots in burial dispute after suspected Ebola death
31 minutes -
Security officers involved in galamsey will face the law — Lands Ministry
33 minutes -
Keta MCE supports Keta FC with GH¢10,000 ahead of Middle League
33 minutes -
Livestream: JoyNews National Dialogue on Ghana’s youth and climate change
36 minutes -
Wontumi’s fate near as court gives final deadline for witnesses
36 minutes -
We have done no wrong – Group Ndoum says following court victory
39 minutes -
Dr. Gideon Boako warns banks may reject some forex deposits from next month
40 minutes