EU Ministers Back National Bank Guarantees With Common Rules

European Union finance ministers agreed on measures to coordinate national guarantees for banks’ debt issuance.

The decision today at a meeting in Brussels followed an agreement by EU leaders last month to temporarily guarantee bank debt in an effort to open up the funding market and prevent a seizing up of banks’ lending to the real economy. The guarantees are part of a package of measures agreed by the EU to bolster confidence in financial firms that also included requiring 70 lenders to boost their core capital to 9 percent of their risk- weighted assets.

There will be “maximum comparability,” between the national programs, which will have to satisfy EU state-aid rules to be published tomorrow, Polish Finance Minister Jacek Rostowski said after the meeting today in Brussels. Those rules take effect in January and the European Commission “will review the situation” after 6 months and issue new principles, he said.

The ministers decided that a system of coodinated national guarantees could be set up more quickly than a syndicated or mutualized approach, the EU said. Earlier this month, ministers were weighing such options.

Some nations are of the view that syndicated guarantees may present “a number of critical risks,” according to an EU document prepared for the finance ministers’ meeting and obtained by Bloomberg News. “There is a clear and strong link between access to term funding and continued lending into the real economy.”

‘Deteriorating Market Circumstances’

“Against a background of rapidly deteriorating market circumstances and increasing time pressure, a coordinating mechanism should be in place in early 2012” for the guarantees, according to the document. The guarantees should apply from Jan. 1, 2012.

Moody’s Investors Service Inc. said yesterday that banks in 15 European nations, including the largest lenders in France, Italy and Spain, may have their subordinated debt ratings cut to reflect the potential removal of government support.

The guarantees are needed “to help banks continue their lending activities in 2012,” the European Banking Authority said last month.

Ministers had agreed that banks should not seek to meet the 9 percent capital threshold through winding up parts of their business or scaling back their activities, Rostowski said.

“Deleveraging is not a way to achieve the required level of capital strength,” he said.

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net; Rebecca Christie in Brussels at rchristie4@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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