The European Commission is pushing for a coordinated capital injection for banks to shield them from the fallout of a potential Greek default as Germany urges each country to prepare its own blueprint.
“We are determined to do everything necessary to ensure that Europe’s banks are able to play their essential role in lending,” the commission’s president, Jose Barroso, told reporters in Brussels today. “Close coordination at European level is essential.”
Financial shares continued their advance after German Chancellor Angela Merkel fed speculation that euro policy makers are working on plans to boost bank capital. In Brussels yesterday, Merkel made her most explicit comments yet on banks’ role in fighting the crisis, saying that the European rescue fund should only be relied upon as a last resort.
“If a country cannot do it using its own resources and the stability of the euro as a whole is put at risk because the country has difficulties, then there’s the possibility of using the EFSF,” the European Financial Stability Facility, she said. Using the EFSF rescue fund is “always tied to a certain conditionality.”
Merkel held talks in Berlin today with International Monetary Fund chief Christine Lagarde, World Bank president Robert Zoellick and Angel Gurria of the Organization for Economic Cooperation and Development, among others. European Central Bank President Jean-Claude Trichet is due to join the talks after chairing his last rate-setting meeting. The finance ministers of Brazil, Mexico and France will also take part.
Trichet said today he was making a “strong call” to European banks and supervisors including the European Banking Authority to “do all what is necessary” to address the need for recapitalization. He said banks shouldn’t be reluctant to accept state help when needed.
“Where necessary, they should take full advantage of government support measures, which should be made totally operational,” Trichet said at a press conference in Berlin after the ECB decided to resume covered-bond purchases and reintroduce year-long loans for banks as the sovereign debt crisis threatens to lock money markets.
France’s Le Figaro newspaper reported today that the French government is working on a contingency plan to take stakes in the country’s lenders. A government official rejected the report as false, without further explanation.
Henri Guaino, an adviser to French President Nicolas Sarkozy adviser, said the government isn’t planning to take stakes in banks, saying “it isn’t envisaged at the moment.” Speaking in an interview in Yerevan, Armenia, he said “maybe a recapitalization will be necessary” for banks.
Signals that European politicians may step up efforts to aid banks and push investors to accept bigger losses as part of a Greek bailout reflect international pressure to end the debt crisis and domestic opposition to expanding rescues. Moody’s Investors Service followed its three-level downgrade of Italy on Oct. 4 by warning that euro-area nations rated below the top Aaa level may see their rankings cut.
“Time is running out” to establish if recapitalization is necessary, Merkel said yesterday. She said she backs recapitalizing European banks “if there is a joint assessment that the banks aren’t adequately capitalized” and finance officials develop “uniform criteria.” Germany is ready to discuss possible bank aid at this month’s EU summit, she said.
Merkel also said that “if needed, there will be an adjustment” in investors’ share of a 159 billion-euro ($212 billion) second aid package for Greece, pending a report by international auditors on Greece’s finances due before a meeting of European finance ministers next month.
France’s Natixis and BNP Paribas SA were among the biggest gainers on the 46-member Bloomberg Europe Banks and Financial Services Index, which added 2.4 percent after yesterday’s 4.8 percent advance. Natixis climbed as much as 13 percent, while Paribas was up as much as 7.8 percent.
European banks may need more than 140 billion euros of capital through a program similar to the U.S. Troubled Asset Relief Program, Morgan Stanley analysts say.
“Policy makers increasingly want to build a large solvency buffer,” the analysts led by Huw van Steenis said in a note. “We think banks in core Europe need to be recession proofed and banks in the periphery depression proofed.”
At his press conference today, Trichet said the ECB hasn’t “devised an amount of money which would be necessary” for European banks. He said it wouldn’t be that much “of an importance” to have such a projection.
“What counts is that each particular commercial bank, each particular financial institution, is up, running and with the appropriate credibility vis-à-vis its own environment,” he said. “That calls for decisions that are not alike here and there” and any overall figure “does not represent really what is appropriate.”