U.S. Treasury Secretary Timothy F. Geithner and Federal Reserve Chairman Ben S. Bernanke are concerned about the European banking industry, Finnish Prime Minister Jyrki Katainen said after meeting the two U.S. officials.
“They were very worried about what was going on,” Katainen said in a Bloomberg News telephone interview yesterday. Katainen said he discussed with Geithner and Bernanke the options for recapitalizing banks in trouble.
European Union leaders, including European Central Bank President Mario Draghi and European Commission President Jose Barroso, have called for a banking union with more coordination of regulation, as lawmakers seek to bolster confidence damaged by debt turmoil. EU President Herman Van Rompuy plans to report on proposed “building blocks” for deeper integration in the 17-nation euro area at the next summit of EU leaders on June 28-29 in Brussels.
“One of the issues which we talked most was how to deal with the banking sector in Spain or in some other European countries because we should avoid a new banking crisis,” Katainen said. “This is an issue which we are considering right now.”
Under new EU plans unveiled by Michel Barnier, the 27-nation bloc’s financial services chief, national governments would impose annual levies on banks to ensure that a minimum amount of money, a so-called resolution fund, is immediately available to stabilize a crisis-hit lender. This would allow regulators to buy time while other steps, such as creditor writedowns, are enacted.
Earlier yesterday, the Treasury said in a written statement that Katainen and Geithner “discussed the global economy, including the United States’ economic recovery and the plans of European leaders to reinforce the institutions of the euro area.”
Treasury spokeswoman Kara Alaimo said she didn’t “have anything” beyond the written statement, when asked about Katainen’s remarks.
The Fed said in its April policy statement that “strains in global financial markets” pose “significant downside risks” to the U.S. economic outlook. In his April 25 press conference Bernanke said that risks and uncertainties regarding “the European situation” are one reason U.S. central bankers are planning to hold their target interest rate near zero through at least late 2014.
“It’s such a difficult issue that I don’t have right now a clear picture what should be done but it’s obviously an issue we have to decide very soon,” Katainen said in reference to European banks.
Katainen rejected the notion of joint debt sales as an immediate solution to the worsening crisis. While the European Commission has kept alive the debate over common borrowing by euro-area governments, German Chancellor Angela Merkel has rejected euro-area debt sharing, telling members of her party that “under no circumstances” would she agree to euro bonds.
“A euro bond would take a few years to implement because there are lots of technical issues to solve and also implementation of the euro bond procedure would take several years, so euro bond is not a solution for this current crisis,” Katainen said.