Weak Banks Could Hamper Growth

More work needs to be carried out on European banks if the region is to avoid years of stifled growth, the Organisation for Economic Co-operation and Development has warned in a new report out Monday (21 September).

Toxic assets held on bank balance sheets and insufficient capital levels are issues that must be dealt with to remove uncertainty, says the Paris-based body made up of members from 30 rich nations.

"Concerns persist that banks may be insufficiently capitalised to deal with a further deterioration in economic conditions," the report explains.

Estimates by the International Monetary Fund this year put potential writedowns for continental European banks at €750 billion, while the European Central Bank estimates put the figure at €440 billion for euro area banks.

The OECD report says transparent stress tests would help clear up doubts in this area.

Since May, an EU committee of banking supervisors (CEBS) has been gathering information on 22 of the region's largest banks, representing over 60 percent of the banking assets held within the area.

Finance ministers are set to discuss the results at an informal meeting in Gothenburg early next month, but no plans have been made to release the data publicly.

The US took a different approach in spring however, where published results showed 19 of the largest US banks needed an additional $75 billion (€50bn), sending them scrambling to increase capital levels before the publication date.

Speed up reformsOn top of the banking issue, Monday's report says the EU must speed up reform in other sectors if it is to secure long-term growth prospects.

Strengthening innovation, deepening the single market and moving to a low carbon economy are among the areas where reform needs to be accelerated.

Raising the level of innovation over the long-term remains a major challenge for the EU says the OECD, highlighting the need to introduce a European Community patent and a Unified Patent Litigation System.

Despite numerous policy initiatives, Europe still lags behind the United States and Japan in research and innovation.

Growth would also be boosted by enhancing competitive pressures in the single market, says the report, including the implementation of the Services Directive in a timely and effective manner.

Competition in financial services, energy markets and network industries can all be raised further, it adds.

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