FRANKFURT (MNI) – European regulators must ensure that
recapitalization efforts do not spur further deleveraging of the banking
sector, European Systemic Risk Board Vice Chairman Mervyn King said
Thursday.

“The key message is that over the next six months banks increase
the level of capital and not reach the [new 9% core tier 1] ratio by
reducing lending to the real economy,” King, who is also the governor of
the Bank of England, said at a press conference here following the
ESRB’s final meeting of the year.

Andrea Enria, the second ESRB vice chairman, who also heads the
European Banking Authority, said, “only selective sales of assets can be
used [to help banks meet the new capital ratio requirement]. Those will
be allowed under strict control.”

Banks will have to submit their recapitalization plans to national
supervisors who, in cooperation with the EBA, will have the discretion
to approve or reject them, Enria said.

Asked whether the ESRB has called on private finanical institutions
to prepare for a breakup of the Eurozone, King said, “all financial
insitutions are expected to prepare for a wide range of contingencies.”
However, he added that it was up to them to decide for which
contingencies they should prepare.

Asked whether he thought the end of the euro was near, King
replied, “I am not going to forecast the future.” However, he told a
story about having seen a man in the street once holding a sign that
said, “the end of the world is nigh,” and he noted that 20 years later
the same man was still there, holding up the same sign.

–Frankfurt bureau, +49-69-720-142; jtreeck@marketnews.com

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