FRANKFURT (MNI) – It is imperative that the pressure put on
European banks to raise their capital buffers not increase their
reluctance to lend, European Central Bank President, Mario Draghi,
warned on Thursday.

“We want to make absolutely sure that this process does not
aggravate the credit tightening that is going on now,” Draghi said,
referring to an EU plan calling on banks to temporarily raise their core
tier one capital ratio to 9%. “It is important that banks raise capital,
but not in a way that affects lending,” he said.

Banks required by the European Banking Authority to raise capital
will have to submit plans to the EU banking supervisor outlining how
they intend to do so. The EBA will publish at 1700 GMT Thursday the list
of banks that will need to raise capital.

EU finance ministers and the London-based EBA have made clear that
simply cutting back on lending will not be accepted as a strategy.
Tapping investors or governments for cash or selling business units,
however, will be.

Draghi said that the longer term funding offered by the ECB today
was meant to further relieve the pressure on banks, which so far have
deposited much of the liquidity extended to them by the ECB under its
existing programmes back with the ECB.

“The lengthening of term funding should give confidence to funding
profiles” and ease constraints before an estimated E230 billion worth of
bank debt matures in the first quarter of 2012, Draghi said.

Dismissing talk of a Eurozone break up as “quite far fetched,” the
ECB President said that facts mattered more than market psychology.

“If the leaders make sufficient progress, then I think we will see
confidence returning,” he said.

–Brussels bureau: +324-9522-8374;

[TOPICS: M$$EC$,M$X$$$,MGX$$$,M$$CR$,MT$$$$]