BRUSSELS (MNI) – Eurozone finance ministers will focus on the best
way of plugging gaps in the capital reserves of their banks when they
meet here Monday and Tuesday.
Central to the debate is whether a E440 billion stabilisation fund
— put together earlier this year as a backstop resource for Eurozone
member states that fall into difficulty — can be tapped by banks if the
need arises.
EU sources say the EU’s executive arm, the European Commission,
favours an approach which allows banks to tap the fund, while some
country delegations say the fund can’t be used to aid banks because it
was set up specifically to provide loans for governments needing
sovereign debt support.
Eurozone finance ministers will gather this afternoon, at a meeting
chaired by Luxembourg Prime Minister Jean-Claude Juncker.
On Tuesday they will be joined by their counterparts from the
remaining 11 EU countries for a second set of meetings to discuss new
EU-wide supervisory authorities and how best to strengthen economic
governance.
The issue of shoring up capital has come to the fore after the EU
said it will publish on July 23 the results of stress tests of 91 banks
to reassure markets that EU banks are a safe investment. That
constitutes around 65% of all EU banking assets, according to the
Committee of European Banking Supervisors (CEBS), which is carrying out
the tests.
Critics of the process say the stress tests won’t be strong enough
or could overlook key points. They want the tests to price in a scenario
where Greece defaults on its sovereign debt — a politically sensitive
issue.
They also point out that UK-based lender Northern Rock was proven
to be able to withstand a 40% decline in UK house prices, but wasn’t
tested for a drop in interbank lending, which ultimately caused its
downfall.
–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com
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