–Retransmitting Text Published 17:24 ET Wednesday

BRUSSELS (MNI) – The following is the text of a statement issued by
the EU Heads of State or Government:

STATEMENT OF EU HEADS OF STATE OR GOVERNMENT

At today’s meeting, in line with paragraph 7 of the European
Council conclusions of 23 October concerning relations between the EU
and the Euro area, the members of the European Council were informed by
President Van Rompuy about the state of preparations of the Euro Summit
that will take place later in the day.

They discussed the situation and underlined their common resolve to
do their utmost to overcome the crisis and to help face in a spirit of
solidarity the challenges confronting the European Union and the Euro
area.

They welcomed the consensus on measures to restore confidence in
the banking sector reached by the Council (ECOFIN) on 22 October. On
this basis, they agreed the text annexed to this statement subject to
agreement on the measures indicated in this text forming part of a
broader package, including the decisions to be taken by today’s meeting
of the Euro Summit. The Council (ECOFIN) will finalise the work and
adopt the necessary follow up measures.

ANNEX

Consensus on banking package

1. Measures for restoring confidence in the banking sector (banking
package) are urgently needed and are necessary in the context of
strengthening prudential control of the EU banking sector. These
measures should address:

a. The need to ensure the medium-term funding of banks, in order to
avoid a credit crunch and to safeguard the flow of credit to the real
economy, and to coordinate measures to achieve this.

b. The need to enhance the quality and quantity of capital of banks
to withstand shocks and to demonstrate this enhancement in a reliable
and harmonised way.

Term funding

2. Guarantees on bank liabilities would be required to provide more
direct support for banks in accessing term funding (short-term funding
being available at the ECB and relevant national central banks), where
appropriate. This is also an essential part of the strategy to limit
deleveraging actions.

3. A simple repetition of the 2008 experience with full national
discretion in the setting-up of liquidity schemes may not provide a
satisfactory solution under current market conditions. Therefore a truly
coordinated approach at EU-level is needed regarding entry criteria,
pricing and conditions. The Commission should urgently explore together
with the EBA, EIB, ECB the options for achieving this objective and
report to the EFC.

Capitalisation of banks

4. Capital target: There is broad agreement on requiring a
significantly higher capital ratio of 9 % of the highest quality capital
and after accounting for market valuation of sovereign debt exposures,
both as of 30 September 2011, to create a temporary buffer, which is
justified by the exceptional circumstances. This quantitative capital
target will have to be attained by 30 June 2012, based on plans agreed
with national supervisors and coordinated by EBA. This prudent valuation
would not affect the relevant financial reporting rules. National
supervisory authorities, under the auspices of the EBA, must ensure that
banks plans to strengthen capital do not lead to excessive
deleveraging, including maintaining the credit flow to the real economy
and taking into account current exposure levels of the group including
their subsidiaries in all Member States, cognisant of the need to avoid
undue pressure on credit extension in host countries or on sovereign
debt markets.

5. Financing of capital increase: Banks should first use private
sources of capital, including through restructuring and conversion of
debt to equity instruments. Banks should be subject to constraints
regarding the distribution of dividends and bonus payments until the
target has been attained. If necessary, national governments should
provide support , and if this support is not available, recapitalisation
should be funded via a loan from the EFSF in the case of Eurozone
countries. State Aid

6. Any form of public support, whether at a national or EU-level,
will be subject to the conditionality of the current special state aid
crisis framework, which the Commission has indicated will be applied
with the necessary proportionality in view of the systemic character of
the crisis.

–Brussels bureau: +324-9522-8374; pkoh@marketnews.com

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