Europe bank regulator plans radical funding aid
2011-08-31 12:18:39
Europe’s top banking regulator is drawing up options to help banks in Europe struggling to tap credit markets for medium- and long-term funding.
Among the policy proposals being considered by the European Banking Authority is a new guarantee scheme for bank bonds, a controversial measure that would require the eurozone’s €440bn bail-out fund to be given new powers.
The EBA proposals are expected to be presented to a meeting of senior European officials next week. Even before submitting its analysis, however, the EBA is facing stiff resistance from some member states unwilling to reopen a deal struck last month, which would give the bail-out fund – formally the European financial stability facility – new but less expansive powers.
BaFin, the German financial regulator, on Tuesday took the unusual step of speaking out against a separate mooted plan to give the EFSF powers to inject capital directly into banks. Under the July agreement, the EFSF would only be able to recapitalise banks through loans to governments.
“The EBA has no powers under current European law to concern itself with these questions,” a BaFin spokesman said.
The EBA firmly rejected media speculation that it was calling for a recapitalisation of European banks, as first suggested by Christine Lagarde, the head of the International Monetary Fund, in a speech over the weekend. The EBA insists that its pan-European bank “stress tests” in July revealed that most lenders had significantly strengthened their capital buffers and would be able to withstand a severe shock.
However, it said it was concerned about medium- and long-term liquidity – an issue that has spooked financial markets and saw bank stocks plummet earlier this month.
“Going forward it will be important that normal access to medium- and long long-term funding markets is restored,” the EBA said.
Several European banks have had difficulities in raising long-term funding over the past three months, and have increased their reliance on the European Central Bank.
Italian banks, for example, nearly doubled their usage of ECB funding facilities to €80bn in July – the highest since the crisis began, according to a recent report by Morgan Stanley.