EUROPE’S TOP banking regulator is drawing up options to help banks struggling to tap credit markets for medium and long-term funding.
The move comes as the International Accounting Standards Board yesterday criticised the inconsistent way in which European banks and insurers have been writing down the value of their Greek sovereign debt.
Among the policy proposals being considered by the European Banking Authority is a guarantee scheme for bank bonds, a controversial measure that would require the euro zone’s €440 billion bailout fund to be given new powers.
The proposals are expected to be presented to a meeting of senior European officials next week.
Even before submitting its analysis, however, the authority is facing stiff resistance from some member states unwilling to reopen a deal struck last month, which would give the bailout fund – formally the European Financial Stability Facility – new but less expansive powers.
Bafin, the German financial regulator, yesterday 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 [European Banking Authority] has no powers under current European law to concern itself with these questions,” a Bafin spokesman said.
The authority firmly rejected speculation that it was calling for a recapitalisation of European banks, as suggested by Christine Lagarde, the head of the IMF, in a speech at the weekend. The authority insists its pan-European bank “stress tests” in July revealed most lenders have 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.
In a private letter to the European Securities and Markets Authority, the International Accounting Standards Board, which sets accounting rules, said some financial institutions should have taken bigger losses on their Greek government bond holdings in recent results announcements.
The letter also criticised the inconsistent way in which banks and insurers have been writing down the value of their Greek sovereign debt.
People familiar with the board’s letter said that the intervention was unprecedented and reflected its belief that some European companies had not been making enough provisions for Greek sovereign debt losses.
– (Copyright The Financial Times Limited 2011)
