Senior sources said that leading European lenders are pushing back against international efforts to force them to recapitalise. Instead, they are insisting their problems are solely to do with liquidity and are calling on the European Central Bank (ECB) to flood the system with massive amounts of two-year funding to see them through the crisis. Their position flies in the face of the International Monetary Fund (IMF), which claims to have found a €200bn-€300bn (£171bn-£257bn) black hole in Europe’s banks. Christine Lagarde, the former French finance minister and current IMF managing director, has said: “We must strengthen banks’ balance sheets so that they can lend to fuel growth and adequately face uncertain times with confidence.” On Friday, Warren Buffett repeated the concern, saying: “They need capital in their banks, in many of their banks.” He claimed to have been approached but said he was not interested. Recapitalising the banks is central to a three-pronged strategy to restore market confidence in Europe. Concerns are particularly acute in France, whose banks have been under intense pressure since it emerged US money managers are pulling out dollar funding. The world’s central banks have had to step in to tide Europe’s lenders over until the new year. On Friday, Denmark’s central bank became the latest to intervene – pledging DKr400bn (£45bn) of liquidity to its struggling banking sector. Europe’s banks want the European Financial Stability Facility (EFSF) bail-out scheme’s firepower increased to more than €440bn, possibly by using the funds as a “first-loss” guarantee on ECB or private sector purchases of sovereign debt; the ECB to provide banks with two-year funding; and an agreement struck for a credible Greek rescue plan. Insiders said the banks would be willing to increase the “haircut” on their holdings of Greek sovereign debt from the agreed 21pc to 50pc so long as the rescue package was convincing enough to firebreak the crisis at Athens. They would only consider a recapitalisation if it was imposed across Europe as a form of “backstop” facility on which the banks could draw if the crisis escalated by engulfing Italy. One top banking source said: “The governments don’t want to put money into the banks. They see that as a last, last resort.” Europe’s banks claim that raising capital privately is almost impossible due to new Basel regulations on liquidity that are preventing them from increasing lending. As a result, they cannot justify the cost of raising new capital. Truculence by Europe’s banks comes at a bad time for the eurozone. On Friday Austria joined Germany in voting through plans to increase the flexibility of the EFSF, but politicians insist no more public money will be put at risk. Just three of the eurozone’s 17 members have yet to approve the new EFSF, with Slovakia threatening to scupper the plan. On Friday Greece edged closer to securing an €8bn tranche of its original €109bn bail-out after a meeting between Athens and its European and IMF creditors. It will run out of money in October if the funds are not released.Banks putting eurozone rescue at risk by refusing to
increase capital buffers
Europe's biggest banks are jeopardising a potential rescue
plan for the single currency bloc by refusing to boost their
oss-absorbing buffers.
Saturday 1 October 2011
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