Brussels – European leaders have reached agreement on bolstering the capital ratio of banks in the Eurozone to 9.0 percent in order to provide additional capital buffer amid the ongoing sovereign debt crisis in some of the countries, says Polish Prime Minister Donald Tusk.
The ratio was decided on after taking into account the market value of the banks’ sovereign debt holdings, Tusk, whose country holds the rotating European Union (EU) presidency, told a press conference late Wednesday after the EU summit in Brussels.
The Polish Prime Minister gave no detailed figures for the total amount of funds needed for the bank’s recapitalisation, saying it was up to the European banking authorities to decide on the matter.
He also said the recapitalisation was a once-off move and that the banks would have to attain the capital ratio target by June 30 next year.
Under the recapitalisation plan, banks should first use private sources of capital, including through restructuring and conversion of debt into equity instruments. If banks are unable to raise enough funds themselves, national governments should provide support, according to a statement issued after the summit.
“When the national support is not available, recapitalisation should be funded via a loan from the European Financial Stability Facility (EFSF),” said the statement.
In the meantime, the EU urged national supervisory authorities to ensure that banks’ plans to strengthen capital did not lead to excessive deleveraging, including maintaining the flow of credit to the real economy.
Tusk said, however, the success of the recapitalisation plan depended on whether agreements could be achieved on other key elements of the rescue package.
“The bank recapitalisation plan is just a precondition and an introduction for discussions on other key elements. The plan can’t be seen in isolation and won’t have a chance of success without the other key parts of the rescue package,” Tusk told reporters.
Each member state of the Eurozone accepted the idea of the bank recapitalisation, but “I’m cautious that all decisions could be adopted at today’s eurozone summit, so we have to be patient,” the prime minister said.
At the ongoing summit, leaders of the Eurozone member states were trying to narrow their differences on how to beef up the firepower of the EFSF, a 440-billion-euro bailout fund, and how much losses private holders of the Greek government bonds have to accept. – BuaNews-NNN
