European officials want banks to try to raise money themselves before seeking state support if stress tests by regulators reveal "vulnerabilities."
"It is firstly up to the banks themselves," Dutch finance minister Jan Kees de Jager said in Brussels last night after a meeting with euro-area counterparts. "They will get a certain period to refinance themselves in the market, but the countries will immediately announce that there is a certain backstop."
European Union Economic and Monetary Affairs Commissioner Olli Rehn said banks should first look at "financing from the markets" to build up capital buffers. If that fails, the "first public line of defense" will be national funds. "Vulnerabilities" will be examined "case by case," he said.
EU regulators are examining the strength of 91 banks in an attempt to reassure investors about their resilience to potential losses as the debt crisis pummels the bonds of Greece, Spain and Portugal. As officials discuss which details to disclose and how to manage their publication, the European Commission is pushing governments to reveal individual lenders' exposure to sovereign debt.
"There is considerable opposition to the publication of individual exposures to sovereign debt," the EU's executive arm said in a confidential letter dated July 9th that was obtained by Bloomberg News. If the tests are not "credible and transparent," there is a "high risk that it will disappoint the markets."
The stress test results are scheduled to be released on July 23rd. The banks being tested account for 65 per cent of Europe's banking industry. They include Deutsche Bank AG of Germany, France's BNP Paribas SA and ING Bank of the Netherlands, according to the Committee of European Banking Supervisors, which is organising the tests.
German state-owned lenders known as Landesbanken and Spanish savings banks are also covered.
Mr Rehn said previously that once national facilities had been used, a "second line" of defense could include governments applying to the European Financial Stability Facility (EFSF), which was set up in May for nations struggling to raise funds.
That facility is "almost fully operational," EFSF chief executive Klaus Regling said yesterday. The German debt office will manage the financing operations, minimising operational risk, he said.
Bloomberg