Bank recapitalisation 'counterproductive': Deutsche Bank

13th October 2011, Comments 0 comments

Recapitalising Europe's banks will not solve the eurozone's current debt crisis, the only way is to restore confidence in the solidity of countries' public finances, Germany's top banker said Thursday.

"It's not the capital resources of banks that are the problem but the fact that sovereign debt has lost its status as a risk-free asset," Deutsche Bank chief Josef Ackermann told a business congress here.

"The key to solving the problem therefore lies with governments, to be precise, in the restoration of confidence in the solidity of public finances," Ackermann said.

"Indeed, the current recapitalisation debate is actually counterproductive, because on the one hand it sends the signal that a debt 'haircut' is more likely," the head of Germany's biggest bank argued.

"And on the other hand, because the cash needed for a recapitalisation will almost certainly not come from private investors but the countries themselves, and that would, in turn, only intensify a country's debt situation."

On Wednesday, European Commission president Jose Manuel Barroso called for banks to "urgently" increase their core tier-one capital ratios and warned that those refusing to comply could be forced to abandon bonuses and dividends.

Barroso said banks should first try to tap the private market to beef up their capital, with support from governments if necessary. If such support is unavailable, the eurozone's rescue fund, the European Financial Stability Facility (EFSF), could provide loans as a last resort.

Ackermann insisted that he was not questioning the idea that increasing a bank's capital ratio would make it more resilient.

But "many banks have already boosted their capital ratios massively under their own steam," he said.

"For me, it is debatable to see an increase in European banks' capital ratios as a way out of the debt crisis because the injection of capital does not tackle the real root of the problem," Ackermann argued.

Furthermore, the authorities must be careful not to over-regulate banks "because that will result in a less efficient financial sector and a deterioration in the supply of financing to companies and households," he said.

From Deutsche Bank's point of view, Ackermann saw "no reason to restrict credit to German companies" which were "financially solid.

"We regard the German economy as robust, even if growth is slowing," he said.

But the question was "whether banks will be able to continue to guarantee financing or whether they will be practically forced to restrict credit in the case of a possible eurozone debt haircut and new regulatory frameworks," he said.

Turning to the economy, Ackermann said he saw a "limited" risk of Germany falling back into recession.

"The global economy and, most recently too, German exports have lost a lot of momentum" in the wake of the natural catastrophe in Japan and its aftermath, as well as economic problems in the US.

Consumer sentiment and investment had also been hit by the high level of uncertainty arising, not least, from the debt crisis.

"But the favourable situation on the labour market and investment activity all speak against a recession in Germany. Following what will be a difficult winter, the German economy should manage to grow by just under 1.0 percent next year," he said.

According to revised economic forecasts released by Germany's leading economic institutes on Thursday, German gross domestic product is set to expand by 0.8 percent in 2012.

© 2011 AFP

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