Banks should be forced to recapitalise if necessary: Juncker

14th October 2011, Comments 0 comments

European banks in need of recapitalisation may have to be forced to do so, Luxembourg prime minister and chief of the eurozone finance ministers Jean-Claude Juncker said in a radio interview on Friday.

"European banks -- not all, but some -- need to be recapitalised," Juncker said in an interview with Deutschlandfunk radio.

"And where there is a need for recapitalisation, we must make sure that it happens... to ensure that there is no danger of contagion for the entire banking system," he said.

On Thursday, Germany's top banker, Deutsche Bank chief Josef Ackermann, had said the current recapitalisation debate was "counterproductive" because most banks had beefed up their capital resources on their own already.

And simply pumping more cash into the banks would not tackle the root of Europe's problems, Ackermann argued.

The German banking federation BdB similarly insisted that the current debt crisis was a "sovereign debt crisis, not a banking crisis."

Banks' capital requirements should not be "synthetically tightened on the basis of assumed weaknesses in Europe's financial sector," the federation complained.

Juncker said he "took note" of the opinion of German banks, and of Deutsche Bank in particular.

Nevertheless, negotiations would be held next week between the banking sector and between governments "on the size of the sums needed," he said.

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.

Juncker's comments came hours after Fitch ratings agency placed 12 major European and US banks on watch for possible downgrade, citing their increased vulnerability to the heightened stresses on the global financial system.

Fitch downgraded two British, one Swiss and two German banks one notch each, after lowering its assumption that their respective governments would guarantee their survival in a crisis.

© 2011 AFP

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