Strengthen bank capital, says ESRB

21st September 2011, Comments 0 comments

The European Systematic Risk Board on Wednesday called on Europeans to coordinate efforts to strengthen bank capital following a meeting in Frankfurt.

"If necessary, this could benefit from the possibility for the European Financial Stability Facility to lend to governments in order to recapitalise banks," said a statement by the ESRB, established in the wake of the 2008 financial crisis.

The body said the risks to the stability of the EU financial system had increased "considerably" since its last meeting on July 22.

It cited sovereign debt, funding difficulties among EU banks and a weakening growth outlook in the EU and across the globe.

"Over the last months, sovereign stress has moved from smaller economies to some of the larger EU countries," the ESRB said.

"The situation has been aggravated by the progressive drying-up of bank term funding markets, and availability of US dollar funding to EU banks had also decreased significantly."

The board said: "The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion. This threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond."

The ESRB is comprised of 37 members, including the directors of Europe's central banks.

© 2011 AFP

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