EU summit agrees on major banking capital shortfalls
European Union finance ministers reached an agreement over the weekend that the region’s banks will need to find US $150 billion of fresh capital over the next six to nine months.
After ten hours of talks at the summit in Brussels, ministers from all 27 EU member states endorsed the estimate of the banking sector's capital shortfall and made initial progress towards agreeing on the state backstops to help fill it.
The new capital shortfall estimate would force banks to meet a 9% threshold for their core tier one capital ratios after their sovereign bond holdings of the eurozone’s peripheral states have been marked down.
The agreement will need to receive final approval at a summit of EU leaders on Sunday, when additional agreement will need to be reached over increasing the firepower of the EFSF, the eurozone’s €440 (US $611 billion) billion rescue fund.
A further EU summit will therefore be held next week before a gathering of eurozone leaders on Wednesday.
The deal lifted markets Monday, despite a recent International Monetary Fund report, which identified a €200 billion hole in European banks’ balance sheets stemming from sovereign debt writedowns.
Under the plan, the European Banking Authority and national regulators in EU nations will be tasked with ensuring the banks do not meet the new capital target by shrinking their operations and cutting back on lending to the real economy, a move that would derail the European recovery.
Source:Europe News.Net
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