The EBA details the EU measures to restore confidence in the banking sector
Wednesday 26 October 2011 EBAThe European Banking Authority
(EBA) supports the agreement at EU level on measures to restore
confidence in the banking sector. These measures form part of a
broader package aimed at addressing the current situation in the EU
by restoring stability and confidence in the markets. Their
implementation is conditional on the other components of the
package being fully clarified and endorsed.
The EBA’s contribution to the overall package focuses on the capital and term funding needs in the EU banking sector against the backdrop of the increasing concerns regarding sovereign debt.
Term funding guarantee scheme
Notwithstanding the European Central Bank’s (ECB) support for banks short term funding needs, additional steps are required to restart the term unsecured funding market. This would help banks to continue their lending activities in 2012 and to avoid a spiral of forced deleveraging and the ensuing credit crunches, which would affect the real economy.
The EBA’s contribution to the overall package focuses on the capital and term funding needs in the EU banking sector against the backdrop of the increasing concerns regarding sovereign debt.
Term funding guarantee scheme
Notwithstanding the European Central Bank’s (ECB) support for banks short term funding needs, additional steps are required to restart the term unsecured funding market. This would help banks to continue their lending activities in 2012 and to avoid a spiral of forced deleveraging and the ensuing credit crunches, which would affect the real economy.
To this end, public guarantee
schemes should be set in place where appropriate to support banks’
access to term funding at reasonable conditions. A coordinated
approach at EU level is needed, especially in terms of entry
criteria, pricing and conditions. The EBA has been asked to work
with the EU Commission, the ECB and European Investment Bank (EIB)
to urgently explore options for achieving this objective.
Measures to strengthen
banks’ capital positions
In light of the substantial
increase in systemic risk triggered by the sovereign debt crisis in
the euro area, the EBA has designed a capital package which, while
recognising the significant steps already taken to strengthen
capital positions in the EU, aims at providing a further capital
buffer for the EU banking system.
Banks are required to strengthen
their capital positions by building up a temporary capital buffer
against sovereign debt exposures to reflect current market prices.
In addition, banks are required to establish a buffer such that the
Core Tier 1 capital ratio reaches 9%. Banks will be expected to
build these buffers by the end of June 2012.
The building of these buffers
will allow banks to withstand a range of shocks while still being
able to maintain an adequate capital level.
A preliminary and indicative
aggregated capital target at the EU level, based on June’s figures
and end-September sovereign bond yields, amounts to 106 bn Euros
(see breakdown by country below). The EBA expects to disclose the
final capital shortfall in the course of November, based on banks’
figures as at 30 September 2011, when individual banks will be
asked to disclose their capital and sovereign debt position.
Banks will be required, by the end of 2011, to submit to their respective national authorities their plans detailing the actions they intend to take to reach the set targets. These plans will have to be agreed with National Supervisory Authorities and discussed with the EBA. The targets will have to be achieved avoiding excessive deleveraging, so as to contain the potential impact on the real economy. To reach the targets, banks will be expected to withhold dividends and bonuses.
Banks will be required, by the end of 2011, to submit to their respective national authorities their plans detailing the actions they intend to take to reach the set targets. These plans will have to be agreed with National Supervisory Authorities and discussed with the EBA. The targets will have to be achieved avoiding excessive deleveraging, so as to contain the potential impact on the real economy. To reach the targets, banks will be expected to withhold dividends and bonuses.
The capital needs will be met
only with capital of the highest quality. For private instruments,
only new issuances of very strong convertible capital will be
accepted if in line with strict and standardised criteria to be
defined by the EBA.
Breakdown by country of estimated
capital target buffers
|
Country
|
Estimated target capital
buffer
|
Sovereign capital
buffer*
|
|
AT (1)
|
2,938
|
224
|
|
BE (2)
|
4,143
|
5,634
|
|
CY
|
3,587
|
3,085
|
|
DE
|
5,184
|
7,687
|
|
DK
|
47
|
35
|
|
ES
|
26,161
|
6,290
|
|
FI
|
0
|
3
|
|
FR
|
8,844
|
3,550
|
|
GB
|
0
|
0
|
|
GR (3)
|
30,000
|
/
|
|
HU
|
0
|
43
|
|
IE
|
0
|
25
|
|
IT
|
14,771
|
9,491
|
|
LU
|
0
|
0
|
|
MT
|
0
|
0
|
|
NL
|
0
|
99
|
|
NO (4)
|
1,312
|
0
|
|
PT
|
7,804
|
4,432
|
|
SE
|
1,359
|
4
|
|
Sl
|
297
|
20
|
|
Total
|
106,447
|
|
|
amounts are in
million Euros
|
|
|
|
*
The sovereign capital buffer is indicative and can already be
covered by existing CT1 capital if the CT1 ratio exceeds
9%.
|
||
Notes to editors
(1) A
substantial part of this amount is attributable to Volksbank Group
and should be considered as pro-forma. This group is currently
under deep restructuring and evaluation of its business model after
which Volksbank Group shall end up in a regional active
bank.
(2) This amount, which is
attributable to Dexia Group, should be considered as pro-forma.
After the cut-off date of 30 September, this Group has indeed been
deeply restructured through the sale of Dexia Bank Belgium to the
Belgian State for 4 bn euros while a state guarantee is hitherto
provided on the funding issued by Dexia SA and its subsidiary Dexia
Credit Local. Furthermore, other disposal of important operating
entities will take place in the coming months.
(3) The capital package for
Greece has been defined in such a way not to conflict with
pre-agreed arrangements under EU/IMF programme. This assistance
programme already defines a set of targets for the banks in
question, including quantitative objectives for the Core Tier 1
ratio, which are being monitored on a regular basis. The existing
backstop facility (30 bn Euros), exceeds the results of the EBA
capital exercise for Greek banks.
(4) As an EFTA state of the EEA, any requirement
and supervisory action pertaining to capital needs in Norwegian
banks is within the competence of Norwegian
authorities
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