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Brussels/Frankfurt - Europe has given a cool reception to a
demand from the International Monetary Fund’s (IMF's) new head Christine Lagarde to
force its banks to bulk up their capital, saying the continent has done enough
already.
The European Commission said there was no need to
recapitalise the banks over and above what had been agreed after a recent
annual "stress test" check of their ability to withstand economic and financial
market headwinds.
"I don’t think so. This discussion has already taken place
between the EU and the IMF, and the IMF is well aware of the results and the
follow-up decided after the stress tests," commission spokesperson Amadeu
Altafaj said.
Lagarde, speaking at an annual meeting of central bankers in
Jackson Hole, Wyoming, on Saturday urged politicians to “act now” or risk
seeing the fragile recovery derailed.
"Banks need urgent recapitalisation," Lagarde said. "The
most efficient solution would be mandatory substantial recapitalisation -
seeking private resources first, but using public funds if necessary."
The former French finance minister did not elaborate. The
European Union has already urged national governments to provide capital to
banks identified as weak by the stress tests if they are unable to raise
capital on their own.
Last month a summit of eurozone leaders agreed to let the
bloc’s €440bn bailout fund finance the recapitalisation of banks if necessary,
even in countries which are not receiving international bailouts.
Earlier this month, large French and Italian banks suffered
steep share price declines on speculation about their financial strength,
prompting France, Italy, Spain and Belgium to impose short selling bans on
financial stocks.
Pressure on European banks to raise more capital had
increased in July after European stress tests found eight banks failed to meet
capital requirements, disclosing a total capital shortfall of €2.5bn.
Fresh capital
However, Lagarde's comments came as stocks in Europe bounced
back, tracking a late rally on Wall Street on Friday, after signs that the US
Federal Reserve would continue to support the US economy. European bank stocks
were up 1.2% on Monday.
Greek bank stocks gained most, with some rallying 20% as
they were also boosted by a pending merger of local banks Eurobank and Alpha
Bank, raising hopes that Greek banks will be able to sort out their problems
without government help.
"(Lagarde’s) comments won’t help to boost confidence in the
international financial system," said Gerhard Hofmann, board member of the
association of German cooperative banks.
"If any European bank needs fresh capital, it would be
better to stabilise the institute properly than to discuss it publicly in such
a tense market situation," he said.
A source at Spain’s economy ministry echoed those comments.
"The government has already put in place from the start of
this year a recapitalisation plan for its financial institutions, with very
high requirements," the source said.
Lagarde’s statement was one of her first public calls for Europe to take policy action since she became head of the IMF in early July.
Previously, the fund had also urged eurozone leaders to expand the size of the
bloc’s sovereign bailout fund, an idea rejected by Germany and France.
The IMF’s comments matter to Europe, because Brussels is
counting on the global lender to help finance a second bailout of Greece,
announced by eurozone leaders last month, which envisages €109bn of fresh
official funding.
When the first Greek bailout was announced in May last year,
the IMF quickly pledged to contribute about a third of the funds, which
totalled €110bn.
This time, however, the IMF has not said specifically how
much it will provide, and it is unclear if the fund’s emerging economy
stakeholders are willing to continue shovelling large amounts of aid into the
region.
Brazilian and Indian IMF directors have warned
against pouring excessive sums of money into Europe.
