Bloomberg News

German Banks Say Jose Barroso’s Capital Plan Is Unsuitable

October 12, 2011

(Updates with banking group comment in second paragraph.)

Oct. 12 (Bloomberg) -- The Association of German Banks said a proposal from European Commission President Jose Barroso to increase banks’ capital is “unsuitable” as it doesn’t solve the problem of the current debt crisis.

“Banks increased their capital significantly over the past months and as a result they are now considerably more resilient than before,” Michael Kemmer, head of the BdB group, which represents lenders including Deutsche Bank AG and Commerzbank AG, said in an e-mailed statement today. “If a stress test with randomly selected thresholds is being used to determine additional capital requirements, no serious results can be expected.”

The commission today proposed measures to coordinate the recapitalization of banks gripped by the region’s sovereign-debt crisis, following the work of the European Banking Authority. Lenders in the region would temporarily have to meet “significantly higher” capital requirements. Banks incapable of providing the extra buffers should be prohibited from paying bonuses or dividends, Barroso said.

“Banning dividend payments would be counterproductive, as it would make capital increases even more difficult,” Kemmer said in the statement.

European bank stocks advanced for a sixth day, buoyed by expectations that European governments would make money available to bolster balance sheets so banks can withstand a potential Greek bankruptcy. The Bloomberg European bank index rose 2.9 percent.

Banks may be required to maintain a 9 percent capital buffer to absorb sovereign risks, up from the 5 percent core capital level used by the EBA in stress tests in July, according to a person familiar with discussions at the European Union’s top banking regulator.

--With assistance from Aaron Kirchfeld and Rajiv Sekhri in Frankfurt. Editors: Jon Menon, Frank Connelly

To contact the reporter on this story: Oliver Suess in Munich at osuess@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net Edward Evans at eevans3@bloomberg.net


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