Bloomberg News

Europe Must Break Sovereign Risk-Bank Link, Spain’s Salgado Says

October 14, 2011

Oct. 14 (Bloomberg) -- Europe must “break the link” between perceptions of sovereign-debt risk and confidence in the banking system, Spanish Finance Minister Elena Salgado said.

“We have to break the link between sovereign debt and the difficulties of the financial system,” said Salgado at a news conference in Madrid today after the government’s weekly cabinet meeting. She said nothing had been decided about new stress tests for banks or potential capital ratios that might be used to conduct them.

European Commission President Jose Barroso today reiterated his call for “coordinated action” across Europe to recapitalize banks. European banking shares have plunged this year, paced by Dexia SA, the Franco-Belgian lender that’s being broken up after concern over its holdings of Greek sovereign debt blocked its access to short-term funding.

Salgado said there was general agreement that it would be better for bigger banks to have more capital to show they can absorb losses, and care should be given to fixing the criteria for any new stress tests.

--Editors: Keith Campbell, Stephen Taylor.

To contact the reporter on this story: Charles Penty in Madrid at cpenty@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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