Bloomberg News

Most EU States Prefer National Bank Guarantees, Draft Shows

November 29, 2011

(Adds Moody’s report in 11th paragraph.)

Nov. 29 (Bloomberg) -- European Union nations prefer to set up bank-guarantee plans at the national level rather than through a central coordinator or syndicated program, a draft EU document shows.

National efforts to support the banking industry are the only option “that could be activated swiftly,” according to the document, which was prepared for meetings of EU finance ministers today and tomorrow in Brussels. The document, dated Nov. 28, assesses other options for more closely linked banking aid that failed to draw broad support.

“A majority of member states affirmed their preference for the setting-up of national but closely coordinated guarantee schemes,” according to the document, which was obtained by Bloomberg News.

Ministers will seek to agree this week on the best way to support Europe’s banks, in line with an October agreement by EU leaders to aid the banking industry. October’s pact also laid out a new strategy to combat the sovereign-debt crisis and to craft a second rescue package for Greece.

In Brussels, finance chiefs are “expected to ensure a speedy implementation” of the banking plans which also include requiring 70 large EU lenders to hold core capital equivalent to 9 percent of their risk-weighted assets, according to the draft paper.

‘Serious Concerns’

Governments nevertheless have “serious concerns” that the forced capital raising could “prejudice an adequate supply of lending to the real economy or put excessive additional pressure on sovereign debt,” according to the document. Regulators should assess the need for “possible mitigating measures” when examining lender’s capital raising plans, it says.

Earlier this month, ministers were weighing an option to aggregate national guarantees under a pooled or syndicated program. This plan, as envisioned, would present a common front without increasing the direct liabilities of EU governments.

Some nations are of the view that syndicated guarantees may present “a number of critical risks,” the document says, including that the system could take too long to set up.

Some EU governments are calling for regulators to reconsider new state-aid rules for pricing bank guarantees that are aimed at shielding banks in states roiled by Europe’s sovereign-debt crisis from extra costs, the document says. The European Commission’s proposed reduction of an add-on fee for guarantees “should be further explored” and “a more balanced weight” for pricing the risks of banks and states “should be considered,” the document said.

Loans, Bonds

The Brussels-based commission tomorrow will publish rules on state aid for lenders that may dilute the effect of turmoil in the euro area on the fees that banks have to pay for guarantees on their loans and bonds, said two people familiar with the situation last week.

Moody’s Investors Service Inc. said today that banks in 15 European nations, including the largest lenders in France, Italy and Spain, may have their subordinated debt ratings cut to reflect the potential removal of government support.

--Editors: Jones Hayden, Peter Chapman

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net; Rebecca Christie in Brussels at rchristie4@bloomberg.net.

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net


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