Bloomberg News

Italian Banks Say New EBA Capital Rules May Cause Credit Crunch

December 10, 2011

Dec. 10 (Bloomberg) -- Italy’s banking association said it opposes the new capital requirements set by the European Banking Authority because they increase market volatility and may cause a credit crunch.

“The timing of the move and the consequent recapitalization transactions are inappropriate” because they increase market volatility and “could force a reduction in assets and a consequent squeeze on credit provided to the economy,” the association, known as ABI, said in an e-mailed statement late yesterday.

ABI, which groups together Italy’s main banks, said it has formally requested a review of the requirements and “intends to verify” their legitimacy “at all levels.”

The EBA said on Dec. 9 that European Union banks must raise 114.7 billion euros ($153 billion) in fresh capital to withstand writedowns caused by the area’s sovereign-debt crisis. Italian banks need to raise an additional 15.4 billion euros in capital, while German banks will need 13.1 billion euros and Spanish lenders 26.2 billion euros.

The new requirement is 8 billion euros higher than the capital needs requested by the EBA in October. The EBA said lenders should look to boost reserves by cutting bonuses, retaining earnings or issuing shares, not by shrinking credit. The banks will have until Jan. 20 to submit their plans for raising cash.

--Editor: Francis Harris

To contact the reporter on this story: Alessandra Migliaccio in Rome at amigliaccio@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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