Michel Barnier, the European Union’s financial services chief called on national regulators to take “all necessary measures” to stop banks reducing loans to businesses and households in order to boost their capital.
Banks should bolster their reserves “by retaining earnings, raising capital and divesting some non-core activities without disrupting credit supply,” Barnier said in a written response to a parliamentary question.
The European Central Bank’s decision in December to provide longer term loans to banks has “released some of the funding tensions” in the interbank-lending market, Barnier said in the response, which is dated Feb. 27. This should limit the risk of a “disruptive” reduction in lenders’ activities.
Regulators at the European Banking Authority are forcing some banks in the 27-nation region to boost their core capital to 9 percent of their assets, weighted for risk, to boost market confidence. The requirement anticipates new capital rules that were agreed by the Basel Committee on Banking Supervision in 2010 and that will be phased in starting next year.
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