Eurozone: How can 200 banks find €400 billion?

OECD's Headquarters, in Château de la Muette, Paris-France (OECD photo library)

OECD’s Headquarters, in Château de la Muette, Paris-France (OECD photo library)

The Organisation for Economic Cooperation and Development (OECD) considers that Eurozone banks need to strengthen their capital accounts by at least €400 billion in order to reach a viable capital to assets coverage ratio of 5%.

The good news from OECD however is that its economist estimate that the single money EU zone seems to have reached towards the end of 2012 the bottom of its U-shaped curve. Consequently 2013 should be a better year than 2012. Let’s start with the banks.

The banks

In detail, according to a report based on data for 200 Eurozone “systemic” banks, the Organisation “assesses the additional capital required for each individual bank to reach a 5% leverage ratio (capital to assets) and then adds up capital needs for currently under-capitalised banks based on this yardstick, to obtain national and area-wide estimates of additional capital needs…The estimated increase in bank capital to reach the 5% leverage ratio in Greece for example is likely to decline substantially following the end-November decision of the Eurogroup to disburse the European Financial Stability Mechanism (EFSF) loan which includes 23.8 billion euros earmarked for bank recapitalisation”.

Obviously this expected capital injection to Greek banks from the EFSF some-time during the first semester of the New Year, will decrease by an equal amount the overall capital needs. By the same token this OECD overall estimate for Eurozone banks capital needs doesn’t include any prediction for future losses.

Then given all that the Organisation says: “If the euro area’s largest banks were to move to a 5% standard, the current capital shortage is estimated at around €400bn (4¼ per cent of euro area GDP)”. Obviously the current capital to assets ratio for those 200 banks falls behind the 5% benchmark by this amount.

It should be noted that a 5% leverage ratio (capital to assets) does not currently form part of the recently reshaped Basel III framework, which expresses capital requirements in terms of risk-weighted assets. A 3% leverage ratio based on total assets has been proposed in that framework as a backstop from 2018 onwards. This means that currently the 200 largest Eurozone banks’ capital to assets ratio is well below 3% according to Basel III definitions.

Growth

Judged by a macroeconomic point of view this needed capital increase in 200 banks by an amount equal to 4.5% of the Gross Domestic Product, is not at all much. A betterment of the general economic climate in Eurozone this year will have for sure an even stronger positive effect on financial markets. For example the Athens stock market is now nearing the 1000 points benchmark of its general index, having gained 58.03% during the past six months. Of course nobody expects a betterment of the economic climate in the entire Eurozone to have an equally astonish impact on stock prices as in Athens.

However the predicted by OECD betterment of economic climate in Eurozone, will open the way for new capita issues by the major banks of the zone, a prospect that will greatly facilitate their efforts to increase own capital. No wonder then why a lot o people expect this year to be better than 2012.

 

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

ECB describes in detail how it exploits the poor

Continuing incarceration of women’s rights activists in Saudi Arabia, ‘reprehensible’: UN experts

Golden Pen of Freedom Awarded to Murdered Saudi Journalist Jamal Khashoggi during World News Media Congress 2019

Consumers to be better protected against misleading and unfair practices

This chart shows how the energy mix is failing in the fight against climate change

5 things fighting malaria can teach us about Universal Health Coverage

10 predictions for the global economy in 2019

Fair Taxation: EU updates list of non-cooperative tax jurisdictions

Vestager vs. Google: a fight to ensure a competitive innovation framework

How many more financial crises in the West can the world stand?

Quality Education on the table at the European Parliament

De-stigmatizing a mental illness: importance of individual and collective representativeness

European Commission and European Investment Fund launch €75 million BlueInvest Fund

Art, mental health and suicide: different strategies for increasing access to health services

Silicon Valley can do more to achieve the #GlobalGoals

Can cybersecurity offer value for money?

European Commission requests that Italy presents a revised draft budgetary plan for 2019

These are the benefits of learning a second language

WEF Davos 2016 LIVE: “There is a communication issue (about China) which markets don’t like” Christine Lagarde, Managing Director of IMF stresses from Davos

Trump’s trade war splits the EU; Germany upset with Juncker’s “we can be stupid too”

What would happen if we removed cars from cities?

The opportunity of studying Medicine abroad

European financial values on the rise

Veteran UN Syria Envoy to step down, pledges to work ‘until the last hour’ for peace

Asylum: deal to update EU fingerprinting database

COP21 Breaking News_08 December: Cities & Regions Launch Major Five-Year Vision to Take Action on Climate Change

What does a good digital ID look like?

Permafrost is thawing so fast it’s gouging holes in the Arctic

EU to Google: How to dismantle European search engines in 13 steps

EU to relocate 40,000 migrants across the bloc: first step of a long due substantial reform?

What does the world really think about the UN Sustainable Development Goals?

How can we measure real progress on the Sustainable Development Goals?

This is how music festivals are tackling plastic waste

Mergers: Commission approves Synthomer’s acquisition of Omnova, subject to conditions

Gender equality and medicine in the 21st century

5G mobile is nearly here – but we should share networks to make it affordable

Nigel Farage and Boris Johnson: who forced the two ‘brave’ Brexiteers to quit?

Mine action is at ‘the nexus’ of peace, security and development: UN official

Commission presents its response to Antisemitism and a survey showing Antisemitism is on the rise in the EU

EU and India re-open talks over strategic partnership while prepare for a Free Trade Agreement

State aid: France to recover €8.5 million of illegal aid to Ryanair at Montpellier airport

Women must be at ‘centre of peacekeeping decision-making’, UN chief tells Security Council

More international support needed to curb deadly measles outbreak in DR Congo

UPDATED: Thousands flee fighting around Libyan capital as Guterres condemns escalation, urges ‘immediate halt’ to all military operations

Strengthening European unity is in all our interests, says Luxembourg PM Bettel

US-China trade war at point of no return: Washington’s demands go beyond tariffs

An Eastern Wind

Internet of Things: a Force for Good or Evil?

Sub10 Systems @ MWC14: Bridging the Ethernet of the Future

Tuesday’s Daily Brief: Disability inclusion, minimum wage, and LGBTI rights in Botswana

Greta Thunberg tells world leaders ‘you are failing us’, as nations announce fresh climate action

Global health challenges require global medical students

G20 LIVE: G20 leaders reaffirm OECD’s role in ensuring strong, sustainable and inclusive growth

7 key authors from Switzerland’s literary scene

Mobile 360 Africa 11-13 July 2017

Countries should focus on labour market policies to help refugees and improve coordinated actions to tackle illegal immigration

UN chief hopeful for Libya, after Quartet meeting in Tunis

Earth already has a perfect recycling system. So why not use it?

Taxes on polluting fuels are too low to encourage a shift to low-carbon alternatives

Teenage girl’s death sentence spotlights Sudan’s failure to tackle forced marriage, gender-based violence – UN rights office

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s