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Payouts would be put on hold for undercapitalised institutions
EC president softens up bondholders up for losses of 30%
Wednesday 12 October 2011 15.46 EDT
Europe's biggest banks would be barred from paying out dividends and bonuses if they are forced to raise their capital reserves to withstand future shocks, under plans put forward by the European commission to resolve the debt crisis.
At the same time, banks are being softened up by Brussels to accept "haircuts", or losses, of 30%-50% on their holdings of Greek debt rather than the current 21%.
Senior commission officials are also examining ways to boost the size of the main bailout fund, the European financial stability facility (EFSF), closer to the 2 trillion (£1.75tn) demanded by the US and UK without being forced to get this increase ratified by all 17 eurozone countries again.
These are the three key elements of a "roadmap to stability and growth" put forward to MEPs on Wednesday by José Manuel Barroso, the commission's president, in the run-up to the emergency EU and eurozone summits on 23 October.
Barroso's aides likened the plan to a "grand bargain" even though it lacks a lot of fine detail, following a series of top-level conflicts both among EU officials and between Brussels, Berlin and Paris.
But his supporters insist Barroso has pre-empted German chancellor Angela Merkel and French president Nicolas Sarkozy, who announced a "comprehensive plan" on Sunday and have since given no details. "They have not put a single word on paper because they don't agree," one said.
The EU has given itself little more than 10 days to come up with a viable, convincing scheme as the political crisis around Silvio Berlusconi deepens in Italy and the International Monetary Fund warns Cyprus it must take urgent action to shore up its economy.
Seeking to inject a sense of urgency "over the threat of systemic crisis now unfolding", Barroso is telling Germany that it has to accept that the EFSF needs to be leveraged up from its current 440bn and France that it will have to recapitalise its banks.
In Paris, budget minister Valérie Pécresse said France would use its own money, not that of the EFSF, if required.
The commission's plan for recapitalisation envisages some of Europe's 60- 70 biggest ("potentially systemic") banks being set a core ("tier one") capital ratio close to 9% after the European Banking Authority (EBA) completes its reassessment of stress tests carried out in July.
This equates to the "hard" capital ratio of 7% required by 2019 under the Basel III banking accord, but no final figure is being put on the ratio because this is being left to the EBA for political reasons.
The new tests, sources said, are examining the banks' exposure to the sovereign debt of some 30 countries, including the way this has deepened in the last three months.
Barroso said that banks without the required capital ratio would be prevented from paying out dividends and bonuses by national supervisors and would have to swiftly seek fresh capital.
The commission insists that banks should first act on their own account by selling assets, turning to shareholders, changing debt into equity before going to governments. Recourse to the EFSF would be a very last resort.
UK and Swiss banks, according to research by HSBC, would meet a 10% ratio requirement.
Barroso indicated that his plan would see the EFSF's permanent successor, the European stability mechanism, installed a year early, in mid-2012. This would come with conditions imposing haircut clauses on all eurozone bonds issued after that date, officials said.
read more Barroso's eurozone crisis plan could stop bank dividends | Business | The Guardian
EC president softens up bondholders up for losses of 30%
Wednesday 12 October 2011 15.46 EDT
Europe's biggest banks would be barred from paying out dividends and bonuses if they are forced to raise their capital reserves to withstand future shocks, under plans put forward by the European commission to resolve the debt crisis.
At the same time, banks are being softened up by Brussels to accept "haircuts", or losses, of 30%-50% on their holdings of Greek debt rather than the current 21%.
Senior commission officials are also examining ways to boost the size of the main bailout fund, the European financial stability facility (EFSF), closer to the 2 trillion (£1.75tn) demanded by the US and UK without being forced to get this increase ratified by all 17 eurozone countries again.
These are the three key elements of a "roadmap to stability and growth" put forward to MEPs on Wednesday by José Manuel Barroso, the commission's president, in the run-up to the emergency EU and eurozone summits on 23 October.
Barroso's aides likened the plan to a "grand bargain" even though it lacks a lot of fine detail, following a series of top-level conflicts both among EU officials and between Brussels, Berlin and Paris.
But his supporters insist Barroso has pre-empted German chancellor Angela Merkel and French president Nicolas Sarkozy, who announced a "comprehensive plan" on Sunday and have since given no details. "They have not put a single word on paper because they don't agree," one said.
The EU has given itself little more than 10 days to come up with a viable, convincing scheme as the political crisis around Silvio Berlusconi deepens in Italy and the International Monetary Fund warns Cyprus it must take urgent action to shore up its economy.
Seeking to inject a sense of urgency "over the threat of systemic crisis now unfolding", Barroso is telling Germany that it has to accept that the EFSF needs to be leveraged up from its current 440bn and France that it will have to recapitalise its banks.
In Paris, budget minister Valérie Pécresse said France would use its own money, not that of the EFSF, if required.
The commission's plan for recapitalisation envisages some of Europe's 60- 70 biggest ("potentially systemic") banks being set a core ("tier one") capital ratio close to 9% after the European Banking Authority (EBA) completes its reassessment of stress tests carried out in July.
This equates to the "hard" capital ratio of 7% required by 2019 under the Basel III banking accord, but no final figure is being put on the ratio because this is being left to the EBA for political reasons.
The new tests, sources said, are examining the banks' exposure to the sovereign debt of some 30 countries, including the way this has deepened in the last three months.
Barroso said that banks without the required capital ratio would be prevented from paying out dividends and bonuses by national supervisors and would have to swiftly seek fresh capital.
The commission insists that banks should first act on their own account by selling assets, turning to shareholders, changing debt into equity before going to governments. Recourse to the EFSF would be a very last resort.
UK and Swiss banks, according to research by HSBC, would meet a 10% ratio requirement.
Barroso indicated that his plan would see the EFSF's permanent successor, the European stability mechanism, installed a year early, in mid-2012. This would come with conditions imposing haircut clauses on all eurozone bonds issued after that date, officials said.
read more Barroso's eurozone crisis plan could stop bank dividends | Business | The Guardian
