Debt crisis ‘puts EU banks at risk’

European commissioner for competition says more banks may need to be recapitalised.

More European Union banks may need to be recapitalised than the nine that failed this year’s stress tests, Joaquín Almunia, the European commissioner for competition, said today.

He said that the extraordinary rules allowing governments to give public money to banks would be extended to cope with the current crisis.

Speaking in Brussels today, Almunia said: “As the sovereign-debt crisis worsens, more banks may need to be recapitalised, on top of the nine signalled in the July stress tests.”

The commissioner did not give any indication of the amount of extra financing banks needed, nor did he identify any institutions. His comments appear to support those made by Christine Lagarde, the managing director of the International Monetary Fund, who told a conference of central bankers last month that “urgent recapitalisation” was needed in the European banking sector.

“This is why it is so important to resolve the sovereign-debt crisis without any further delay,” Almunia said. “Without a quick solution, the final bill will only grow bigger and banks will not be able to fulfil their key role of financing economic growth.”

He added that he wanted to introduce a new rescue and restructuring regime for banks, but this could not be done while the crisis continued.

“This cannot be done now, given the extent of uncertainty and tensions in the markets, but a postponement certainly doesn’t mean a blank cheque for banks and their governments,” he said.

The comments from Lagarde were widely rejected at the time, but EU finance ministers discussed the issue at their meeting in Wrocław, Poland, last weekend.

Almunia’s speech came as he announced that the European Commission had approved the restructuring of HSH Nordbank, one of Germany’s regional banks, which were among the most badly hit by banking crisis. In 2009, HSH Nordbank received €13 billion in support from the state.

EU rules on state aid require a restructuring in these circumstances, to ensure the bank’s long-term viability and to limit distortions of competition.

Almunia said that the restructuring would result in a “leaner but more profitable and stable bank” with improved capital ratios.

He said that he was hoping to conclude some of the other 19 restructuring plans currently under scrutiny, including Germany’s WestLB and the Bank of Ireland, “soon”, but gave no date.

Later this year he will make proposals to extend the state aid rules put in place in 2008-09 to enable governments to provide public support to their banks beyond 2011, he announced.