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12 December 2011

EBA Enria: The crisis has reached a systemic level


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A stress test performed on European banks last week found a capital shortfall of some €115 billion. In a Spiegel interview, European Banking Authority head Andrea Enria defends the decision to perform the stress test and discusses the huge challenges facing the European banking sector.


EBA started in January, in a very difficult market environment. It is like  building a house and living in it, while outside there is a storm. But there are some very positive indications: One of the major shortcomings before the establishment of the EBA was the inability to decide and coordinate policy actions within the European Union. Already in the first months of its activity, the EBA has shown that this is different now.

The banking sector has made major efforts to strengthen since the collapse of Lehman Brothers. But now the sovereign debt crisis is putting a lot of pressure on bank funding, especially in countries under stress. Since July, only a few banks have been able to finance their operations, and only at very high prices. If banks don't have funding, they don't lend, and this affects the real economy. 

The problem with the stress tests is that everybody seems to look at the exercise as a sort of beauty contest: Are German banks better than Italian banks or the British ones? But that is not the point. We have to look at what is needed for the European banking sector. We have to put enough capital into European banks to make sure they can withstand shock and continue supporting the economy. The complaints or  of banks about EBA creating uncertainty and changing the rules are understandable to a certain degree, but this is necessitated by the need to ensure a level playing field. Every time we start an exercise, we realise how diverse the regulatory environments are. So we have to adjust as we move along, giving instructions that are the same for each bank in the European Union.

The reason for the extreme timetable for finding the fresh capital is that there are major risks in the EU financial markets that can materialise any day. We simply cannot wait any longer to prepare banks for this.

EBA is not the Big Brother, but it will not allow the banks to reduce lending. Banks have to present plans to national supervisors explaining how they want to fill the gap we have detected. The shortfall is a fixed figure and can be filled by selling a line of business or a subsidiary; but if a bank shrinks lending to small and middle-sized enterprises, for instance, this will not be counted toward achieving our target.

Banks are changing their behaviour and their business models much more significantly than is publicly acknowledged. I have the opposite concern at the moment: The problem we may have now is that banks are becoming far too risk averse. This can lead to a severe credit crunch in the end.

Full interview



© Spiegel Online


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