THE EUROPEAN Union’s banking regulator has told banks to keep capital levels at a higher target set for last June to protect them against a deepening of the euro crisis and to prepare for higher levels under new banking rules.
The European Banking Authority said the region’s banks increased their capital reserves by more than €200 billion between December 2011 and June 2012, including €116 billion raised by 27 banks with capital shortfalls.
The figures were released in the final report on EU-wide bank recapitalisations designed to show international markets that European banks had raised sufficient funds to tackle the euro crisis.
The EBA called on national central banks to force 71 banks to boost reserves by building up exceptional and temporary buffers so that their core tier-one capital ratios – a measure of loss-absorbing reserves – were at least 9 per cent by the end of June 2012.
Banks were also required to maintain an additional exceptional and temporary capital buffer against exposures to sovereign debt to reflect market prices at the end of September 2011.
In response to the EBA’s capital update, the Central Bank of Ireland released figures showing that the three remaining Irish banks, Bank of Ireland, AIB and Permanent TSB, had well in excess of the EBA’s minimum capital target.
Permanent TSB had a core tier one ratio of 20.5 per cent at the end of June, while AIB and Bank of Ireland had ratios of 17.3 per cent and 14.1 per cent respectively.
The banks have been over- capitalised following their last recapitalisation in 2011, when they received a further €24 billion in State funds and gains from burden-sharing with junior bondholders.
The over-capitalisation of the banks was a condition of the 2010 EU-IMF bailout programme to cover possible worst-case scenario loan losses. The Government has injected or pledged €64 billion of taxpayer funds to the Irish banks.
Ten banks were excluded from the initial sample of banks tested by the EBA. Six Greek banks are being treated separately under the country’s bailout programme, while four other banks are being significantly restructured.
