BANKING : ALMUNIA RAISES PROSPECT OF EUROPEAN BAD BANK'.
Speaking at a conference in Brussels, on 27 January, the Commissioner for Economic and Monetary Policy, Joaquin Almunia, mooted the creation of a bad bank' in which to park toxic assets that have lost all value in the current financial crisis and are dragging good assets' down with them. He said, "So long as these [toxic assets] remain on banks' balance sheets they will continue to undermine confidence and hamper lending".
Several member states have raised this suggestion, continued Almunia, but he had doubts, saying, "Before rushing into the bad bank' debate we have to coordinate our views at EU level on what are the bad assets' that we need to deal with, and second, what is the best way to value them". This was a prerequisite for deciding how to manage such assets.
Since September 2008 and the collapse of Lehman Brothers, European governments have been pumping money into the banking sector. The combined total is 300 billion in recapitalisation and 2.4 trillion in guarantee schemes; yet it seems that ever more is required. One critical point is that the level of confidence in banks has decreased to a point where governments, regulators and investors doubted the truth of banks' statements as to their real losses. For Almunia, transparency here is crucial and has to be the basis for any further aid to the banking sector. "If governments are to continue putting taxpayers' money into financial institutions, they must know from the outset the situation of that institution: its exposure to various risks, the quality of its asset portfolio and the sustainability of its business model in the long term," he said. These issues will be among the main topics for the Ecofin Council and the European summit in March.