* EBA examining extra guidance on bank restructuring
* Regulators want banks to slim down without damaging
economy
* Watchdog to publish review of how bonus curbs working
By Huw Jones
LONDON, April 2 (Reuters) – European Union regulators want
banks to restructure so they can wean themselves off cheap
central bank loans and attract their own funding from investors
and markets.
Europe’s debt crisis has hurt many banks’ ability to raise
money, leaving them no choice but to stock up at two recent
exceptional European Central Bank auctions. Spanish and Italian
banks are thought to have been among the largest borrowers.
The European Banking Authority (EBA) wants banks to stand on
their own feet again and at its board meeting on April 3 and 4
will try and come up with ways to encourage them to do so.
EBA Chairman Andrea Enria said that many banks were ready to
“pro-actively” tackle problem assets, refocus business models
and “gradually” cut dependence on ECB money.
“The EBA is discussing possible policy actions, which could
accompany this process of deleveraging and restructuring to
ensure it develops in an orderly and measured way allowing banks
to maintain orderly provision of credit to the real economy,” he
said in a paper presented to EU finance ministers last week.
Regulators want banks to replace short-term funding with
longer maturities to avoid the frequent scramble to tap
investors. This would also help banks prepare for deep scrutiny
of their business models in new stress tests next year.
CAPITAL HOLES
The EBA will also be checking this week to see whether 31
banks identified as having a combined 115 billion euro capital
hole in stress tests last year are on track to plug the gap by
June 30.
Enria said last week the recapitalization plan was “largely
on track” but some lenders were using “overly optimistic
assumptions” of how they will raise new capital.
“In a very few cases, the EBA is continuing work with
national authorities to ensure plans are finalised, and
additional back up measures are considered,” according to the
paper, a copy of which was obtained by Reuters.
Italy’s Monte dei Paschi is regarded by analysts
as struggling to meet the EBA’s June 30 core tier 1 target of 9
percent and is taking steps to tidy up its finances.
The bank’s director general Fabrizio Viola said last week it
would reduce a 3.3 billion euro capital shortfall by roughly a
third by converting hybrid notes into equity. Italian press
reports said on Sunday the bank will also slash its holdings of
government debt and close 150 branches.
Some Italian banks want the EBA to row back on its capital
and sovereign debt buffer requirements, citing an easing of
tensions in sovereign debt markets after the ECB’s two three
year loan auctions.
Bank of Italy governor Ignazio Visco said on Saturday the
ECB could eventually relax the capital buffers.
But he said it was a medium-term prospect and the EBA is not
expected to take such action at this meeting.
Spanish banks are also in the spotlight, with many hurting
from a property crash and worsening economy, and some economists
saying they may need more public cash.
In case some lenders cannot make the June deadline, Enria
has proposed that the EU’s new financial lifeboat, the European
Stability Mechanism (ESM), could directly inject money into
struggling lenders from July.
He believes this would also help break the link between
banks and the euro zone sovereign debt crisis but so far the ESM
is limited to bailing out countries.
The EBA board will also review a survey of how banks have
complied with the watchdog’s bank bonus curbs introduced in
January 2011.
The supervisors at set to approve launching a consultation
on draft rules for defining bank capital as they flesh out an EU
reform to implement the Basel III global bank capital accord
from 2013.
The EBA is expected to publish the review of bonus curbs and
the bank capital consultation after Easter.
