David Prosser: Europe's new bank regulator got it wrong

 

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Outlook Does the European Banking Authority (EBA), the regulator set up in the wake of the financial crisis, understand the International Monetary Fund's call yesterday for an immediate recapitalisation of many of the banks it supervises?

It certainly didn't get the point back in July, when presiding over Europe's second set of botched banking stress tests within the space of a year. To give you an idea of the scale of the botch, Dexia, the Franco-Belgian bank currently in the eye of the sovereign-debt storm, was given a clean bill of health by the EBA in July.

The EBA, which spent yesterday discussing the situation at Dexia and other banks, has now come to the conclusion that there may have been the odd flaw in the methodology it applied in the summer. No kidding. The problem now is that in failing to get Dexia and others to put their house in order while there was still time, the EBA has forced European governments to take responsibility, as France and Belgium have done this week. That is bound to stress these countries' own credit ratings still further, speeding up the vicious circle sucking down the eurozone.

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