OECD warns Europe over new bank rescues
Tuesday 14 December 2010
More European banks may have to be rescued, the Organisation for Economic Co-Operation and Development, the "club" of the world most advanced economies, warned today.
Against a backdrop of "muted" recovery, the OECD said that, while substantial support to Europe's banks should be gradually withdrawn, "further recapitalisation of banks could be necessary [and] all countries should have a full set of effective, credible and harmonised bank resolution tools".
The small Spanish banks, the cajas, are most at risk from a further slump in property values.
And, more than three years since the first European banks ran into difficulties, and high profile cross-border failures such as Fortis, the OECD also said "weaknesses in cross-border supervision remain a risk". To avoid a repeat of this year's sovereign debt crises, the OECD argued: "Sanctions should range from intrusive surveillance and warnings to financial sanctions."
The OECD's intervention comes as two other influential bodies – the Bank for International Settlements (representing the world's central banks) and the European Investment Bank implicitly blamed Chancellor Angela Merkel of Germany and some senior French figures for the recent run on Ireland.
The BIS said: "The surge in sovereign credit spreads began on October 18, when the French and German governments agreed to take steps that would make it possible to impose haircuts on bonds should a government not be able to service its debt".
EIB president Philippe Maystad added that while that deal was desirable, "the way it was presented created total confusion". The new rules are supposed to operate only on debt issued after 2013.
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