The recapitalisation plan will also include measures to coordinate national efforts to unblock bank funding through state guarantees for new bank bonds. But Germany successfully opposed the use of joint rescue funds to underwrite new bonds, a step analysts say is essential to improving liquidity for banks, particularly on the southern periphery. While the size of the capital shortfall is broadly agreed, big differences remain over increasing the firepower of the European Financial Stability Facility, the eurozone’s €440 billion rescue fund, which some States would borrow from for the recapitalisation.
As well as banks in bailout countries – which account for almost half the shortfall – institutions in Germany, France, Italy and Spain will be required to find new capital. No UK banks fall under the threshold. The deal is a victory for those countries that resisted calls for the tests to be watered down, either through reducing capital demands or changing the method for writing down sovereign debt.
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