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23 September 2015

Reuters: Most big euro zone banks have capital way above requirement

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Most euro zone banks directly supervised by the European Central Bank have capital levels way above minimum regulatory requirements, ECB President Mario Draghi said before the ECON meeting.

The ECB's Single Supervisory Mechanism took over the supervision of large euro zone banks late last year and is currently in the process of setting individual capital requirements for the banks under its watch.

Draghi dismissed concerns from some national central banks, such as the Bank of Italy, that asking institutions to set aside too much capital to cover potential losses risks strangling lending and hampering the euro zone's economic recovery.

"Most banks have already capital levels that are way above what is required by the SSM," Draghi told the European Parliament's Committee on Economic and Monetary Affairs. "The threat that this may undermine the recovery is not grounded."

Draghi said the SSM had demanded that banks it supervises hold, on average, an extra 33 basis points of Core Equity Tier 1 capital over the mandatory minimum set by the Basel accords in their 2016 implementation.

This add-on capital charge, known as a Pillar II requirement and designed to absorb possible losses, rises to 55 basis points for globally significant banks, Draghi said.

Leading banks on both sides of the Atlantic have come under market and supervisory pressure to hold capital well above minimum legal requirements, with a core ratio of 11-12 percent seen as the new norm compared with a fraction of this level before the financial crisis.

He concluded, however, that tough supervision, while painful for some banks, is necessary.

"Banks are different because their individual conditions are different and because the national supervisors may not be as tough ... as it is needed now," Draghi said.

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© Reuters

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