Seeking to avert a spillover effect from the Dexia crisis, European Commission President José Manuel Barroso repeated the need to inject funds into the euro zone's troubled banks in several media appearances yesterday (6 October).
"We are now proposing member states to have a coordinated action to recapitalise banks and so to get rid of toxic assets they may have," Barroso said on Thursday in a television interview relayed on YouTube.
"Nobody opposes coordination in such a delicate field," he said later, speaking alongside visiting Finnish Prime Minister Jyrki Katainen. The two met in Brussels in preparation of an EU summit meeting on 17-18 October and the euro area summit which will take place in parallel.
Barroso said individual countries were responsible for the recapitalisation of their banks through markets, but admitted that in specific cases "more" could be done. "We follow this working closely with the European Bank Authority, working closely with member countries […], we are ready to come up with some ideas, but it's still early to table them," he said.
On several occasions, Barroso mentioned the European Bank Authority, a new EU regulatory agency with headquarters in London which officially came into being on 1 January 2011 and has taken over all the existing responsibilities of the Committee of European Banking Supervisors (CEBS).
The EBA acts as a network of EU and national bodies safeguarding the stability of the financial system, the transparency of markets and financial products and the protection of depositors and investors.
Speaking alongside Barroso, Katainen gave his understanding of the banking recapitalisation push. "The first step is that governments must encourage their own banks to recapitalise themselves from the markets. But if that is not possible, then the government is responsible for the recapitalisation," Katainen said.
"Europe is full of good and sound banks, but they are suffering from the uncertainty that has lasted a little bit too long. That's why we have to make sure that there is not a new financial crisis which comes from the uncertainty," the Finnish Prime Minister said.
Barroso added that cash injections were already underway for some banks following the stress tests that took place this year, but that the situation in the markets has in the meantime "changed".
Only seven of 91 banks tested for their ability to resist a capital deficit failed the latest round of stress tests, conducted in July, leading to criticism about the reliability of the exercise. Dexia, which collapsed this week under the burden of its toxic Greek assets, was not one of them.
Asked about the overall amount needed for bank recapitalisation, Barroso said he would not speculate about the general figure.
The European Central Bank yesterday decided to launch a new covered bond purchase programme for an intended amount of €40 billion. This was seen as a clear sign that Europe is making moves to avert a banking crisis.