Recapitalising European Banks

Abstract

In the article, we describe the European Commission’s (EC) recapitalisation proposals which were announced as part its road map to stability and growth on 12 October 2011. The EC is calling for ‘significantly’ higher capital reserves to help banks replenish their balance sheets to withstand market turmoil amid the eurozone’s sovereign debt crisis. The coordinated bank recapitalisation strategy would cover all potentially systemic banks in the EU, equating to around 90 firms. According to the proposals, all sovereign debt exposures should be taken into account to ensure full transparency on asset quality. The papers details how extra capital requirements may result in significant restructuring across European banks given the high costs associated with raising capital.

Keywords: Eurozone Banking Crisis, European Commission, Sovereign Debt, Recapitalisation Proposals

JEL Classification: G20, G28, E58