Frankfurt: European bankers and politicians leapt to defend the region's banks Thursday, rejecting an International Monetary Fund (IMF) estimate that they need €200 billion (Dh1.05 trillion) in new capital to reflect sovereign debt losses.
IMF chief Christine Lagarde's call on Saturday for mandatory capitalisation of European banks to prevent a world recession has reignited a debate over whether they have raised sufficient capital to withstand a severe downturn.
The clash highlights diverging views about the underlying safety of the European banking system. The IMF and the International Accounting Standards Board (IASB) have both voiced concerns, while European regulators, politicians and banking associations argue that banks have a sufficient capital cushion to cope with market turbulence and worries over sovereign debt after several rounds of capital raising across the continent.
A European source said on Wednesday that the IMF had estimated European banks could face a capital shortfall of €200 billion, a figure rejected by European bankers and policymakers.
The IMF figure is much higher than estimates of banks' capital needs following stress tests in July.
JP Morgan has estimated that based on the stress-test data, European banks showed a capital deficit of €80 billion, with UK banks needing €25 billion, French banks €20 billion and German lenders €14 billion.
The European Commission reiterated it saw no need for drastic action since the publication of the stress test results, echoing comments made by the European Banking Authority on Tuesday.
"Our analysis of the situation hasn't changed, it is in fact shared by the member states. We did have an in-depth discussion when the results of the stress tests for banks were presented and this our diagnosis and there is no reason to change it now," Commission spokesman Amadeu Altafaj told a regular briefing.
The bank stress tests did not factor in the impact of a significant drop in the value of sovereign debt.
Serious flaws
A Eurozone official, who declined to be named, said: "We are aware of those [IMF] numbers, but we think there are serious methodological flaws in that paper and discussions are going on with the IMF about them."
Eurozone governments and the European Central Bank disagree with the "very questionable" methodology of the IMF estimates on bank capital requirements, another European government official said. The European Central Bank declined to comment.
