Banks prepare to raise more capital

EUROPE’S banks expect to be told to raise more capital under a Franco-German effort to solve the eurozone debt crisis after the state rescue of Franco-Belgian lender Dexia.

Dexia agreed to the nationalisation of its Belgian retail bank and secured €90 billion in state guarantees — in a rescue that raises pressure on other eurozone countries to strengthen their banks.

German Chancellor Angela Merkel and French President Nicolas Sarkozy said on Sunday they would tackle Greece’s woes and agree how to recapitalise the regions’ banks by the end of the month, but they declined to reveal details of their plan.

“We expect the EU to come up with a minimum core Tier One (capital) level under certain stress scenarios and a higher one without any stress.

“Then banks will be asked to reach this level in a short period of time,” said a senior banker in Germany.

Banks were not involved in talks yet with governments on likely capital needs, several bankers said, although options were being considered in case they need to act quickly.

But they were concerned at just how much more capital they will be called on to find, after many urged Europe’s leaders to follow the “bazooka” approach of former US treasury secretary Hank Paulson, who told banks they must raise capital.