European banks need stress tests: Almunia

European banks need more recapitalisation than United States banks and should be subjected to stress tests at a Europe-wide level, EU Economic and Monetary Affairs Commissioner Joaquin Almunia said yesterday.

"In Europe there is a greater need of capitalisation," the European Union's top economic official told a business forum in Madrid. "We need stress tests. From our point of view in the Commission, we should do them at a European level."

Almunia's comments followed statements by sources that the EU was preparing to stress-test its banks by September to find out whether the banking system is adequately capitalised.

But the European stress tests, unlike their US counterparts, would not single out banks that need more capital or be made public.

Critics say this would keep investors in the dark as to potential problems.

Credit Suisse economists have estimated that European banks would need an extra €84 billion (Dh432bn) of capital if they were subjected to a US-style stress test. "The private sector must participate [in capitalising banks]," Almunia said.

"If not, the public sector still has to step in to recapitalise institutions."

The European financial system still lacks transparency, he said. "Not all the implicit losses in the [bank] balances are known," he said. The International Monetary Fund said in April that while US financial institutions were about halfway through their needed write-downs, their euro area counterparts were still lagging.

The US has tested 19 individual banks to see if their capital is sufficient to withstand any further economic deterioration and found that 10 of them should boost their capital by a combined $75bn (Dh275bn).

Europe did not need any new stimulus measures, but did need to better coordinate current plans and that some countries could face difficulties over their growing public debts, Almunia said.

"There aren't going to be problems over public debt in the short term, but there will be a lot of tension within a period of time," he added.

Almunia also said active job creation policy was needed to avoid unemployment becoming a structural issue.

He has repeatedly emphasised the need to rid Europe's banking system of so-called toxic, or impaired, assets, as a necessary condition for economic recovery.

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