OECD: 'Low bank capitalisation persists in many countries'

European banks remain at the heart of the euro area crisis despite actions to strengthen banks, according to the Organisation for Economic Co-operation and Development.

European banks remain at the heart of the euro area crisis despite actions to strengthen banks, according to the Organisation for Economic Co-operation and Development.

In a statement issued on Friday, the Paris-based organisation pointed out that low bank capitalisation continued to persist in many countries despite the EU requirement that banks reach a ratio of a minimum 9% of core tier-one capital to risk-weighted assets in 2012.

The organisation went on to suggest that the new benchmark hadn't been sufficient to boost confidence partly because it was based on risk-weighting of assets which understated risks due to reliance on banks' own internal risk models and the zero risk-weight given to sovereign debt.

The OECD suggests that the ratio of core tier one capital to unweighted assets of euro banks falls short of 5% in many cases.

If the euro area's largest banks were to move to a 5% standard, the current capital shortage is estimated at around €400bn, or 4.25% of euro area GDP, according to the OECD.

The OECD pointed out that this was not just a problem for banks in the 'periphery', explaining that there could be large capital needs in the major euro area countries.

The organisation added that future capital needs could be lessened if banks were required to separate commercial banking and market activities, reducing the total assets of the banking business.

MF

Recommended

The MoneyWeek Podcast: picking stocks is fun, but you need to do your homework
Investment strategy

The MoneyWeek Podcast: picking stocks is fun, but you need to do your homework

John Stepek talks to Steve Clapham, investor, analyst and author of The Smart Money Method, about the dangers in picking individual stocks and why you…
8 Apr 2021
BP looks set to return more money to shareholders as it beats expectations
Energy stocks

BP looks set to return more money to shareholders as it beats expectations

Oil major BP is to embark on a share buyback programme after significantly reducing its debts. Saloni Sardana looks at what it means for your portfoli…
6 Apr 2021
Deliveroo has hit the market – but it’s not getting the warmest welcome
UK stockmarkets

Deliveroo has hit the market – but it’s not getting the warmest welcome

Food delivery company Deliveroo made its debut on the stockmarket this morning. But with the share price sliding by 30% straight away, it’s not made t…
31 Mar 2021
Three stocks to buy now that will come back stronger after Covid-19
Share tips

Three stocks to buy now that will come back stronger after Covid-19

Professional investor Ed Wielechowski of Odyssean Capital, chooses three compelling stocks that should thrive in a post-pandemic world.
29 Mar 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
Central banks are rushing to build digital currencies. What are they, and what do they mean for you?
Bitcoin

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?

As bitcoin continues to soar in value, many of the world’s central banks are looking to emulate it by issuing their own digital currencies. But centra…
8 Apr 2021
Four investment trusts for income investors to buy now
Investment trusts

Four investment trusts for income investors to buy now

Some high-yielding listed lending funds have come through the crisis with flying colours. David Stevenson picks four of the best.
12 Apr 2021