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

Share tips of the week – 22 October
Share tips

Share tips of the week – 22 October

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
22 Oct 2021
Three dividend stocks from the dynamic Asia/Pacific region
Share tips

Three dividend stocks from the dynamic Asia/Pacific region

Professional investor Sat Duhra of the Henderson Far East Income investment trust highlights three of his favourite stocks.
18 Oct 2021
Share tips of the week – 15 October
Share tips

Share tips of the week – 15 October

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
15 Oct 2021
Trading: stash the family cash in this cheap wealth management firm
Trading

Trading: stash the family cash in this cheap wealth management firm

Wealth management is a growth market. Rathbone Brothers should be a prime beneficiary – and looks cheap. Matthew Partridge explains the best way to pl…
12 Oct 2021

Most Popular

How to invest as we move to a hydrogen economy
Energy

How to invest as we move to a hydrogen economy

The government has started to roll out its plans for switching us over from fossil fuels to hydrogen and renewable energy. Should investors buy in? St…
8 Oct 2021
How to invest in SMRs – the future of green energy
Energy

How to invest in SMRs – the future of green energy

The UK’s electricity supply needs to be more robust for days when the wind doesn’t blow. We need nuclear power, says Dominic Frisby. And the future of…
6 Oct 2021
Why the world’s most important economic data release has unnerved markets
US Economy

Why the world’s most important economic data release has unnerved markets

The US added only 194,000 jobs in September, far shorter than the 500,000 that were expected. John Stepek explains why markets didn't react as they no…
11 Oct 2021