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 ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves takes a look at the companies with the highest dividend yields in the UK’s blue-chip index
23 Jan 2023
The top ten dividend stocks in the FTSE 250
Share tips

The top ten dividend stocks in the FTSE 250

The average FTSE 250 dividend yield is around 4%, but many stocks yield much more. Rupert Hargreaves picks the best FTSE 250 stocks for income investo…
17 Jan 2023
The top funds to invest in
Funds

The top funds to invest in

As market volatility and recessionary fears continue, here are the most popular funds, stocks and trusts investors are putting their money into accord…
5 Jan 2023
Investing trends to watch out for in 2023: what analysts say
Investment strategy

Investing trends to watch out for in 2023: what analysts say

What are sensible strategies for high inflationary times? We ask analysts to find out.
22 Dec 2022

Most Popular

House prices could fall 30%. Should investors be worried about a repeat of 2008?
Investments

House prices could fall 30%. Should investors be worried about a repeat of 2008?

Some analysts are predicting that house prices could fall as much as 30%, which, when compared to the fact that prices have jumped 28% since April 201…
24 Jan 2023
Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Wholesale gas prices are on a downward trajectory, but does this mean lower energy bills later this year?
27 Jan 2023
Council tax increases 2023 – how much more will you pay?
Tax

Council tax increases 2023 – how much more will you pay?

Your council tax bill will go up in April - we reveal the councils that have confirmed what this year’s increase will be.
23 Jan 2023