Europe’s banks “still too big to fail”

“Five years on since the financial crisis, Europe’s banks are still ‘too big to fail’”, writes The Financial Times in a report on an analysis of the region’s banks by the UK’s Royal Bank of Scotland (RBS).

The RBS says Europe’s biggest banks need to shed €3.2trn in financial assets by 2018 in order to value the terms of the Basel III agreement, which a Switzerland-based international panel of bank supervisors and authorities devised in 2010 to avoid further taxpayer-funded bailouts of failing states.

According to the analysis, the eurozone’s biggest banks “will have to cut €661bn of assets and generate €47bn of fresh capital over the next five years”. The financial daily notes, however, that

The burden is greatest on smaller banks, which need to shed €2.6tn from their balance sheets, raising fears that lending to the region’s small and medium size enterprises will be sharply reduced as a result.

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The paper quizzes Berenberg bank analyst James Chappell, who says “banks still don’t have enough capital” to write down the extravagant debt they hold, even if, as European Central Bank (ECB) data shows, they have already shrunk the size of their debt-holdings by €2.9trn since May 2012.

In this context, writes Le Monde, “next year will be critical for the banking sector”:

The ECB will, in autumn 2014, take up the task of supervising Europe’s 200 largest banks. Beforehand, it will need to carry out a detailed review of every bank’s books, which will be a unique opportunity to clean up the sector. But it will only have one shot: “If the ECB proves itself unable to detect risks, it will undermine its own credibility as a monetary policy authority,” says economist Nicolas Veron. This, in turn, could set the wheels of the crisis turning once again.