EU Bank Financial Stability Checking

EU Bank Financial Stability Checking.

The European Central Bank (ECB) has published its format for ensuring capital adequacy and financial stability. 

Under the new rules EU banks will be required to hold a capital of 8%
outstanding loan debt that is longer term debt, i.e. over 90 days.  This is
to protect from the potential of collapse from toxic debt and poor lending.

After the proposals were published with initially 13 banks in France, 24
German banks, 15 Italian banks and 16 in Spain all being targeted for an
initial capital review, stock markets across Europe fell.

Comment
Banks must be encourage to be responsible with their lending and these
stress tests and requirement to set aside capital with encourage lenders to
underwrite properly.

However, we suggest it will also makes banks less keen to lend money which
will restrict business growth.

The UK already has strict capital adequacy requirements for all banks,
insurance companies, investment companies and financial advisers.  We are
all required to set aside capital in reserve.