OECD urges Europe to adopt U.S. bank rescue policy
By MarketWatch
SYDNEY--Europe needs to adopt a massive EUR700 billion Troubled Asset Relief Program, or TARP, style policy as seen in the U.S. to shore up the region's banks, said a senior official at the Organisation for Economic Co-operation and Development on Tuesday.
"Taking the banking system problem off the table requires a massive TARP style capital injection using equity warrants which would end up costing the tax payer nothing," said Adrian Blundell-Wignall, deputy director, financial and enterprise affairs at the Paris based think tank.
Under the U.S. Federal Deposit Insurance Corporation definition of a 5% liquidity ratio, "you need about EUR700 billion to EUR750 billion to be well capitalised. I'm saying that's the amount that would make the financial sector sit up and take notice," the OECD official said.
Launched during the depths of the 2008 financial crisis, the US administration set up TARP to capitalise banks which was initially estimated to cost around US$700 billion but only around US$431 billion was disbursed to banks, much of which has since been paid back. The U.S. government still holds stakes in around 350 lenders.
"The way the US handled the banking crisis is going to be the way the history books say you should do it," said Mr. Blundell-Wignall.
Europe's leaders have so far struggled to contain the region's debt crisis. An agreed EUR100 billion bail out of Spain's banks has done little to win back market confidence and yields continue to remain elevated on Spanish and Italian bonds.
On Monday The Wall Street Journal reported that the European Central Bank has advocated imposing losses on senior bondholder's in Spanish banks that seek financial assistance.
But wider reforms are needed too, Mr. Blundell-Wignall said, including splitting retail banking from securities trading operations, something large financial centres such as the U.K. has so far shied away from.
By MarketWatch
SYDNEY--Europe needs to adopt a massive EUR700 billion Troubled Asset Relief Program, or TARP, style policy as seen in the U.S. to shore up the region's banks, said a senior official at the Organisation for Economic Co-operation and Development on Tuesday.
"Taking the banking system problem off the table requires a massive TARP style capital injection using equity warrants which would end up costing the tax payer nothing," said Adrian Blundell-Wignall, deputy director, financial and enterprise affairs at the Paris based think tank.
Under the U.S. Federal Deposit Insurance Corporation definition of a 5% liquidity ratio, "you need about EUR700 billion to EUR750 billion to be well capitalised. I'm saying that's the amount that would make the financial sector sit up and take notice," the OECD official said.
Launched during the depths of the 2008 financial crisis, the US administration set up TARP to capitalise banks which was initially estimated to cost around US$700 billion but only around US$431 billion was disbursed to banks, much of which has since been paid back. The U.S. government still holds stakes in around 350 lenders.
"The way the US handled the banking crisis is going to be the way the history books say you should do it," said Mr. Blundell-Wignall.
Europe's leaders have so far struggled to contain the region's debt crisis. An agreed EUR100 billion bail out of Spain's banks has done little to win back market confidence and yields continue to remain elevated on Spanish and Italian bonds.
On Monday The Wall Street Journal reported that the European Central Bank has advocated imposing losses on senior bondholder's in Spanish banks that seek financial assistance.
But wider reforms are needed too, Mr. Blundell-Wignall said, including splitting retail banking from securities trading operations, something large financial centres such as the U.K. has so far shied away from.
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