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European Banks Will Need Capital In Excess Of $133 Billion: Ireland

European Debt Crisis

First Posted: 10/ 8/2011 11:16 am Updated: 12/ 8/2011 4:12 am

DUBLIN (Carmel Crimmins and Lorraine Turner) - There is general agreement that European banks will need fresh capital well in excess of 100 billion euros ($133.8 billion) and it will likely come from a variety of sources, including the euro zone rescue fund, Ireland's finance minister said on Saturday.

Germany and France are split ahead of key talks on Sunday over how to strengthen shaky European banks. Paris is keen to tap the euro zone's 400 billion rescue fund, the EFSF, to recapitalize its own banks and Berlin is insisting the fund should be used as a last resort.

The International Monetary Fund (IMF) has said European banks need 200 billion euros in additional funds.

"I think there is general agreement that it will be significantly in excess of 100 billion (euros)," Michael Noonan told reporters on the sidelines of an economic forum in Dublin.

"I know that some of the big German banks that I was talking to personally intend raising money on the market so it will be private funding. Other banks would like to avail of the EFSF fund. Other banks will rely on their sovereign governments to provide the capital so there is going to be a range of ways of doing it."

"I think the principle should be that sovereign governments are responsible for their banking system on the advice of the European Central Bank."

"If banks can't capitalize themselves, either by issuing equity to the market or by getting exchequer funds then obviously they would have the option of requesting EFSF funding. When we recapitalized our banks here we went the EFSF option."

Noonan said recent credit rating downgrades of Spain and Italy reflected frustration at Europe's failure to solve a long-running sovereign debt crisis.

"There is certainly an impatience that Europe should resolve the problems of the euro zone and do it pretty quickly," he said.

Ireland's banks were at the heart of its financial crisis and subsequent EU-IMF bailout and earlier this year Dublin put a 70 billion euros bill on recapitalizing its lenders.

Noonan is currently looking at ways to try and restructure nearly 31 billion euros worth of promissory notes, a form of IOU, used to recapitalize shuttered lenders Anglo Irish Bank and Irish Nationwide Building Society.

The notes carry an interest bill of 17 billion euros, spread out over 20 years and Noonan would like to tap the EFSF to pay off the remaining amount outstanding, nearly 44 billion euros, and then repay that money to the EFSF over a longer timeframe and at a lower interest rate.

"We are moving on it with colleagues in Europe and they have given no commitment but they are prepared to proceed on the basis of joint policy papers, which we have just commenced to draft now."

"I want to position ourselves in a changing European situation so that Ireland's interests are studied carefully and taken into account in any wider solution that goes forward in the next month."

(Reporting by Carmel Crimmins; Editing by Alison Birrane)

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