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| E.C.B. Vows Thorough Review of Banks at Risk | E.C.B. Vows Thorough Review of Banks at Risk |
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| FRANKFURT — The European Central Bank detailed the parameters of a widely anticipated review of euro zone banks Wednesday, promising that it would thoroughly examine lenders’ ability to withstand shocks and their exposure to risk. | FRANKFURT — The European Central Bank detailed the parameters of a widely anticipated review of euro zone banks Wednesday, promising that it would thoroughly examine lenders’ ability to withstand shocks and their exposure to risk. |
| Mario Draghi, president of the E.C.B., said the review, which will begin in November and take a year, would be “an important step forward for Europe and for the future of the euro area economy.” | Mario Draghi, president of the E.C.B., said the review, which will begin in November and take a year, would be “an important step forward for Europe and for the future of the euro area economy.” |
| The review of 130 large lenders is intended to address one of the underlying problems in the euro zone economy by forcing weak banks to deal with problems such as bad loans or insufficient capital. Credit remains tight in much of Europe, in part because many banks are burdened with bad loans or unable to raise money on capital markets. Without credit a vibrant recovery is almost impossible. | The review of 130 large lenders is intended to address one of the underlying problems in the euro zone economy by forcing weak banks to deal with problems such as bad loans or insufficient capital. Credit remains tight in much of Europe, in part because many banks are burdened with bad loans or unable to raise money on capital markets. Without credit a vibrant recovery is almost impossible. |
| But there have been questions about what will happen if the E.C.B. finds banks with grave problems. It is unclear where the money would come from to recapitalize damaged banks, and European political leaders are still arguing about how to close down those that are terminally ill without creating more financial turmoil. | But there have been questions about what will happen if the E.C.B. finds banks with grave problems. It is unclear where the money would come from to recapitalize damaged banks, and European political leaders are still arguing about how to close down those that are terminally ill without creating more financial turmoil. |
| The E.C.B. is pushing ahead despite those shortcomings. The review is scheduled to be completed in October 2014, just before the bank becomes the central supervisor for euro zone banks. | The E.C.B. is pushing ahead despite those shortcomings. The review is scheduled to be completed in October 2014, just before the bank becomes the central supervisor for euro zone banks. |
| “We expect that this assessment will strengthen private sector confidence in the soundness of euro area banks and in the quality of their balance sheets,” Mr. Draghi said in a statement. | “We expect that this assessment will strengthen private sector confidence in the soundness of euro area banks and in the quality of their balance sheets,” Mr. Draghi said in a statement. |
| Ignazio Angeloni, an E.C.B. official overseeing the review, said that banks will be required to hold capital equal to 8 percent of their money at risk. But the requirement will be phased in from 2014 to 2018, in line with new regulations for European Union banks. | Ignazio Angeloni, an E.C.B. official overseeing the review, said that banks will be required to hold capital equal to 8 percent of their money at risk. But the requirement will be phased in from 2014 to 2018, in line with new regulations for European Union banks. |
| Working with national regulators, the E.C.B. will look at lenders accounting for 85 percent of the euro zone banking system. The list, which the E.C.B. published Wednesday, includes household names like Deutsche Bank in Germany or BNP Paribas in France, but also some banks that attract less attention, such as Volkswagen Bank in Germany, which provides car financing. | Working with national regulators, the E.C.B. will look at lenders accounting for 85 percent of the euro zone banking system. The list, which the E.C.B. published Wednesday, includes household names like Deutsche Bank in Germany or BNP Paribas in France, but also some banks that attract less attention, such as Volkswagen Bank in Germany, which provides car financing. |
| Several subsidiaries of foreign banks are also on the list, including The Bank of New York Mellon in Belgium and Merrill Lynch International Bank in Ireland. | |
| If some banks need more money, the E.C.B. said, they should first try to raise money from private investors. But if they are unable to, governments will need to step in. It remains unclear whether a country like Italy, which has a number of weak banks and is stuck in recession, would be able to afford another bank rescue. | If some banks need more money, the E.C.B. said, they should first try to raise money from private investors. But if they are unable to, governments will need to step in. It remains unclear whether a country like Italy, which has a number of weak banks and is stuck in recession, would be able to afford another bank rescue. |
| “It is essential to ensure that any banks that have viable business models, but are required to build additional capital for prudential reasons, will be able to obtain such additional resources within an appropriate time frame,” the E.C.B. said in a statement. | “It is essential to ensure that any banks that have viable business models, but are required to build additional capital for prudential reasons, will be able to obtain such additional resources within an appropriate time frame,” the E.C.B. said in a statement. |