ECB wants countries to raise, not cut bank capital buffers

EUROZONE countries should not cut bank capital buffers and some should even increase them given record profits in the sector and clouds on the horizon, the European Central Bank (ECB) said on Friday (Jun 28).

Lending has all but come to a halt in the euro zone for the past year as the ECB’s high rates discouraged borrowers and lenders, helping to prick housing bubbles in richer countries such as Germany.

However, the central bank said national authorities should keep buffers designed to help banks absorb losses, noting property remained overvalued and debt high in some countries.

“The governing council supports national authorities planning to increase capital buffer requirements,” the ECB noted in a statement.

It also added that banks posted record profits, and had ample room above their capital requirements. This was mainly due to record interest rates they had been earning on their deposits at the central bank.

“A further build-up of releasable capital buffer requirements to address vulnerabilities and enhance macroprudential space remains desirable in some countries, as prevailing banking sector conditions limit the risks of procyclicality,” the ECB said.

The Netherlands has the highest countercyclical capital buffer, designed to shield banks from losses in a downturn, at 2 per cent of their assets. Germany and France have set it at 0.75 per cent and 1 per cent, respectively.

The ECB also backed keeping curbs on mortgage lending, which stipulate, for example, how much a customer can borrow relative to their income or the value of the property. REUTERS