BRUSSELS | Friday, July 8, 2011 5 pm EDT
Brussels (Reuters) - European countries will support banks fail stress tests if these lenders can raise capital from investors in the six months, according to a draft EU document seen by Reuters.
Paper, in course of preparation for approval on Tuesday, European Finance Ministers is a reversal of promises of the g-20 politicians in the wake of the financial crisis that taxpayers would never have to bail out banks again.
The European banking authority is due to announce next week the results of its latest high stress of lenders in the region - 91 tests in all - in a further attempt to reassure investors that European banks have rebuilt against future shocks.
This last series of tests is touted as being more stringent than the previous attempts which few banks did not, and the representatives of Finance Ministers to develop plans for how to deal with the fallout.
Lenders who almost fail tests will be put on a list of critical monitoring in the case where they deteriorate further, said the document. These banks will be given until the end of September to repair their finances and will then have a period of three months to implement.
News that European governments seem serious to support banks that fail to maintain own base of 5 per cent of several raised theoretical market shocks future Bund and UK gilts.
"Essentially that puts even more pressure on the periphery (the eurozone countries) to come up with measures, not only to consolidate their budgets, but also to support their banking sectors, which they can ill - allow," said Marc Ostwald, strategist at the Monument of the securities.
"It is basically a load to the back of the present security." "It is a market in the deadly fear of something to do with the zone euro and all involving the banking sector under stress more," said Ostwald.
The performance of Italian/German 10-year spread era hit of euro fresh senior in fears that already fiscally stretched country as the Italy may have to dig into their pockets to bail out banks that fail the test as well.
FIRST PRIVATE SECTOR
According to the document, first capital-raising plans should be based on "" private, including... not distributed... raising additional common shares or measures of the hybrid instruments of high-quality private investors, asset sales, mergers.""
But if the search for private capital leads nowhere, then Governments should be prepared to intervene.
Officials, however, make provision for "extreme case" if efforts to restore a bank fail and threatens the stability of the wider, recommending a "orderly restructuring process and resolution".
The number of banks declared by the ABE were either not encourage investors that Europe is now coming clean with its banking problems, or if the tests are deemed too lax once again, they will have a negative impact credibility already scarred of the EU.
Previous stress tests are widely dismissed as too lax - all Irish banks adopted last year to test a few months before the European Union and the Monetary Fund International had for them and the country overall.
SEPTEMBER DATE LIMIT
In the document, dated July 7, officials wrote that banks that Miss the pass mark of capital of 5% will be given until the end of September, more than later to submit a recapitalisation plan, with a period of three months to implement the "private sector"measures.
"If the banks concerned are unable to implement a credible investment plan within the specified time stands ready to take the necessary measures to maintain financial stability,"officials wrote in the document seen by Reuters.""
The new controls will measure up to how the capital base that depend on the banks to absorb losses such as outstanding loans holds when exposed to an economic dip or fall in the price of the property.
They also assess the impact on banks should the Government obligations that they have issued by States such as the Greece, lose value.
Banks which lends itself poorly to the 5% threshold will be also be kidnapped special attention.
"Banks where (basic level 1) ratio is above, but close to the reference of 5% in the scenario of stress will be subject to prudential supervision strengthened to ensure that it there are no unexpected deterioration in their capital position".
(Additional reporting by Ana Nicolaci da Costa and Huw Jones in London; editing by Sophie Walker)
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