EU nations are building a “co-ordinated” plan to recapitalize banks to avoid contagion from the debt crisis, which has forced the dismantling of Franco-Belgian bank Dexia, the European Commission said on Tuesday.
“There is an increasingly shared view that we need a concerted, co-ordinated approach in Europe while many of the elements are done in the member states,” the EU’s Commissioner for Economic and Financial Affairs Olli Rehn told the Financial Times. “There is a sense of urgency among ministers and we need to move on.”
“Capital positions of European banks must be reinforced to provide additional safety margins and thus reduce uncertainty,” Rehn said in comments run on the British newspaper’s Web site.
That uncertainty was evident on Tuesday as panic selling driven by the Greek debt impasse and a troubled European bank swept the markets.
On Tuesday, investors dumped shares in Dexia as news of its breakup emerged, while accountholders in the troubled Franco-Belgian bank withdrew 300 million euros (US$399.5 million), Belgian economic daily De Tijd said yesterday.
The paper said the withdrawals, a small fraction of savings in Dexia accounts, were far below the amounts pulled out during the 2008 crisis.
Belgium’s central bank on Tuesday moved to reassure accountholders, saying the central banks of both Belgium and France “fully support” Dexia.
“In the framework of Dexia’s restructuring, the governments of France and Belgium, in coordination with our central banks, will take all necessary steps to ensure the protection of depositors and creditors,” they said. “To this end, they undertake to guarantee any finance raised by Dexia.”
Shares in the Franco-Belgian bank plunged more than 37 percent in early trade on Tuesday, later trimming to a closing loss of about 20 percent, as French and Belgian finance ministers issued a statement of support.
After an emergency late-night meeting, Belgium approved the creation of a so-called “bad bank” to house Dexia’s riskiest debts, while protecting its core business — so confirming its dismantling.
Belgian Minister of Finance Dider Reynders told journalists “all that concerns the past, notably long-term loans that were struck with local authorities, will be guaranteed by the two countries.”
French Minister of Economy, Finance and Industry Francois Baroin yesterday confirmed that the Caisse de Depots, a state-run long-term investment fund, and the Banque Postale, the banking arm of the French post office, were readying an intervention to take over loans to local governments.
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