ECONOMY

ESM: Action plan needed to help weak lenders

Europe needs a financial backstop in case next year’s round of bank stress tests uncovers capital problems, one of the bloc’s most senior financial officials warned on Tuesday.

“It’s… useful to have a backstop to reassure markets in case something really big happens,” Klaus Regling (photo), managing director of the European Stability Mechanism, or ESM, told members of the European Parliament at a hearing.

Regling said little had been done to address the “urgent” need for banks that cannot shore up their capital alone to have a backstop.

Earlier this week, the head of the European Central Bank said national governments – including those of crisis-hit countries such as Greece – would have to prop up their local banks if the stress tests reveal problems.

“For the asset quality review and the stress test to be credible, we will have to have national backstops in place,” ECB President Mario Draghi told the European Parliament.

The ECB will conduct a risk and asset quality assessment before starting to directly supervise the eurozone’s 130 largest banks next year.

There will also be wider EU tests.

[Reuters]