№311. The Asset Quality Review and Capital Needs: Why re-capitalise banks with public money?
№311. The Asset Quality Review and Capital Needs: Why re-capitalise banks with public money?

Author(s): Daniel Gros
Subject(s): Economic policy, Financial Markets, Public Finances, Fiscal Politics / Budgeting
Published by: CEPS Centre for European Policy Studies
Keywords: Asset Quality Review; Capital Needs; re-capitalise banks; public money;
Summary/Abstract: It is generally assumed that any capital needs discovered by the Asset Quality Review the ECB is scheduled to finish by the end of 2014 should be filled by public funding (= fiscal backstop). This assumption is wrong, however. Banks that do not have enough capital should be asked to obtain it from the market; or be restructured using the procedures and rules recently agreed. The Directorate-General for Competition at the European Commission should be particularly vigilant to ensure that no further state aid flows to an already oversized European banking system.

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