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Yves Logghe/AP

Barroso's banking plan could mean more countries opting for bailout

Jose Manuel Barroso wants banks to increase capital – saying governments can foot the bill by borrowing from the EFSF.

JOSE MANUEL BARROSO has announced plans forcing the Eurozone’s biggest banks to raise billions in capital to better withstand market turmoil – and says banks should not be allowed to pay out dividends or bonuses until they have met the new standards.

Barroso presented the proposals on bank capital as part of a broader plan to tackle the currency union’s debt troubles, which has dragged on for close to two years.

Barroso said if banks can’t raise the necessary capital on the market, they should get help from governments, who in turn can ask for money from the eurozone bailout fund.

The fear gripping the financial sector now is that European banks could take big losses on bonds they own from governments with shaky finances, like Greece.

That uncertainty is stifling lending — both between banks and to the wider economy — which threatens to throw the 17-nation eurozone into a new recession.

Shares in the banks, and the value of the euro, surged after Barroso announced his proposals, continuing a weeklong rally triggered by hopes that the eurozone may finally get a grip on the worsening debt crisis.

Under the new rules, systemically important banks in Europe will have to implement the new Basel III rules on bank capital much earlier than 2019, as was initially foreseen.

That means the continent’s biggest banks have to bolster the financial pad they maintain to absorb losses to about 9 percent of their loans, investments and other risky assets, one insider told AP – compared with the 5-6 per cent buffer needed to pass this summer’s stress tests.

The person did not say when the new capital levels would have to be reached, saying only that it would be “substantially earlier” than 2019. The person was speaking on condition of anonymity because the European Banking Authority won’t disclose the new standards until next week.

The European Commission hopes European leaders will embrace its suggestions at a crucial summit in two weeks time, which has already been postponed from next week.

Officials believe that summit may be the leaders’ last chance to solve the debt crisis before it spins out of control. By revealing its plans ahead of that meeting, the Commission sought to pile more pressure on national governments to adopt radical action.

To assess banks’ capital needs, Barroso said their exposure to all sovereign debt should be taken into account “in a transparent way.”

In its full proposals, the European Commission, the EU’s executive arm, asked for a “prudent valuation of all sovereign debt, whether in the banking book or the trading book” of banks.

This is a significant change in practice from July’s stress tests, when banks had to take writedowns only on bonds in their trading books, where they hold assets they could sell at any time.

EU delays leaders’ summit to finalise debt crisis plan >

Government falls as Slovakia rejects Eurozone bailout expansion plans >

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8 Comments
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    Mute David Higgins
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    Oct 9th 2011, 9:32 AM

    Disobey the rules, don’t except our sympathy when the consequences arrive!

    67
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    Mute Mack O'Connell
    Favourite Mack O'Connell
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    Oct 9th 2011, 9:47 AM

    The Nazis were just following the "rules" also.

    74
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    Mute James Quirke
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    Oct 9th 2011, 9:55 AM

    ever heard of a thing called civil disobedience at all?

    49
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    Mute Ronald
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    Oct 9th 2011, 12:40 PM

    You say ‘civil disobedience’ as if it was the equivalent to peaceful protesting!

    Jeeez, some people seem to think that their self-righteousness justifies breaking the law!

    27
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    Mute Conor Murphy
    Favourite Conor Murphy
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    Oct 9th 2011, 1:04 PM

    If I was working as a security guard for A MUSEUM and some self righteous twit held down my co-worker I’d get them off pretty sharply too.

    Now not saying that’s definitely what happened but they have no right to physically restrain a working member of the public.

    25
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    Mute Cormac Flanagan
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    Oct 9th 2011, 10:10 AM

    They called medics caused they were peppered sprayed. Should be done for wasting their time.

    29
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    Mute Noel Peare
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    Oct 9th 2011, 11:31 AM

    Have you ever seen the results of pepper spray? I worked in a nightclub where a girl was pepper sprayed. She was in agony afterwards. I found it hard to stay near her as the residue on her face was enough to cause my eyes and face to have the same symptoms. She was taken away by ambulance & I assure you it was necessary.

    24
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    Mute Cormac Flanagan
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    Oct 9th 2011, 12:53 PM

    While never been pepper sprayed myself I have seen the effects of those who have numerous times(actually more than numerous) and ALL just had to wash out there eyes with water.

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    Mute joseph mcgee
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    Oct 10th 2011, 12:58 AM

    more than numerous? how many is more than numerous? is it, loike, a lot?
    do tell flanagan, how and where did u see the effects of those who’ve been pepper sprayed
    numerous times. sorry i mean more than numerous times
    CSI or some other show?

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    Mute steve white
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    Oct 9th 2011, 9:54 AM

    Conservative Spectator Magazine Brags of its Agent Provacateur’s Role in Provoking Attack on DC Museum http://t.co/Gsm8wqTK

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    Mute Niall Carson
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    Oct 9th 2011, 10:56 AM

    Sounds pretty damming

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    Mute Ronald
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    Oct 9th 2011, 12:43 PM

    They rushed and held down a security guard… A normal Average Joe doing his job… Not an SS Officer!

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    Mute willy pearse
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    Oct 9th 2011, 11:43 AM

    Heil Obama!

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    Mute Oscar Brophy
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    Oct 9th 2011, 12:11 PM

    bloddy yanks

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    Mute Pete Gibson
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    Oct 9th 2011, 12:09 PM

    Amazing how they don’t object to war aircraft which carry a living pilot!
    They seem to have a superstitious fear of automation.

    Drones are just the start of the automation.
    Google Earth can tell me the difference in latitude and longitude between the front and the back of my car parked in my driveway.
    Within 20 years piloted warplanes will look as antiquated as the Wright Brothers plane in Kitty Hawk in 1903.

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    Mute Saffron Marriott
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    Oct 9th 2011, 11:26 AM

    I got chili in my eyes making a curry recently and it was truly awful – poor people

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