European Banking Authority and the capital of European banks: Don’t shoot the messenger

by Marco Onado and Andrea Resti

Vox
December 7, 2011

The newborn European Banking Authority has been fiercely criticised in the few months of its life. This column argues that most of the criticisms have been driven by lobbying interests more than by noble worries on the future of the European economy. It adds that the current market turmoil requires a pan-European guarantee scheme for banks, a ‘big bazooka’ for sovereign debt which does not boil down to a pop gun, and stronger bank supervision at the EBA level.

The newborn European Banking Authority (EBA) has been fiercely criticised in the first few months of its life. According to many observers:

• This summer’s stress tests were ineffective; and
• The October rise in capital ratios to 9% has raised concerns about a massive credit crunch

We think these criticisms are off the mark. As happens to regulators, analysts are in the process of shooting the messenger because they don’t like the message.

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