Europe's Top Bank Regulator: 'The Crisis Has Reached a Systemic Level'

Spiegel
December 12, 2011

A stress test performed on European banks last week found a capital shortfall of some 115 billion euros. In a SPIEGEL interview, European Banking Authority head Andrea Enria defends the decision to perform the stress test and discusses the huge challenges facing the European banking sector.

SPIEGEL: Mr. Enria, the European Banking Authority was established with the aim of stabilizing the banking system. Has that plan worked out?

Andrea Enria: It is far too early to say. We started in January, in a very difficult market environment. It is like we are building our house and living in it, while outside there is a storm. But there are some very positive indications: One of the major shortcomings before the establishment of the EBA was the inability to decide and coordinate policy actions within the European Union. Already in the first months of its activity, the EBA has shown that this is different now.

SPIEGEL: At the moment it looks like the European banking system is more fragile than ever. What went wrong?

Enria: The banking sector has made major efforts to strengthen since the collapse of Lehman Brothers. But now the sovereign debt crisis is putting a lot of pressure on bank funding, especially in countries under stress. Since July, only a few banks have been able to finance their operations, and only at very high prices. If banks don't have funding, they don't lend, and this affects the real economy. We are locked in a vicious circle and we must try to break it.

SPIEGEL: Yet last week's stress test and the new capital requirements seem to have destabilized the situation even further.

Enria: The problem is that everybody seems to look at the exercise as a sort of beauty contest: Are German banks better than Italian banks or the British ones? But that is not the point. We have to look at what is needed for the European banking sector. We have to put enough capital into European banks to make sure they can withstand shock and continue supporting the economy. The crisis has reached a systemic level. This is not about finger-pointing at weak banks.

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