Monday, November 21, 2011

EU Governments Reject Guarantees for Bank Funding

Wall Street Journal
November 21, 2011

European Union governments have for now rejected the idea of providing joint guarantees for banks to issue longer-term debt, raising questions about how the most troubled EU governments will credibly guarantee debt issued by their banks, people familiar with the discussions said Monday.

Instead, individual governments will provide the guarantees, but the fees that banks must pay to the governments in return will be coordinated by the European Banking Authority, the EU's banking regulator, and the European Commission, these people said.

The funding shortage facing European banks has become acute in recent months. Banks that need wholesale funding have increasingly relied on liquidity from the European Central Bank because of wariness from institutions with surplus funds to lend in the inter-bank market.

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