Recapitalising European banks

Vincent O’Sullivan, PwC FS Regulatory Centre of Excellence. Stephen Kinsella, Lecturer, Department of Economics, University of Limerick, Ireland.

Introduction

European banks face a €200bn capital shortfall amid continuing sovereign stress in the eurozone, according to the International Monetary Fund (IMF) ¹. In its biannual global financial stability report, the IMF does not quantify how much additional capital European banks need to withstand future losses – calling for credible stress tests to identify this figure – but its calculations do illustrate the gravity of the situation facing the already fragile banking sector.