DAVOS, Switzerland â€" There will be enough money to recapitalize banks that fail a review by the European Central Bank later this year, top European leaders said on Saturday, seeking to assuage lingering doubts whether policy makers will succeed in cleaning up the financial system and restoring the flow of credit.
Jeroen Dijsselbloem, president of the Eurogroup of euro zone finance ministers, said at the World Economic Forum that if ailing banks were not able to raise capital from investors, they would draw it from their own governments, and as a last resort, from the European bailout fund.
“The instruments are there,†Mr. Dijsselbloem, who is also the finance minister the Netherlands, said during a panel discussion.
That level of certainty surprised at least one of the experts on the panel, Adair Turner, a former top bank regulator in Britain. Reflecting a widespread concern, Mr. Turner had expressed doubt whether Europe was prepared for the consequences if the European Central Bank’s scrutiny of the largest banks in the euro zone uncovered any that had grave problems that were previously hidden.
“Is that already agreed?†he asked, referring to use of the bailout fund, the European Stability Mechanism.
Mr. Dijsselbloem replied that euro zone finance ministers had agreed in principle and would grant final approval in March. “We will deal with all these issues,†he said.
Among policy makers and many in the banking industry, there is broad agreement that Europe needs to carry out the same kind of rigorous cleanup of financial institutions that the United States did in 2009, helping restart lending and create the conditions for economic recovery.
The European Central Bank is in the process of scouring bank books, looking for bad loans, sour investments or other problems that banks may have kept hidden. Fear that some banks are papering over serious problems has made it difficult for all banks in the euro zone to raise money that they can lend to businesses and consumers. The aim of the review is to ultimately restore the credibility of banks in the 18 countries of the euro zone.
“There is still a clear lack of trust in the European banking system,†said Federico Ghizzoni, chief executive of UniCredit, the largest bank in Italy. “This has to be dissipated thanks to this exercise.â€
In the United States, banks with problems were forced to take capital from the government if they could not raise it themselves from investors. But Germany and some other countries have been reluctant to help finance bank cleanups in other euro zone countries. And there has been doubt whether countries like Portugal, already struggling with excess government debt, could afford bank rescues if any were needed.
Also on the panel was Wolfgang Schäuble, finance minister of Germany, who did not contradict Mr Dijsselbloem. “It will work, it has been decided,†Mr. Schäuble said of the bank recapitalization plan, though he added that money would also come from a fund paid for by the banking industry, and only after bank creditors and shareholders had contributed.
Echoing comments made on Friday by Mario Draghi, the president of the European Central Bank, Mr. Dijsselbloem insisted that the review of banks would be comprehensive, in contrast to earlier attempts that failed to uncover serious problems.
“I rather hope that it’s going to unveil some unpleasantness because that would give me a good feeling that it has been done properly,†he said.
However, some on the panel doubted that lack of trust was the only reason that lending to businesses in the euro zone has been on the decline. Many businesses are reluctant to borrow money because of uncertainty about the strength of the economy, said Anshu Jain, co-chief executive of Deutsche Bank, Germany’s largest bank.
“There is a demand side problem as well,†he said.
