Banks that barely passed the European financial stress tests must swiftly reinforce their capital, ECB Governing Council member Erkki Liikanen told Finnish public broadcaster YLE on Saturday. The European Banking Authority said on Friday that five banks in Spain, two in Greece and one in Austria flunked the tests, which made 90 lenders reveal for the first time their profit forecasts, a breakdown of their sovereign bond holdings and funding costs.
"Not only those (banks) failing need quickly to fix their capital, but also those barely scraping through. Maybe the last time around not enough attention was paid to this," Liikanen said. "Both of these (groups) need to increase capital - a real capital that can be used to cover the losses." Liikanen also urged all countries to curb their borrowing to avoid worsening of the financial crisis. "Also those countries that are not part of some programmes must have a credible stabilisation programme to ensure their borrowing can be got under control and widening deficits stopped."
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