“It’s not the capital resources of banks that are the problem, but the fact that sovereign debt has lost its status as a risk-free asset,” said Deutsche Bank chief Josef Ackermann.
“The key to solving the problem therefore lies with governments, or more precisely, in the restoration of confidence in the solidity of public finances,” Ackermann added.
“Indeed, the current recapitalisation debate is actually counterproductive, because on the one hand it sends the signal that a debt ‘haircut’ is more likely,” the head of Germany’s biggest bank argued.
“And on the other hand, because the cash needed for a recapitalisation will almost certainly not come from private investors but the countries themselves and that would, in turn, only increase a country’s debt situation.”
On Wednesday, European Commission president Jose Manuel Barroso called for banks to “urgently” increase their core tier-one capital ratios and warned that those refusing to comply could be forced to abandon bonuses and dividends.
Barroso said banks should first try to tap the private market to beef up their capital, with support from governments if necessary. If such support is unavailable, the eurozone’s rescue fund, the European Financial Stability Facility (EFSF), could provide loans.
Ackermann insisted that he was not questioning the idea that increasing a bank’s capital ratio would make it more resilient. But that “many banks have already boosted their capital ratios massively on their own,” he said.
“For me, it is debatable to see an increase in European banks’ capital ratios as a way out of the debt crisis because the injection of capital does not tackle the real root of the problem,” Ackermann argued.
Furthermore, the authorities must be careful not to over-regulate banks “because that will result in a less efficient financial sector and the deterioration in the supply of financing to companies and households,” he said.
From Deutsche Bank’s point of view, Ackermann saw “no reason to restrict credit to German companies” which were “financially solid.”
“We regard the German economy as robust, even if growth is slowing,” he said.
But the question was “whether banks will be able to continue to guarantee financing or whether they will be practically forced to restrict credit via a possible eurozone debt haircut and new regulatory frameworks,” he said.