German banks need more capital than Spanish ones according to OECD

This comes from El Pais, the Spanish daily newspaper (my translation below):

The Organization for Economic Cooperation and Development (OECD) believes that eurozone banks still have much work to do to strengthen their capital. They warn that many of the entities currently are still below a capital ratio of 5% of total assets, a ratio the OECD believes ensures the strength of the financial system. To reach this threshold, banks in total need about 400 billion euros. The needs of Spanish banks are below the European average.

In the brief OECD report included in the economic review published on Thursday, it was said that Spanish banks would need the equivalent of 2% of gross domestic product (GDP) to get to that 5% capital ratio. On average, the financial systems of the euro zone members need 4.5% of GDP. The countries with the greatest needs to strengthen their banks are Greece (almost 8% of GDP), France (over 7%), Belgium (about 6%) and Germany (over 5%).

The organization writes that “major changes” are still required to strengthen the capital positions of the institutions of the eurozone, which remain at the “heart” of the crisis of the monetary union. The OCED reminds us that a requirement to reach a  Tier 1 core capital ratio of 9% exists, but warned that the current requirements are not enough to boost confidence. The OECD notes that this is based on risk-weighted assets, and depends on the banks’ own internal models to measure risks, which could cause them to underestimate the actual risks.

Source: El Pais

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