Finance | 29.09.2008
EU Governments Rush to Rescue Banks Buffeted by US Crisis
Governments around Europe were forced Monday to bail out a number of financial institutions hit by the US-born crisis, prompting stock market slides across the continent.
Only a few weeks ago, banks in the euro zone financial sector were said to be safe from the US-born financial crisis, but now, as the global financial situation gradually worsens, five European governments have had to step in to prop up financial institutions.
Governments in Belgium, Britain, France, Germany, Luxembourg and The Netherlands have found themselves forced to offer hastily arranged state support for a handful of banks buffeted by the financial turmoil on Wall Street.
Initial confidence in the sturdiness of the European banking sector was whittled away Monday as a handful of Europe's weaker banks found themselves in urgent need of state-funded support to avoid collapse.
Bildunterschrift: Großansicht des Bildes mit der Bildunterschrift: HRE shares plunged 63 percent when the Frankfurt stock exchange opened Monday
The German government and top banks based in Europe's largest economy had to inject urgently needed funds into mortgage lender Hypo Real Estate, which had been teetering on the brink of disintegration prior to the rescue package.
The total sum of the HRE bailout was not disclosed, but the German Finance Ministry said its credit line to the lender was worth 35 billion euros.
In Britain, Prime Minister Gordon Brown's government took the step of temporarily nationalizing the loans and mortgage business of the country's eighth-biggest mortgage lender, Bradford & Bingley (B&B).
"Following recent turbulence in global financial markets, Bradford & Bingley has found itself under increasing pressure as investors and lenders lost confidence in its ability to carry on as an independent institution," the British Treasury said on Monday.
Lastly, Benelux banking and insurance company Fortis had to be propped up by an 11.2 billion-euro package funded by the three Benelux countries, Belgium, the Netherlands and Luxemburg.
Fortis saw a massive drop in its share price Friday, Sept. 26, amid fears the financial group would cave in by Monday should it not receive aid.
EU officials call for tighter regulation
European officials have begun calling for heightened regulation of the European financial system to avoid a repeat of what has already been a costly exercise in trying to keep business as usual.
"Stronger international regulation agreed at international level" is needed in order to "re-civilize" financial markets so that such a crisis will not be repeated, German Finance Minister Peter Steinbrueck said Sunday.
Financial analysts examining the European financial sector said a US-style, sector-wide bailout was not the panacea to the current financial crisis. Instead, they too championed better regulation as the answer.
"So, for now, financial supervision in Europe remains very fragmented on a country level," analysts at banking group Citi said. "In turn, this may make the question of which country bears the cost for bailouts controversial, especially given that some banks have assets that are very large compared to the GDP of the host country."
Sarkozy urges support for banks
Bildunterschrift: Großansicht des Bildes mit der Bildunterschrift: French President Nicolas Sarkozy called emergency meetings to curtail the crisis
French President Nicolas Sarkozy attempted Monday to rally support for assisting ailing European banks ahead of a meeting at the Elysee presidential palace to review the situation of financial institutions and the credit level of households and businesses in France.
"We must not give way in the face of destabilization, we must help our banks," said Sarkozy, whose country holds the rotating European presidency.
Appearing with the French president, European Commission Chief Jose Manuel Barroso said "initiatives" were in preparation for a "structural European response" to the crisis to be unveiled at a European summit in mid-October.
"That's the only way to ensure that stability and confidence can return," he said.
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