ECB: Banks should hold extra capital

BANKS should be required to hold higher levels of capital to avoid the need for government bailouts and banks that are seen as too big to fail should be more heavily supervised, some of Europe&rsquo;s central bankers said yesterday.<br /><br />Ewald Nowotny, a member of the European Central Bank&rsquo;s (ECB) governing council, said that if banks become so large that they cannot fail, they have implicit government guarantees and should be more heavily supervised. <br /><br />&ldquo;One idea is that capital requirements could rise disproportionally for bigger banks, so that (they) have to pay something like an insurance premium if (they) are a system-relevant bank,&rdquo; he said. <br /><br />Tightening up banking regulation is high on the agenda at the G20 meeting that is currently being held in Pittsburgh.<br /><br />ECB governing council member Axel Weber told German radio yesterday that it was important to have globally oriented regulation and identical rules for banks&rsquo; capital, for liquidity and also for remuneration systems.<br /><br />Separately, business confidence in Germany, Europe&rsquo;s largest economy rose slightly to 91.3 in September from 90.5 in August. The current assessment index rose to 87 from 86.2, while the expectations index also inched higher to 95.7 from 95.<br /><br />But Lombard Street Research&rsquo;s Gabriel Stein said that for a country that ostensibly came out of recession in the second quarter, today&rsquo;s data is perhaps more remarkable for being somewhat downbeat.<br /><br />German policymakers have been warning over recent days about the sustainability of the recovery. <br /><br />Axel Weber, president of the German Bundesbank, has warned that the economy is &ldquo;far away from a sustainable upswing&rdquo; and he has forecast a five per cent contraction in GDP for the current year.