European banks to deleverage by €221bn due to stress tests

EUROPEAN banks will deleverage to the tune of €221bn (£185bn) in the immediate future as a direct result of emergency capital requirements, the Bank of International Settlements (BIS) said yesterday.

But the international body of central bankers said that while this is “sizeable”, it is more limited than many had feared when the European Banking Authority conducted its stress tests.

The pace of short-term deleveraging will not alter the “ongoing trend” to shed assets, BIS concluded. It added that the flow of credit in Europe is being dampened more by lack of supply than demand.

Banks’ ability to offload assets is being hindered by “gaps between the best bid and offered prices for some of these assets”, BIS said.