Tags: europe | banking | crisis

Europe Fears New Banking Crisis Ahead

Friday, 12 Jun 2009 12:27 PM

By Dan Weil

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European Central Bank (ECB) officials worry another bank crisis could occur next year if the economy doesn’t rebound soon.

They are particularly concerned about rising problems at 25 banks considered crucial for their financial system’s stability, Ambrose Evans-Pritchard writes in the London Telegraph.

Dejan Krusec, the ECB's financial stability expert, says the banks will be ok in the case of a quick "V-shaped" recovery.

But, "if this is U-shaped, the banks will have problems. There are 25 banks we monitor that are strategically important," he told a Fitch Ratings conference.

"The problem is not 2009. Euro-area banks are well enough capitalized to cover losses. The problem is 2010. We are concerned about the length [of recession]."

A V-shaped rebound is highly unlikely, however.

The ECB forecasts a 4.6 percent shrinkage for Europe’s economy in 2009 and a drop of 0.3 percent the next year. It doesn’t expect recovery to begin until mid-2010.

The International Monetary Fund also has urged EU officials to quickly take steps to shore up European banks.

Piroska Nagy, an adviser to the European Bank for Reconstruction and Development, tells the Telegraph his concern is that West European banks will retreat from Eastern Europe, "causing a collapse of the banking sector" throughout Europe.

Some say U.S. banks are still at risk too.

“I think in the U.S. at least, the government will have to step in more and more and more,” bank analyst Meredith Whitney tells Fortune magazine.

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